Bureau of Local Government Finance Opinion

July 18, 2006 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Ismael R. Cabonse Government Relations Manager Aboitiz Transport System Corporation (ATSC) 12th Floor Times Plaza Building United Nations Corner Taft Avenue Ermita, Manila S i r : This pertains to your letter dated January 20, 2006 requesting confirmation that cargo handling equipment, particularly prime movers/yard tractors used by Aboitiz Transport System Corporation (ATSC, for brevity) in their business operations are exempt from the payment of real property tax. Mr. Cabonse contends that the said cargo handling equipment are registered with the Land Transportation Office (ILO), hence, not considered machinery subject to the payment of real property tax. It is submitted that ATSC is a domestic shipping company engaged in passenger transport (passage) and cargo liner (freight), plying major routes and principal ports across the Philippine archipelago. It is also submitted that part of their company's cargo line service requires delivery of goods/cargoes to agreed destinations outside the port ( e.g. direct to the customer's warehouse), thus, the need to use motor vehicles such as prime movers or yard tractors is imperative. Article 290 (o) of the Implementing Rules and Regulations (IRR) of R.A. No. 7160, otherwise known as the Local Government Code of 1991, defines machinery as follows: "ART. 290. Definition of Terms . When used in this Rule, the term: "xxx xxx xxx "(o) Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus, which may or may not be attached, permanently or temporarily to the real property. "Physical facilities for production, installations and appurtenant service facilities, those which are mobile, self-powered, or self-propelled and those not permanently attached to the real property shall be classified as real property provided that: '(1) They are actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity, and '(2) By their very nature and purpose are designed for, or necessary to manufacturing, mining, logging, commercial, industrial or agricultural purposes. AHTICD "Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), microcomputers, fax, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery under this Rule." Tractor, on the other hand, is defined as "(1) A powerful motor-driven vehicle with large heavy treads used for pulling . . ., other vehicles. (2) A short truck with a body containing only a cab for the drivers, used to haul detachable trailer. (emphasis supplied) (page 1501 of Webster Unabridged Dictionary of the English Language, published by Gramercy Books New York/Avenel, New Jersey) In our 1st Indorsement dated May 20, 1996, the DOF had the occasion to render an opinion that gas turbine barges owned by the National Power Corporation (NPC) are not machinery that can be considered real property subject to the payment of real property tax. The pertinent portion of that opinion is quoted hereunder: cDCSTA ". . . the subject turbine barges, for practical reasons, could not be considered as real property, in the same manner that other mobile machinery, equipment, such as trucks, buses, ships, airplanes and the like, which requires registration with proper agency of the government, could not be considered as real property ." (emphasis supplied) The attached pictures of the subject tractors and the corresponding certificates of registration show that the prime movers/yard tractors used by ATSC in delivering the goods/cargoes to the agreed destinations were registered with the Land Transportation Office (LTO). Therefore, in light of the aforequoted DOF ruling, the prime movers/yard tractors used by ATSC for their business fall under the same class as those enumerated in the NPC case and as such, cannot be classified as real property. Inasmuch as the ruling in the NPC case falls squarely on the herein case of ATSC, and considering that the abovementioned machinery (prime movers/yard tractors) owned by ATSC are registered with the LTO, this Bureau holds that the said machinery could not be considered real property, and therefore, exempt from the payment of real property tax. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director