Bureau of Local Government Finance Opinion

October 19, 2012 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Ad Herbert P. Deloso Municipal Mayor Iba, Zambales Sir : This has reference to your letter dated May 17, 2012, posing the following queries: 1. Whether commercial rice mills should be assessed as commercial? As submitted the Provincial Assessor of Zambales is of the opinion that rice mill should be assessed as "Agricultural". However, the Municipal Assessor believed that it should be assessed as "Commercial" in view of the Supreme Court Decision entitled " Rileco vs. Mindanao Congress of Labor-Ramie United Workers Assn. , 26 SCRA 224 (1968)", which reads in part, as follows: "Agriculture includes farming in all its branches and among other things includes the cultivation and tillage of the soil, dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities , the raising of livestock or poultry, and any practices performed by a farmer on a farm as an incident to or in conjunction with some farming operation, but does not include the manufacturing or processing of sugar, coconuts, abaca, tobacco, pineapples or other farm products." 2. How to issue tax declaration to the beneficial user of a government lot? It was informed that the Municipal Assessor intends to issue a separate tax declaration in the name of the beneficial user of a municipality-owned real property. 3. Whether the practice of the Provincial Assessor to approve tax declaration without the endorsement or any intervention from the Municipal Assessor is appropriate and correct? DSTCIa As alleged, until now, the Provincial Assessor does not delegate, at the very least, some of his functions to the Municipal Assessor of Iba. Real property assessment transactions never went through the Municipal Assessor's Office (MAO) of Iba, but were issued tax declarations by the Provincial Assessor of Zambales. As a result, for example, a certain property has been assessed by the Provincial Assessor's Office as residential building when in fact, the same is actually commercial based on ocular inspection conducted by the said MAO. 4. In relation to the preceding item, whether or not the Municipal Assessor Office is still necessary? Anent issue no. 1, attention is invited to Section 3b, Chapter I, of the Comprehensive Agrarian Reform Law of 1988, as amended, which states that: " Agriculture, Agricultural Enterprise or Agricultural Activity means the cultivation of the soil, planting of crops, growing of fruit trees, including the harvesting of such farm products, and other farm activities and practices performed by a farmer in conjunction with such farming operations done by persons whether natural or juridical". In view of the foregoing provision of law, and considering the abovecited Supreme Court Decision, it could be inferred that "milling", the process of converting palay to polished rice, is not included in agricultural activities which apparently ends in the farm. (expressio unius est exclusio alterius) . Furthermore, it appears that milling systems have different classifications, to wit: 1. Village milling (traditional hand pounding; single stage rice mill for home use; and single pass, two stage rice mill); and 2. Commercial rice mills (small commercial multi-stage mill; and state of the art modern multi-stage rice mill). It is important to note that commercial milling will have the following objectives: produce edible rice that appeals to the customer i.e. , rice that is sufficiently milled and free of husks, stones, and other non-grain materials maximize the total milled rice recovery out of paddy and minimize grain breakage (Source: Rice Knowledge Bank. www.knowledgebank.irri.org) In view of the above discussion, and in order that the issue can be finally resolved, this Bureau instructed the BLGF Regional Director, Region 3, San Fernando City, Pampanga, under its 1st Indorsement of same date, copy enclosed, to send representatives thereat, in order to render technical assistance in determining the appropriate assessment for the subject rice mill. With regard to your second query, attention is invited to Section 234 (a) of R.A. No. 7160, also known as the Local Government Code (LGC) of 1991, which is quoted below: aEIADT "SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: '(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; 'xxx xxx xxx.'" Evidently, real properties owned by the Government or any of its political subdivisions, like the Municipality of Iba in the instant case, are exempt from the payment of real property tax. However, once these real properties have been granted for consideration or otherwise, to a taxable person, that person or entity shall be considered as the beneficial user thereof and therefore, subject to real property tax. It is informed further that all real property, whether taxable or exempt should be appraised/assessed and such appraisal/assessment should subsequently be listed in the name of the owner/administrator or the beneficial user thereof, or anyone having legal interest in the property pursuant to Sections 201 and 205 of the same Code. In view hereof, there is no need to issue a separate tax declaration to beneficial user of real property owned by that municipality. The name of the said beneficial user should only be indicated in the "Administrator/Beneficial User" portion of the tax declaration issued in the name of the Republic of the Philippines. With regard to item 3 above, attention is also invited to BLGF Memorandum Circular No. 01-98 dated January 27, 1996, which reads in part, that: "For the information and guidance of all concerned, quoted hereunder is the full text of the letter dated September 5, 1997 of the Department of Finance addressed to the Honorable Secretary, Department of Interior and Local Government: 'xxx xxx xxx. 