FELMANS REVIEWER IN LOC GOV LOCAL TAXATION (Taken from 2007 UP Reviewer) I.

PRELIMINARIES

PROF. GISELLA DIZON-REYES Provinces and municipalities cannot impose a tax, which the other may impose through a specific grant of powers Provinces, cities and municipalities cannot impose taxes, which the barangay is specifically empowered to impose to the exclusion of all others. B. Fundamental Principles (UEPIPI)

A. Basic Concepts Governing Law The LGC shall govern the exercise by PROVINCES, CITIES, MUNICIPALITIES, and BARANGAYS of their revenue raising and taxing powers (Sec 128 LGC) Power to Create Sources of Revenue

Taxation shall be Uniform in each local government unit; IRR: the uniformity required is only within the territorial jurisdiction of an LGU.

LGUs have the power to create own

sources of revenue and to levy taxes, fees, and charges, consistent with local autonomy. Taxes levied accrue exclusively to the local government units. (SEC. 129, LGC) Share in the IRA National internal revenue generally goes to the National Treasury, except amounts set apart by way of allotment under R.A. 7160 or the Local Government Code of 1991 (Sec. 284, NIRC) Nature of LGU's Taxing Power 1. Not inherent 2. Legislative in nature 3. Exercised only if delegated by law or the Constitution 4. Not absolute; subject to limitations provided by law 5. Limited by public purpose Interpretation Taxing powers of LGUs are to be liberally construed (Sec. 5(a), LGC) but doubt on the application of a tax ordinance shall be strictly construed against the local government. Tax exemptions are construed strictly against the grantee. Principle of Pre-emption

Taxes, fees, charges impositions shall: (EPUC) i.

and

other

be Equitable and based as far as practicable on the taxpayer's ability to pay; be levied and collected only for Public purposes; not be Unjust, oppressive, or confiscatory; excessive,

ii. iii. iv.

not be Contrary to law, public policy, national economic policy, or in the restraint of trade; The collection of local taxes, fees, charges and other impositions shall not be let to any Private person; The revenue collected shall Inure solely to the benefit of, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, Each local government unit shall, as far as practicable, evolve a Progressive system of taxation. (SEC. 130, LGC)

v.

vi.

vii.

C. Local Taxing Authority

1. Exercised by the Sanggunian concerned

through an appropriate Ordinance. (Sec. 132, LGC)

Where national government elects to

tax a particular area, the delegated power of the LGUs to tax the same field is impliedly limited. Double Taxation

2. Local chief executives of the LGUs,

except the punong barangay possess veto powers over ordinances or particular items thereof which are either ultra vires or prejudicial to public i

FELMANS REVIEWER IN LOC GOV welfare. His reasons shall be stated in writing. (Sec 55(a), LGC) 3. The Sanggunian may override the veto with a 2/3 vote of all its members. 4. Veto power may only be exercised once. 5. The veto doesn't affect items objected to. (Sec 55(b), LGC) not

PROF. GISELLA DIZON-REYES

4.

Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the LGU concerned;

5.

6. Vetoed items shall not take effect unless the sanggunian overrides the veto. If vetoed, corresponding item or items in the appropriations ordinance of the previous year shall be deemed reenacted. The veto doesn't affect items not objected to. (Sec 55(b), LGC) D. Local Tax Ordinance 1. Must satisfy the requirements of procedural and substantive due process 2. There must be a public hearing with quorum, voting and approval and/or veto requirements 3. Must be published within 10 days from approval for 3 consecutive days and/or published in at least 2 conspicuous places.

Taxes, fees or charges on Goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees, or otherwise

6.

Taxes, fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen;

7.

Taxes on business enterprises certified to by the Board of Investments as Pioneer or non-pioneer for a period of 6 and 4 years, respectively from the date of registration;

8.

Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees or charges on petroleum products;

9.

Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein;

10.

Taxes on the Gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in the Code; E. Common Limitations On The Taxing Powers Of Local Government Units (Sec 133)

11. 12.

