Pfizer, Inc. v. City of Pasig

[CBAA CASE NO. L-44. April 19, 2005.] PFIZER, INC. , petitioner-appellant , vs. THE LOCAL BOARD OF ASSESSMENT APPEALS OF THE CITY OF PASIG , appellee , THE CITY OF PASIG, CITY TREASURER OF PASIG, and THE CITY ASSESSOR OF PASIG , respondents-appellees . DECISION This is an appeal pursuant to Section 229 (c) of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 ("LGC") and Rule IV, Section 2 of the Rules of Procedure Before the Central Board of Assessment Appeals (the "Rules") seeking to reverse and set aside the Order dated 30 July 2003 of the Appellee LBAA dismissing for lack of jurisdiction, LBAA Case No. 01-2003 entitled "Pfizer, Inc., Petitioner v. City of Pasig, City Treasurer of Pasig and the City Assessor of Pasig, Respondents," concerning Petitioner-Appellant's appeal from the denial by Respondent-Appellee City Assessor of Petitioner-Appellant's request for suspension of payment of real property taxes on real properties that are no longer actually used by Petitioner-Appellant on account of the closure and cessation of operations of its plant located at Bgy. Ugong, Pasig City ("Pasig Plant"). Prior to its merger with Petitioner, Warner Lambert Philippines, Inc. ("Warner Lambert") owned certain buildings and other improvements situated at the Pasig Plant and covered by Tax Declaration Nos. E-030-03274, E-030-03275, E-030-03276, E-030-03277 and E-030-03278, E-030-03280 ("the Subject Properties"). Copies of said tax declarations are attached as Annexes "A", "A-1", "A-2", "A-3", "A-4", and "A-5" hereof. Sometime in October 1999, Warner Lambert discontinued the manufacturing operations of the Pasig Plant. Warner Lambert eventually decided to close down altogether the Pasig Plant. On January 18, 2001, Petitioner merged with Warner Lambert, with Petitioner as the surviving entity. Consequently, all of the assets and liabilities of Warner Lambert including the Subject Properties, were deemed transferred to and absorbed by Petitioner as the surviving entity. Notwithstanding the closure of the Pasig Plant, Warner Lambert and thereafter Petitioner, following its merger with Warner Lambert, continued to pay real property taxes on the Subject Properties for the period from the 4th quarter of 1999 up to the 3rd quarter of 2002. Believing that it had been erroneously paying real property taxes on the Subject Properties notwithstanding the cessation of operations and closure of the Pasig Plant, Petitioner wrote a letter dated December 18, 2002 to the Respondent City Assessor requesting that the Subject Properties be transferred from the assessment roll to the exempt roll and not be subjected to the payment of real property taxes during the period of non-use. Pending resolution of its request for suspension of payment of real property taxes on the Subject Properties, Petitioner paid under protest the real property tax supposedly due for the 4th quarter of 2002 on December 20, 2002 in the aggregate amount of P222,412.73. By way of reply to Petitioner's letter-request dated December 18, 2002, the Respondent City Assessor, in a letter dated January 2, 2003 (copy of which was received by Petitioner only on January 9, 2003), denied Petitioner's request for suspension of payment of real property taxes on the Subject Properties. Following the denial, the Petitioner-Appellant, on March 10, 2003 filed a petition under Section 226 of the Local Government Code of 1991 praying that an Order be issued by the Local Board of Assessment Appeals directing the Respondent City Assessor of Pasig City to drop the properties under Tax Declarations Nos. E-030-03274; E-030-03275; E-030-03276; E-030-03277; E-030-78 and E-030-03280 from the Assessment Roll and transfer the same to the Exempt Roll; and the City Treasurer of Pasig City to refund the taxes paid under protest on the same properties or credit the amount to the future tax liability of the petitioners. On July 30, 2003, the Local Board of Assessment Appeals of Pasig City dismissed the petition for lack of jurisdiction. Hence, this appeal. The issues set forth in this appeal are as follows: I WHETHER OR NOT THE APPELLEE LBAA HAS JURISDICTION OVER THE ISSUES RAISED BY THE APPELLANT IN ITS ORIGINAL APPLICATION FOR REVIEW. II WHETHER OR NOT THE SUBJECT PROPERTIES THAT ARE NO LONGER USED BY PETITIONER-APPELLANT DUE TO THE CESSATION OF MANUFACTURING OPERATIONS BE SUBJECTED TO THE REAL PROPERTY TAX DURING THE PERIOD OF NON-USE. Issue No. I The Appellee Local Board has jurisdiction. Under Section 1 of Rule IV of the Rules of Procedure Before the Local Boards of Assessment Appeals, the Local Board shall have original jurisdiction to hear and decide appeals of owners/administrators of real property from the action of the Provincial or City Assessors, or the Municipal Assessors in the Metropolitan Manila Area, in the assessment of their real