Whether Road Lots and Open Spaces of Roxas Seafront Garden Homes in Pasay City Are Exempt from Real Property Tax

DOJ OPINION NO. 091 , s. 2012 October 25, 2012 Director Salvador M. del Castillo Officer-In-Charge Bureau of Local Government Finance Department of Finance 8/F EPDC Bldg., Bangko Sentral ng Pilipinas Complex Roxas Boulevard, Manila 1004 Dear Director Del Castillo : This pertains to your query as to whether road lots and open spaces of Roxas Seafront Garden Homes located at Roxas Boulevard Corner Ortigas Street, Pasay City, are exempt from real property tax. The query stems from the request of Roxas Seafront Garden Homeowners' Association, Inc., (RSGHAI), through its legal counsel, Atty. Manuel T. Chan, for confirmation of the subdivision's exemption from payment of real properties on its road lots and open spaces. The following are the antecedents: 1. In a letter dated 19 February 2010, addressed to the Bureau of Local Government Finance (BLGF), Atty. Chan requested the exemption of the "open space" in the subdivision from realty taxes based on the rulings of the Supreme Court in White Plains Association, Inc. vs. Legaspi , 1 and in Spouses Aonuevo vs. CA , 2 and on Article 234 3 of the Local Government Code (LGC). Atty. Chan's position is that since "open spaces" in subdivisions are considered government property, by law and jurisprudence even without donation to the local government, the same should not be taxed. 2. In response, BLGF, in a letter dated 17 September 2010 addressed to Atty. Chan, and signed by Director Ma. Presentacion R. Montesa, opined that the subject open spaces are indeed exempt from tax, not because they are owned by the Republic but because regardless of the ownership of subject properties, they are for public use, pursuant to Section 217 4 of the LGC and Presidential Decree (P.D.) No. 1216. HCEcAa Director Montesa, in particular, cited the cases of Lung Center of the Philippines vs. Quezon City 5 and City of Baguio vs. Busuego , 6 that the use of the real property and not its ownership are the determining factors in ascertaining its taxability. BLGF went on to add that per P.D. No. 1216, such open spaces are for public use. 3. Consequently, Atty. Chan, in his letter dated 13 October 2010 addressed to Engr. Fernando M. Fandio, City Assessor of Pasay City, requested the annotation on the face of the relevant tax declarations "TAX-EXEMPT BY VIRTUE OF BLGF RULING DATED 9/17/2010." 4. To counter Atty. Chan's position, Engr. Fandio, in a letter dated 01 March 2011, addressed to Director Presentacion, sought clarification of the above ruling and posited that subject properties are taxable following the ruling in Albon vs. Fernando , 7 that exemption from real property tax can only be claimed if the public has full and unimpeded access to, and use of, the roads, and sidewalks of the subdivision. Engr. Fandio likewise manifested that only residents and vehicles with subdivision stickers are allowed to the subdivision without restriction. Thus, there being no full unimpeded access to the public, subject property become taxable. 5. Anent Engr. Fandio's clarification, Director Presentacion, in her letter dated 10 August 2011 addressed to Engr. Fandio, reiterated the BLGF's ruling and stated that the Albon case is not applicable. 6. Thus, in a letter dated 24 October 2011, Atty. Chan reminded Engr. Fandio that his Office had not acted on his request of annotating "Tax-Exempt" on the relevant documents despite receipt of the confirmation of BLGF's ruling. Atty. Chan then informed Engr. Fandio that, in view of his Office's failure to reply, he has deemed the issue as a closed matter. 7. Engr. Fandio, in his letter dated 02 November 2011 addressed to Director Montesa, reiterated his position on the matter and requested that the BLGF issue a ruling exempting from realty tax the road lots and open spaces of the subdivision. 8. Subsequently, Director Castillo, who presumably replaced Director Montesa, wrote a letter dated 17 September 2012 to the Department, seeking a legal opinion as to whether the exclusive use of the road lots and open spaces of the subdivision of its residents would constitute sufficient justification for their exemption from the real property tax. DcITaC After a careful perusal of the issues at hand, the Department is of the position that real property tax may be imposed on the subject properties. Preliminarily, the term "open space" is defined in P.D. 1216 as "an area reserved exclusively for parks, playgrounds, recreational uses, schools, roads, places of worship, hospitals, health centers, barangay centers and other similar facilities and amenities." 8 First , the rule is that laws granting exemptions from taxes should be construed strictly against the taxpayer and that claims for exemption must be based on the language of the law, too plain to be mistaken. This was explained in Lung Center of the Philippines vs. Quezon City Government . 