Taxes on premiums paid by way or Reinsurance or retrocession; Taxes, fees or charges for the Registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles;

Unless otherwise provided, the following

cannot be levied by the local governments: (IDEC-GAPEP-GRR-ECN):

1. 2. 3.

Income tax, except when levied on banks and other financial institutions; Documentary stamp tax;

13.

Taxes, fees, or other charges on Philippine products actually Exported, except as otherwise provided;

14.

Estate tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided;

Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and Cooperatives duly registered under the Cooperative Code of the Philippines; and ii

FELMANS REVIEWER IN LOC GOV

PROF. GISELLA DIZON-REYES prescribed in LGC NOT oftener than once every 5 years, in no case to exceed 10% of the rates fixed. (Sec. 191, LGC)

15.

Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units F. Other Relevant Taxing Powers

3. Authority to Grant Exemption. LGU

may grant tax exemptions, incentives or reliefs by way of an Ordinance. (Sec. 192, LGC)

1. Power

to Levy Taxes, Fees or Charges. LGU may levy taxes, fees or charges on any base or subject not specifically enumerated in the LGC or NIRC.

2. Authority to Adjust Rates. LGU has

the authority to adjust the tax rates

II. SPECIFIC PROVISIONS ON THE TAXING AND OTHER REVENUE-RAISING POWERS OF THE LGU (PROVINCES, MUNICIPALITIES, CITIES, BARANGAYS) A. Provinces TAX IMPOSED RATE/AMOU NT 1) Tax on Transfer of Real Not more Property. Imposed on the than 50% of sale, donation, barter, or any 1% other mode of transfer of ownership or title to real property BASE Total acquisitio n price or fair market value, whicheve r is higher EXEMPTIONS Sale, transfer, or other disposition of real property pursuant to R.A. 6657 (Comprehensiv e Ararian Reform Law) OTHERS Evidence of payment of tax is to be required by Register of Deeds as a requisite to registration; and by the provincial assessor as a condition for cancellation of old tax declaration. Tax must be paid 60 days from the date of execution of deed or from the date of decedent's death.

iii

FELMANS REVIEWER IN LOC GOV TAX IMPOSED

2) Tax on Business of Printing

PROF. GISELLA DIZON-REYES RATE/AMOU BASE NT EXEMPTIONS OTHERS

and Publication. a. Imposed on the business of persons Not engaged in printing, and/or exceeding publication of bookds, 50% of 1% cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature
b.

Gross annual receipts for the preceding calendar year Capital investme nt

business

Newly

started

Not exceeding 1/20 of 1%

Receipts from printing and/or publishing of books and other reading materials prescribed by the DECS as school texts or references In the succeeding calendar year, regardless of when business started operating, tax shall be based on gross receipts for preceding calendar year, or any fraction thereof.

3) Franchise Tax.

a. Notwithstanding any Not exemption granted by any exceeding law or any other special 50% of 1% law, tax may be imposed on business enjoying a franchise

b. Newly-started business

Not more than 1/20 of Capital 1% investme nt

Gross annual receipts for the preceding calendar year realized within its territorial jurisdictio n

In the succeeding calendar year, regardless of when business started operating, tax shall be based on gross receipts for preceding calendar year, or any fraction thereof.

iv

FELMANS REVIEWER IN LOC GOV TAX IMPOSED

PROF. GISELLA DIZON-REYES OTHERS Permit to extract sand, gravel and other quarry resources to be issued exclusively by the provincial governor pursuant to an Ordinance by the Sangguniang Panlalawigan Distribution of proceeds: Province 30% Component City/ Municipality where resources were extracted 30% Barangay where resources were extracted 40%

RATE/AMOU BASE EXEMPTIONS NT 4) Tax on Sand, Gravel and Not more Fair Other Quarry Resources. than 10% market Levied on ordinary stones, value in gravel, earth and other quarry the resources as defined in the locality NIRC, extracted from public per cubic lands or from the beds of meter of seas, lakes, rivers, streams, resources creeks, and other public referred waters within its territorial to in jurisdiction Column 1