properties, and from the action of the Provincial or City Treasurers, or Municipal Treasurers in the Metropolitan Manila Area, regarding collection of real property taxes, special levies, or other real property taxes under Title Two, Book II of R.A. No. 7160. Section 4 of Rule V further provides, "What may be appealed. Any action of the Provincial, City or Municipal Assessor in the assessment of real property, and any action or inaction of the Provincial or City Treasurer, or Municipal Treasurer, on the taxpayer's claims for refund of taxes paid under protest, or on claims for reduction or adjustment of taxes paid or for tax credits on illegally or erroneously collected realty taxes and such other real property taxes or special levies under Title Two, Book II of R.A. 7160, may be appealed to the Local Board concerned." Section 30 of the Real Property Tax Code, (now Section 226 of R.A. 7160, otherwise known as the Local Government Code of 1991) directs every Local Board of Assessment Appeals to entertain and pass upon application for review of any owner who is not satisfied with the action of the Provincial or City Assessor on the assessment of his property. In other words, the Local Board may review any action taken by the Provincial or City Assessor in the assessment under appeal. Since the law does not distinguish and use all embracing words "the action," this should be interpreted to include all the acts of the assessor leading to the questioned assessment, such as those which give rise to questions of law. "Where administrative boards or offices are established by law for the review and correction of assessments, the remedy thus provided is exclusive, and is the only one available in the first instance, for the purpose of granting relief falling within the powers conferred on such administrative agencies, unless an alternative procedure, judicially or otherwise, is expressly made available as a method of reviewing and correcting assessments. (Codman v. Assessors of Westwood, 35 N.E. 262) . We find no such alternative procedure, judicially or otherwise, expressly made available in Real Property Tax Code as a method of reviewing and correcting assessments. (Manila Medical Services v. BAA of Manila and City Assessor, CBAA Case No. 86) The procedure made available to the taxpayer under R.A. 7160, to the exclusion of all others, judicially or otherwise, is explicitly provided for under Section 4, Rule V of the Rules of Procedure Before the Local Boards of Assessment Appeals, when it provides any action of the Provincial, City, or Municipal Assessor in the assessment of real property, and any action or inaction of the Provincial or City Treasurer, or Municipal Treasurer, on taxpayer's claim for refund of taxes paid under protest, or on claims for reduction or adjustment of taxes paid or for tax credits on illegally or erroneously collected realty taxes and such other real property taxes or special levies under Title Two, Book II of R.A. 7160, may be appealed to the Local Board. As correctly pointed out by the appellant, there is no provision under R.A. 7160 that confers upon the regular courts or any administrative body or agency other than the LBAA the power to review any action of the assessor relative to the assessment of real property. The appellees cannot find recourse to Section 64 of the Real Property Tax Code for it is deemed repealed by R.A. 7160. There is no analogous provision in R.A. 7160 governing real property taxation that allows a court to impeach or entertain a suit assailing the validity of a tax assessment. Likewise, the appellees cannot invoke Section 195 of the Local Government Code for that provision applies only to deficiency local taxes, fees and charges. The real property tax is governed by the Title II, Book II of the Local Government Code. The only issue in this appeal is whether or not certain real properties no longer used by reason of closure or cessation of business operations, should be transferred from the taxable rolls to the exempt rolls by the assessor. The LBAA must be reminded that they have, not only the power but the duty to pass upon application for review of assessments considered erroneous, illegal, or unjust by property owners/taxpayers as a result of the action or inaction of the assessors and/or the treasurers. Under the doctrine of primacy of administrative remedies, it is the local boards who has primary jurisdiction over these issues. As such the local boards must address these issues squarely and not hide behind imagined or far fetched "propriety and validity reservations." In other words, they must perform their duty and grab the bull by the horns. Issue No. 2 Finding that the Local Board of Assessment Appeals of Pasig City has jurisdiction over the original petition for review, let us now proceed to the next appealed issue. It is admitted and made