9 Pertinent portions are quoted, as follows: "The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken . As held in Salvation Army v. Hoehn : 'An intention on the part of the legislature to grant an exemption from the taxing power of the state will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used, for it is a well settled principle that, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owner and in favor of the public. This principle applies with peculiar force to a claim of exemption from taxation . . . ."' (Emphasis Ours) The LGC provides the rule on exemptions from real property tax. These are the relevant provisions: "Section 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; DaIAcC "(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; "(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; "(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and "(e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code." From this enumeration, there is no mention that private real properties which, at the same time, may be for public use, are exempt from taxation. Second, the Department is not unaware of the ruling in the Lung Center of the Philippines and City of Baguio cases . However, what is glaring in the two (2) cases is that the construction of the word "use" of the property as opposed to "ownership" of the property to determine taxability, was in line with the application of the rule in statutory construction, that the grant of exemption from payment of taxes must be strictly construed against the taxpayer. To illustrate, in the Lung Center of the Philippines case , the issue is whether Lung Center is a charitable institution and consequently, whether it is exempt from real property taxes. The Supreme Court ruled that while Lung Center of the Philippines is indeed a charitable institution, to avail of exemption from real property taxes, it should prove that its real properties are actually, directly and exclusively used for charitable purposes. Absent said proof, real property not actually, directly, and exclusively used for charitable purposes, should be taxed. The Supreme Court went on to explain, as follows: aHcACI "What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. "The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center." Indeed, the petitioner's evidence shows that it collected P1,136,483.45 as rentals in 1991 and P1,679.999.28 for 1992 from the said lessees. " Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes ." (Emphasis Ours) On the other hand, the City of Baguio case has a similar edict. In this case, the Supreme Court ruled in this wise: "In line with the fundamental rule that tax-exempting provisions of law are to be construed in strictissimi juris , the Court hereby affirms the decisions of the Baguio City Court and Court of First Instance adjudging the defendant-appellant, an installment purchaser of a parcel of land and its building and improvements within a housing project belonging to the Government Service Insurance System (GSIS) liable to pay realty taxes thereon from the time possession of such property was transferred to him, although pending full payment of the purchase price the seller GSIS as a government corporation exempt from the payment of taxes retains ownership and title over the property ." (Emphasis Ours) cAaDHT Third, the Department is likewise not unaware of the provision of P.D. No. 1216 wherein it was stated that open spaces, roads, alleys, and sidewalks in residential subdivisions are for public use and are, therefore, beyond the commerce of men. However, there is still no declaration in P.D. No. 1612 that the same are untaxable. Insofar as the nature of said properties is concerned, the Honorable Supreme Court, in the case of Woodridge School, Inc. vs. ARB Construction Co., Inc. , 10 ruled that before the properties are donated to the local government, they are still private properties. Moreover, the fact that these properties were declared as properties for public use in P.D. No. 1612 does not make them public properties. Please be guided accordingly. Very truly yours, (SGD.) LEILA M. DE LIMA Secretary Footnotes 1. G.R. No. 95522, 07 February 1991. 2. G.R. No. 113739, 02 May 1995. 3. Section 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; 4. Section 217. Actual Use of Real Property as Basis for Assessment . Real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it. 5. G.R. No. 144104, 29 June 2004. 6. G.R. No. 29772, 18 September 1980. 7. G.R. No. 148357, 30 June 2006. 8. Liwag vs. Happy Glen Loop Homeowners Association, Inc. , G.R. No. 189755, 04 July 2012. 9. G.R. No. 144104, 29 June 2004. 10. G.R. No. 157285, 16 February 2007.