5) Professional Tax. Provinces Such amount

may levy annual professional tax on each person engaged in the exercise of a profession requiring government examination

as the Sangguniang Panlalawigan may determine in no case to exceed P300.00

Professionals exclusively employed by the government

To be paid to the province where the profession or a principal office is maintained. A person who pays for professional tax may practice his profession anywhere in the country without being subjected to similar taxes. Employers shall require payment of v

FELMANS REVIEWER IN LOC GOV TAX IMPOSED RATE/AMOU BASE NT

PROF. GISELLA DIZON-REYES EXEMPTIONS OTHERS professional tax as a condition for employment. In case of theaters or cinemas, tax shall first be deducted and withheld by their proprietors, leesees and operators

6) Amusement

Tax. Levied Not more from proprietors lessees, or than 30% operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement

Gross receipts from admission fees

7) Annual Fixed Tax For Every Amount

not

Delivery Truck or Van of exceeding Manufacturers or P500 Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. Imposed on vehicles used for the delivery of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the sanggunian, to sales outlets, or consumers in the province, whether directly or indirectly B. Municipalities Scope of Taxing Powers

Holding of operas, concerts, dramas, recitals, painting, and art exhibitions, flower shows, musical programs, literary and oratorical presentations Proceeds to be shared equally Exception to by the exemption: province and Pop, rock, or municipality similar where concerts amusement places are located. Manufacturers, producers, wholesalers, dealers and retailers referred to in column 1 shall be exempt from tax on peddlers

a.

May levy taxes, fees and charges not levied by provinces. b. Sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed below.

vi

FELMANS REVIEWER IN LOC GOV

PROF. GISELLA DIZON-REYES

Tax on Business imposed on:

1)

2)

3)

4)

5) 6)

RATE/AMOUNT AND BASE OTHER INFORMATION Manufacturers, assemblers, In accordance with the schedule repackers, processors, in Section 143 (a), NIRC bewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature Wholesalers, distributors, or Schedule in Article 143 (b), NIRC dealers in any article of commerce of whatever kind or nature Exporters and on Not exceeding 1/2 of rates manufacturers, millers, prescribed in the schedule in Sec producers, wholesalers, 143, NIRC distributor, dealers or retailers of essential commodities enumerated below: (RWC- CLAPS) i. Rice and corn ii. Wheat and or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt, and other agricultural, marine, and fresh water products, whether in original state or not iii. Cooking oil and cooking gas iv. Cement v. Laundry soap, detergents, and medicine vi. Agricultural implements. equipment and postharvest facilities, fertilizers, pesticides, insecticides, herbicides and other farm inputs; vii. Poultry feeds and other animal feeds; viii. School supplies Retailers Gross sales or receipts for the Barangays have the preceding calendar year of: exclusive power to tax gross receipts amounting 400k or less: 2% per annum more than 400k: 1% per to: 50k or less: in cities annum 30k or less: in municipalities Contractors and other In accordance with the schedule independent contractors in Sec. 143 Banks and other financial Not exceeding fifty percent 50% IRR: All other income and institutions of 1% on the gross receipts of receipts of banks and vii

FELMANS REVIEWER IN LOC GOV

PROF. GISELLA DIZON-REYES OTHER INFORMATION financial institutions NOT otherwise enumerated shall be excluded from the taxing authority of the LGU.

RATE/AMOUNT AND BASE the preceding calendar year from interest, commissions and discounts from lending activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of property, insurance premium. 7) Peddlers engaged in the Not exceeding P50.00 per sale of any merchandise peddler annually. or article of commerce 8) Any business which the sanggunian concerned may deem proper to tax

Catch-all provision. Any business subject to excise, value-added or percentage tax is subject to tax not exceeding two percent (2%) of gross sales or receipts of the preceding calendar year of the

Payment of Business Taxes a. Taxes in Sec. 143 shall be paid for every separate or distinct establishment or place where business subject to tax is conducted. b. One line of business is not exempted by being conducted with some other businesses for which such tax has been paid c. The tax on a business must be paid by the person conducting it. d. If a person operates 2 or more businesses mentioned in Sec 143 which are taxed; computation shall be based on: combined total gross sales/receipts IF subject to the SAME tax rate separate reports on gross sales/receipts IF subject to DIFFERENT tax rates

for maintenance condominium.