clear by the appellant in its pleadings that the subject properties are not included in the list of exempt properties enumerated in Section 234 of the Local Government Code. However, the appellant is banking on several opinions of the Bureau of Local Government Finance (BLGF) of the Department of Finance specifically in the Pilipinas Shell Petroleum Corporation (1988) and Marcopper cases (1997) which opined that "when machineries are no longer used for its (sic) purpose by reason of closure or cessation of production, the same should be transferred from the taxable roll to the exempt roll and not be subjected to the payment of real property taxes during the period of non-use." At the outset, let it be stated that while this Board accords utmost respect and great weight to the opinions of the BLGF, it is not in anyway controlled or influenced by that office. And let it be cited that the BLGF once opined that "the fact that a certain company had ceased to operate, is not a ground for the suspension of payment of the real property taxes due on the buildings and machineries of said company, for so long as the said buildings and machineries are still affixed and intact, and useful." (Feb. 16, 1976) But this time, let it be of record that we are in full concurrence with the latest opinion of the BLGF. The basis or rationale for this conclusion can be found in the definition of machineries in Article 290 (o) of the implementing rules and regulations of R.A. 7160, which prescribed two elements or criteria before machineries and other physical facilities for production can be classified as real property, to wit: 1. They are actually, directly, and exclusively used to meet the needs of a particular industry, business, or activity; and 2. By their very nature and purpose are designed for, or necessary for manufacturing, mining, logging, commercial, industrial or agricultural purposes. The absence or loss of these elements will deprive the object of its character as real property, hence no longer subject to real property taxation. This must be emphatically pointed out because the BLGF, the CBAA, even the Department of Finance, cannot, on its own, create or grant a tax exemption. That power is exclusive vested in Congress. That is the reason why those who claim to be tax-exempt must point to a positive constitutional or statutory grant before the special privilege can be availed. Unfortunately for the appellant, the cited opinions of the BLGF which the CBAA fully subscribed, and whose basis is the correct interpretation of a statutory provision (section 199 (o), R.A. 7160) covers only machineries. There is no mention of buildings in those opinions. In real property taxation, while both buildings and machineries are considered taxable improvements on the land, these two kinds of real properties are listed, appraised, assessed and recorded differently and distinctly. Buildings are usually assigned lower assessment levels than machineries, hence lower taxes. On the other hand, machineries are given a higher rate of depreciation than buildings, hence a shorter life span and taxability. All these factors affect substantially the amount of tax imposed on these properties. The assessors cannot just change these without inviting sanctions for violating existing assessment rules and regulations more so if it will render a previously taxable property exempt. As brilliantly expounded by both the appellant and appellees, tax exemptions cannot be implied or inferred. It must sprung from a clear and unambiguous organic or statutory grant. There were at least two instances in the past that buildings were exempted from the payment of the real property tax. Under PD 535, buildings and other improvements affixed on hands of a registered tourism enterprise are exempt from payment of the real property tax for the first five (5) years from the start of operations. The other instance, under PD 745, are those buildings "owned by domestic corporations or partnerships with at least three hundred (300) employees or workers, which are exclusively used for housing their employees and workers shall enjoy exemption from payment of real property taxes." This tax exempting privilege was among those withdrawn by R.A. 7160. The point of these citations is to drive home the import of the above-mentioned principles of statutory construction as applied to tax exemptions. That is, if it is the intention of the lawmaking authority to exempt buildings and other installations during the period of non-use, it could have expressed that intention in the same simple, direct and unequivocal terms. The contention of the appellant that these buildings are physical installations and/or appurtenant service facilities, hence machineries, holds no water. In the Batanes case, the Department of Finance (March 6, 1995) held that the compressor house, substation