'Sections 135 and 176, Ibid., clearly convey that it is the provincial and city assessors and municipal assessors within Metro Manila who, by virtue of their exclusive powers to cancel an old tax declaration, issue a new one in place thereof, or annotate an encumbrance thereon, may be deemed to be the public officers primarily responsible for the integrity of real property tax declarations. As for the triennial tax declaration under Sections 202 and 204, Ibid., only provincial, city and Metro Manila municipal assessors are authorized by law to prepare and maintain an assessment roll wherein all real properties within their respective jurisdictions shall be listed. Correlating this with the duty of the Assessor to ensure that all laws and policies governing the appraisal and assessment of real properties under Section 472(b)(1), it is obvious that the provincial assessor may review and correct triennial declarations submitted by municipal assessors within his jurisdiction before listing their purported values in the assessment roll. The same approval requirement is also apparent in the preparation of a schedule of market values by the provincial assessor. Verily, it is absurd to believe that a municipal assessor outside Metro Manila has the power to approve tax declarations when the provincial assessor may refuse to accept the appraisal and assessment done by such municipal assessor and exclude the declaration from the assessment roll or from the schedule of market values. (Underlining Supplied) 'Accordingly, DOF and provincial governments shall exercise the authority to review and examine on continuing basis property, assessment, and real property tax records to ensure the proper implementation of this Rules and determine compliance with existing laws and regulations.' (IRR of R.A. No. 7160) "It is worthwhile to mention, that this Department, . . . further clarified that 'only provincial assessors are authorized to a) approve/issue tax declarations; b) delegate to the municipal assessors within his jurisdiction the approval/issuance of tax declarations with certain limitations. Tax declarations issued/approved by municipal assessors without authorization/proper delegation from his Provincial Assessors are, therefore, not valid and the same could not be considered as official assessment records, hence, collection of real property taxes could not be based therefrom. ' . . . ." (Underscoring ours) Evidently, and considering that real property tax is a provincial imposition, only Provincial Assessors are authorized to: 1. Cancel an old tax declaration, issue a new one in place thereof, or annotate an encumbrance thereon; 2. Prepare and maintain Assessment Roll of real properties; and 3. Approve/issue tax declarations; and delegate the said function to the municipal assessors within his jurisdiction with certain limitations. In view of the foregoing, tax declarations approved/issued by the Provincial Assessor without the indorsement or any intervention from the Municipal Assessor is valid. It is likewise deemed appropriate and correct, when public interest so requires and being the prerogative of the taxpayers where to transact business, for the Provincial Assessor to act accordingly upon any request/concerns of the said taxpayers within his jurisdiction. What is important is that the Provincial Assessor maintains the integrity of tax declarations. Hence, we answer your query no. 3 in the affirmative. HACaSc On the other hand, and if indeed, the ocular inspection conducted by the Municipal Assessor's Office of Iba warrant a different classification for the abovementioned property previously assessed by the Provincial Assessor's Office of Zambales as residential, it is advised that representations should be made to the said Provincial Assessor. Likewise, it is imperative that the Municipal Assessor of Iba be informed by the Provincial Assessor of Zambales of any changes/corrections made in classification, appraisal and assessment of real properties in order to maintain synchronized records of assessments, particularly tax declarations, in both offices. It is worth emphasizing, further, that the said approval/issuance of tax declaration can also be delegated to Municipal Assessor of Iba on the discretion of the concerned Provincial Assessor with certain limitations. Hence, we have likewise instructed the said Regional Director of Region 3, to look into the matter in order to determine whether the Provincial Assessor of Zambales can already delegate approval/issuance of tax declarations with certain limitations, to the Municipal Assessor of Iba. Lastly, on the issue whether the Municipal Assessor's Office is still necessary, the answer is yes. Except for the exclusive powers vested upon the Provincial Assessors as discussed above, the Municipal Assessor shall perform the other essential duties/functions of an assessor as provided for under Section 472 of the LGC of 1991. We likewise agree with your opinion that the Municipal Assessor of Iba has better appreciation of the current status of all real properties and other circumstances thereat. We trust that we have addressed your concerns accordingly. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director