Ericsson Telecoms vs. City of Pasig. (Nov 2007): The issue in this case is whether the local business tax on contractors should be based on gross receipts or gross revenue. Pasig City assessed deficiency business taxes on Ericsson based on its gross revenue, arguing that gross receipts is synonymous with the latter. The Court ruled that business tax must be based on gross receipts, it being different from gross revenue. The right to receive income, and not the actual receipt determines when to include the amount in gross income. Franchise Taxes

Yamane vs. Lepanto Condo Corp. (Oct. 23, 1995): Condominium corporations are not business entities, thus not subject to local business tax. Even though the corporation is empowered to levy assessments or dues from the unit owners, these amounts are not intended for the incurrence of profit by the corporation, but to shoulder the multitude of necessary expenses

Smart Telecommunications vs. City of Davao (September 2008, Nachura): Smart was held liable for franchise taxes because there's express provision in its Charter granting the exemption. Exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority.

The term "exemption" in its viii

FELMANS REVIEWER IN LOC GOV Charter does not mean tax exemption but exemption from certain regulations and requirements imposed by the NTC. The City of Davao must however comply with Sections 137 and 151 of R.A. No. 7160. Thus, the local franchise tax that may be imposed by the City must not exceed 50% of 1% of the gross annual receipts for the preceding calendar year based on the income realized within the territorial jurisdiction of Davao SITUS of Taxation EXCISE TAX: Allied Thread Co., Inc. v. City Mayor of Manila, L40296 Tax is imposed on the performance of an act or occupation, enjoyment of a privilege. The power to levy such tax depends on the place in which the act is performed or the occupation is engaged in; not upon the location of the office. SALES TAX: Shell Co., Inc. v. Municipality of Sipocot, Camarines Sur with respect to sale, it is the place of the consummation of the sale, associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation, and not merely the place of the perfection of the contract.

PROF. GISELLA DIZON-REYES principal office and the tax shall be paid to such city/municipality. RULE 3: In the case of manufacturers, contractors, producers, and exporters having factories, project offices, plants, and plantations, proceeds shall be allocated as follows: 30% of sales recorded in the principal office shall be made taxable by the city/municipality where the principal office is located 70% shall be taxable by the city/municipality where the factory, project office, plant, or plantation is located Illustration of Rules 1 to 3: A company has a principal office in Mandaluyong, while its sales office and factory are in Sta Rosa: sales made in Sta Rosa, will be recorded in Sta Rosa sales made in Los Baos, Calamba or Cabuyao (ie delivered to customers located in those places), will be recorded in Mandaluyong aside from sales made in Sta Rosa, Sta Rosa also gets 70% of sales recorded in Mandaluyong, pursuant to Rule 3 RULE 4: In case the plantation is located in a place other than the place where the factory is located, the 70% in Rule 3 will be divided as follows: 60% to the city/municipality where the factory is located 40% to the city/municipality where the plantation is located RULE 5: In case of 2 or more factories, plantations, etc in different localities, the 70% shall be prorated among the localities where the factories, plantations, etc are located in proportion to their respective volume of production. Illustration: ix

a. According to the Jurisprudence

b. According to Sec. 150 of the LGC,

situs shall be determined by the ff. RULES: RULE 1: In case of persons maintaining/operating a branch or sales outlet making the sale or transaction, the tax shall be recorded in said branch or sales outlet and paid to the municipality/city where the branch or sales outlet is located. RULE 2: Where there is NO branch or sales outlet in the city/municipality where the sale is made, sale shall be recorded in the