building and control house owned by NAPOCOR, may be considered exempt from payment of real property taxes pursuant to Section 234 (c) of the LGC, provided that the same are actually, directly, and exclusively used in the generation and supply of electric power in that region." The appellant cannot find solace in this opinion simply because both Warner Lambert and Pfizer are not government owned or controlled corporations engaged in the generation and supply of electric power. Besides the properties sought to be equated with machineries are warehouses, office buildings, canteen, etc., whose nature and purpose are not designed for or necessary to manufacturing, mining, logging, commercial, industrial, or agricultural purposes. This is the very same reason advanced by the appellee assessor of Pasig for denying the request of appellant to render exempt/suspend the realty tax payments of these subject properties: these properties are buildings and not machineries. Under the LGC, the determination of whether a property is taxable or exempt is vested in the assessor. It will be noted that prior to its request for tax suspension/exemption, the appellant's predecessor made a request to the appellee City Assessor (Annex "A") for the cancellation of certain tax declarations in the name of Warner Lambert, Philippines, Inc. "due to the closure of our plant operations" at Eagle St. Pasig last October, 1999. The letter request dated March 8, 2000 was favorably acted upon by the appellee assessor so much so that on March 17, 2000, Warner Lambert received several Notices of Cancellation (see Annexes "B" to "V") from the appellee assessor. These cancelled properties consist of industrial machineries. It will be observed that the combined assessments of the machineries were far bigger than that of the properties subject of this appeal. When tax declarations covering real properties subject to tax are cancelled, said properties cease to be taxable. The appellee assessor in the exercise of discretion obviously granted to the machineries what was denied to the buildings of the appellant. It has been the practice of the CBAA not to interfere with that exercise, unless grave abuse has been alleged and proven. This Board recognizes the presumption of accuracy of the assessment, and that a public officer has correctly and regularly performed his duties and functions until the contrary is proven. (Tirol vs. LBAA of Capiz and Prov. Assessor of Capiz, CBAA Case No. 52) Be that as it may, this Board, even in the absence of allegation so much more proof of grave abuse of discretion to overcome the said presumption, in our desire to determine the ultimate facts and ascertain the truth, decided to take the extra mile. On 27 February 2004, this Board together with the representatives of both the appellant and the appellees, conducted an ocular inspection of the subject properties located in Barangay Ugong, Pasig City. After inspecting the premises and the subject properties, this Board without reservation and fear of contradiction cannot help but conclude that the properties, consisting of warehouses (bodega), office building, air conditioning, factory building, canteen, guard house, storage, mezzanine, power and boiler houses cannot by any stretch of the imagination be considered machineries. They are buildings, pure and simple. They cannot be considered physical installation for production or service facilities actually, directly and exclusively used in the manufacture of confectionaries (candies) and medical drugs. The very structures speak for themselves. "Res Ipsa Loquitur" as the maxim goes, and it finds no better application as in this appeal. The buildings cannot be considered "idle or abandoned." The presence of security guards and maintenance men complete with water and electric facilities plus other amenities negate that assertion. Finally, it is too late in the day to question the kind or type of improvement reflected in the tax declarations as determined by the assessors after the appellant and its predecessor in interest had accepted and made those tax declarations the basis of their religious and voluntary tax payments. The time allowed by law to brand the assessments as erroneous had lapsed. The assessment had become final and the right to collect the tax on the part of the local government had become absolute. As of now, only a ruling from the highest court applicable to this particular situation or a new law exempting industrial buildings during the period of non-use due to cessation/closure of business operations can help the appellant in its predicament. WHEREFORE, premises considered, the instant appeal is hereby dismissed and the reliefs sought, denied. So Ordered. Manila, Philippines, April 19, 2005. (SGD.) CESAR S. GUTIERREZ Chairman (SGD.) ANGEL P. PALOMARES Member (SGD.) RAFAEL O. CORTES Member