Bureau of Local Government Finance Opinion

March 13, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Honorable Emmylou J. Talio-Mendoza Provincial Governor of Cotabato Provincial Capitol Amas, Kidapawan City Madam : This refers to your letter dated February 15, 2012, seeking for opinion regarding the claim of the Province of Cotabato of its shares from the real property taxes that accrued before the cityhood of Kidapawan, a former component municipality, but which were collected thereafter. At the outset, this Bureau upholds the rightful claim for shares by the province from the real property taxes that have accrued and become due before the cityhood of a component municipality by virtue of the provincial real property tax ordinance, although payment and collection thereof were made after the cityhood. In the 1st Indorsement dated December 18, 2006, copy enclosed, the issue on the claim for real property tax shares between that province and the City of Kidapawan had been clarified, applying the previous opinion of this Bureau in the case of the Province of Surigao del Sur and the City of Bislig, as follows: TECIaH ". . . proceeds from real property taxes that accrued and were collected by the then Municipality of Bislig and later as City of Bislig on the basis of the Real Property Tax Ordinance of the Province of Surigao del Sur prior to the enactment of Ordinance No. SP-2000-10 of the City should be distributed in accordance with the aforequoted par. (a), Section 271 of the Local Government Code of 1991. Succinctly stated, proceeds of real property taxes collected by the City of Bislig by virtue of its own Real Property Tax Ordinance accrues exclusively thereto. However, real property taxes collected by the then Municipality of Bislig and later as City of Bislig prior to the enactment of its own Real Property Tax Ordinance and on the basis of the Real Property Tax Ordinance of the Province of Surigao del Sur should be shared with the province." Likewise, in another similar case between the Province of Davao Oriental and the City of Mati, the recent letter dated June 20, 2012, reiterated this Bureau's ruling under the 2nd Indorsement dated August 12, 2009, involving the Province of Ilocos Norte and the City of Batac, which was summarized as follows: "1. The remittance of the share of the mother province from the basic real property tax is a statutory obligation of the component municipality. In other words, component municipalities which are only deputized to collect real property tax by virtue of the real property tax ordinance of the province are obligated by law to remit the percentage share of the province; 2. A component municipality that has been converted into a city remains obligated to remit the share of the mother province from any real property tax due before its conversion, but were paid or collected thereafter; ASIETa 3. A newly converted city that has not enacted its own real property tax ordinance, but collects real property tax using the real property tax ordinance of the province is obligated to remit the share therefrom of the latter; and 4. Once the newly converted city enacts its own real property tax ordinance, real property taxes due and collected pursuant thereto shall accrue exclusively to the city." xxx xxx xxx. Moreover, it was clarified in the same 2nd Indorsement of August 12, 2009, that the real property tax ordinance enforced at the time of accrual of the real property tax must prevail, viz. : "Furthermore, real property tax accrues on the first day of January every year as provided for under the following provisions of Section 246 of the Local Government Code of 1991: 'SEC. 246. Date of Accrual of Tax. The real property tax for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax.' Consequently, this Bureau holds the view that inasmuch as real property tax accrues on the first day of January, a component municipality whose conversion into a city takes effect within the year the real property tax accrued remains obligated to remit the share of its mother province for that year since the real property tax ordinance of the province was then in force during such accrual." Following the clarifications cited relative to the common issue on real property tax sharing between a mother province and a component municipality that is newly converted into city, this Bureau reiterates and succinctly states herein for the instant case between the Province of Cotabato and the City of Kidapawan that real property tax that have accrued by virtue of the real property tax ordinance of the province which was then enforced, although paid and collected after the cityhood of the collecting component municipality must be distributed in accordance with the following percentage sharing in the case of provinces under Section 271, of R.A. No. 7160, or the Local Government Code of 1991, notwithstanding that at the time of payment and collection of the tax, the newly converted city had undertaken a re-assessment of its real property units and enacted its own real property tax ordinance as a city: "SEC. 271. Distribution of Proceeds. The proceeds of the basic real property tax, including interest thereon, and proceeds from the use, lease or disposition, sale or redemption of property acquired by a public auction, in accordance with the provisions of this Title, by the province or city or a municipality within the Metropolitan Manila Area shall be distributed as follows: (a) In the case of provinces: (1) Province Thirty-five percent (35%) shall accrue to the general fund; (2) Municipality Forty percent (40%) to the general fund of the municipality where the property is located; and (3) Barangay Twenty-five percent (25%) shall accrue to the barangay where the property is located." We trust that in light of the foregoing clarifications, the Province of Cotabato and the City of Kidapawan will come to an agreement to finally settle the present issue. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director