FELMANS REVIEWER IN LOC GOV A company has a principal office in Valenzuela and has its factory in Bulacan. It also has branches selling merchandise in Muntinlupa, Bacolod, Cebu. sales made in Muntinlupa, Bacolod and Cebu will go to the said cities sales in all other places which do not have a sales branch shall be distributed as follows: 30% to Valenzuela and 70% to Bulacan IRR: Where manufacturers employ an independent contractor, the factory/ plant/ warehouse of the contractor is considered the factory/plant/warehouse of the manufacturer. IRR: The city or municipality where the port of loading is located shall not levy fees unless the exporter maintains in said city or municipality its principal office, a branch, sales office, or warehouse, factory, plant or plantation in which case the rules above apply. Tax Rates Within Metro Manila Not 50% more than the maximum rates prescribed in Sec 143. (SEC. 144, LGC) Retirement of Business Upon termination of a business subject to tax under Sec.143 a sworn statement of its gross sales or receipts for the current year shall be submitted. If the tax paid is less than the tax due, the difference shall be paid before the business is considered officially retired. (Sec 145) Fees and Charges General: As a condition to the conduct of business or profession, the municipality may impose reasonable fees and charges not yet imposed by the province, commensurate with the cost of regulation, inspection and licensing,. (Sec.147)

PROF. GISELLA DIZON-REYES Specific: 1. Municipality has power to impose reasonable rates for sealing and licensing of weights and measures 2. The Municipality has exclusive authority to grant fishery privileges in municipal waters. The sangguniang bayan may: a) Grant fishery privileges to erect fish corrals, oysters, mussels or other aquatic beds or bangus fry areas, within a definite zone of the municipal waters, as b) Grant marginal fishermen the privilege to gather, take or catch bangus fry, prawn fry or kawag-kawag or fry of other species and fish from the municipal waters by nets, traps or other fishing gears free of rental, fee, charge or imposition. c) Issue licenses for the operation of fishing vessels of three (3) tons or less 3. The Sanggunian may penalize the use of explosives, noxious or poisonous substances, electricity, muro-ami, and other deleterious methods of fishing and prescribe a criminal penalty therefor (Sec. 149, LGC) C. Cities Scope The City may levy taxes, fees, charges which the province or municipality may impose. Those levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of LGC. Rates on levy made by the city may exceed the maximum rates allowed for the province or municipality by not more than 50% Exception: Rates of professional and amusement taxes. (Sec. 151, LGC) Cities have the broadest taxing powers, embracing both x

FELMANS REVIEWER IN LOC GOV specific and general powers as provinces and municipalities may impose (Vitug) D. Barangays Scope The following shall accrue to the barangays: exclusively

PROF. GISELLA DIZON-REYES

1.

Taxes on Stores or Retailers with Fixed Business Establishments. a) RATE: not > 1% b) BASE: In case of cities: gross sales or receipts of the preceding calendar year of P50,000.00 or less In case of municipalities: gross sales or receipts of P30,000.00 or less

2.

Service Fees or Charges. For services rendered in connection with the regulations or the use of barangay-owned properties or facilities such as palay, copra, or tobacco dryers.

3.

Barangay Clearance. A city or municipality cannot issue a permit for business without a clearance from the barangay concerned. The sangguniang barangay may impose a reasonable fee on the clearance.

4.

Other Charges Allowed. (Sec. 152, LGC) a) charges on commercial breeding of fighting cocks, cockfights and cockpits; b) charges on places of recreation which charge admission fees; and "places of recreation" include places of amusement where one seeks admission to entertain himself by seeing or viewing the show or performance or those where one amuses himself by direct participation. c) charges on billboards, signboards, neon signs, and outdoor advertisements. xi

