Bureau of Local Government Finance Opinion

October 8, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the ICO-Regional Director for Local Government Finance, Department of Finance, Cordillera Administrative Region (CAR), 2nd Floor, Land Bank of the Philippines Building, 84 Harrison Road, Baguio City, his within 1st Indorsement dated July 24, 2003, inquiring the following, to wit: 1. Whether boarding houses and apartments are classified as commercial or residential; and 2. Whether residential or commercial spaces being leased/rented out to religious, charitable, or educational purposes are tax exempt. It is the contention of that Office, in Query No. 1, that boarding houses and apartments must be classified as commercial although the same are actually being used and devoted to habitation. In this regard, attached, for your information, is a copy of our 1st Indorsement dated November 6, 2002, treating on a similar subject matter, which held as follows: "xxx xxx xxx. "Section 198. Fundamental Principles . The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental principles: "xxx xxx xxx. "(b) Real property shall be classified for assessment purposes on the basis of its actual use; "(c) Real Property shall be assessed on the basis of a uniform classification within each local government unit. "The abovecited fundamental principles in real property tax assessment were further amplified under Section 217 of the same Code, which reads as follows:" "Sec. 217. Actual Use of Real Property as Basis for Assessment. Real Property should be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it and whoever uses it. "Moreover, be reminded that when PD 464, (otherwise known as the Real Property Tax Code, as amended), was still in force and in effect, that is, before the promulgation of R.A. No. 7160, the Department of Finance, in clarifying the principle of Actual Use as basis for assessment of real property, has issued Department Order No. 3-74 dated January 31, 1974, copy attached. The pertinent portion thereto reads, to wit: "xxx xxx xxx. "3. A building actually used for residential purposes by persons other than the owner on rental basis shall be classified and assessed as residential based on its current level of assessment . . ." Clearly, this Bureau maintains that boarding houses and apartments which are used as residence by the occupants should be classified as residential, notwithstanding that the same are for rent. AaECSH With regard to the 2nd Query, please be informed that Section 234(b) of the Local Government Code of 1991 provides for the exemption of all lands, buildings and improvements of charitable institutions, churches, parsonages or convents appurtenant thereto. However, if the real properties of these institutions are not used actually, directly and exclusively for their intended purposes, then the same can no longer be entitled to the real property tax exemption provided under the Code. Attention is invited to the 2nd Indorsement dated January 10, 2003, copy also attached, of this Bureau, which cited the Supreme Court Decision (G.R. No. L-49336), in the case of the Province of Abra vs. the Hon. Harold M. Hernando , dated August 31, 1981 and was cited in our 4th Indorsement dated July 17, 1995, (copy enclosed), quoted hereunder: "Respondent Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing on the 1935 Charter on tax exemption of lands, buildings, and improvements. There is a marked difference. Under the 1935 Constitution: Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes shall be exempt from taxation. The present Constitution added charitable institutions, mosques, and nonprofit cemeteries and required that for the exemption of lands, buildings and" "improvements, they should not only be exclusively but also actually and directly used for religious or charitable purposes. The Constitution is worded differently. The changes should not be ignored. It must be duly taken into consideration. Reliance on past decisions would have sufficed were the words actually as well as directly not added. There must be proof therefore of the actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to be exempt from taxation . . . " (Emphasis Supplied) Evidently, in order to qualify for exemption from the payment of real property tax, all lands, buildings, and improvements should be actually, directly and exclusively used for either educational, charitable or religious purposes. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director