A REVIEWER IN LOCAL GOVERNMENT LAW Checklist of Taxes Imposed by Different LGUs TYPE OF TAX Transfer of Real Property Ownership Tax on Business of Printing and Publication Franchise Tax Tax on Sand, Gravel and Other Quarry Resources Professional Tax Amusement Tax Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products Tax on Business Fees and charges on regulation/licensing of business and occupation Fees for Sealing and Licensing of Weights and Measures Fishery Rentals, Fees and Charges Community Tax Tax on Gross Sales or Receipts of SmallScale Stores/Retailers Sec. 152(b) Service Fees on the use of Barangay-owned properties Sec. 152(c) Barangay Clearance Sec. 152(d) Other Fees and Charges (on commercial breeding of fighting cocks, cockfights, cockpits; places of recreation which charge admission fees; outside ads) Sec. 153 Service Fees and Charges Sec. 154 Public Utility Charges Sec. 155 Toll Fees or Charges Sec. 232 Real Property Tax PROVINCE

PROF. GISELLA DIZON-REYES MUNICIPALITY CITY BARANGAY

Legend: Authorized to impose the tax Only if the municipality is within the Metro Manila Area

Common Revenue-Raising Powers

(SPT)

1. Service Fees and Charges for services

rendered

2.

Public Utility Charges for public utilities owned, operated and maintained by them within their jurisdiction. (Sec. 154, LGC)

The ff. are exempt from toll fees: a. officers and enlisted men of AFP and members of PNP on mission b. post office personnel delivering mail c. physically-handicapped, and disabled citizens who are 65 years or older.

3.

Toll fees or charges for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the LGU.

When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. (Sec. 155, LGC) xii

A REVIEWER IN LOCAL GOVERNMENT LAW

E. Community Tax

Who May Levy (Sec. 156, LGC): Cities

or municipalities without need for public hearing.

Persons Liable (Sec. 157 &158, 1.

LGC)

Individuals who are: a) Inhabitants of the Philippines b) Eighteen years of age or over c) Regularly employed on a wage or salary basis for at least 30

PROF. GISELLA DIZON-REYES consecutive working days during any calendar year d) Either: Engaged in business or occupation Owns real property with an aggregate assessed value of P1,000 or more OR Is required by law to file an income tax return 2.

a) Every corporation no matter how

created or organized, b) Whether domestic or resident foreign, c) Engaged in or doing business in the Philippines

Juridical Persons

1.

Rates Individuals Annual community tax of P5.00 PLUS annual additional tax of P1.00 per P1,000.00 of income regardless whether from business, exercise of profession or property b) Never to exceed P5000 c) Husband and wife shall pay a basic tax of P5.00 each PLUS additional tax based on total property owned by them and the total gross receipts or earnings derivedtherefrom.

Transient visitors who stay in the Philippines for not more than 3 months Time and Place of Payment

a)

a)

2.

Juridical Persons Annual community tax of P500.00 PLUS annual additional tax of not more than P10,000.00 according to the ff. schedule: P2.00 for every P5,000 worth of real property in the Philippines owned during the preceding year based P2.00 for every P5,000.00 of gross receipts derived from business in the Philippines during the preceding year. b) Dividends received by a corporation from another corporation shall be deemed part of the gross receipts or earnings for purposes of computing additional tax.

a)

Place. where individual resides, or where the principal office of the juridical entity is located. (Sec. 160, LGC) b) Time. accrues on the 1st day of January of each year to be paid not later than the last day of February of each year c) Penalty. If unpaid within the prescribed period, an interest of 24% shall be added per annum from the due date until payment. (Sec. 161, LGC) III. COLLECTION OF TAXES

Tax Period: Based on calendar year,

unless otherwise provided. (Sec. 165, LGC)

Manner of Payment: May be paid in

quarterly installments. (Sec. 165, LGC)

Accrual of Tax: 1st day of January of

each year.

Persons Exempt (Sec. 159, LGC)

Diplomatic representatives and consular

Except: New taxes, fees or charges, or changes in the rates thereof which shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates. (Sec. 166, LGC) xiii

A REVIEWER IN LOCAL GOVERNMENT LAW Manner of Payment: Within the 20 days of January or of each subsequent quarter. (i.e. Jan 20, Apr 20, July 20, and Oct 20). It may be extended by the sanggunian for justifiable reasons, without surcharges or penalties. Extension cannot exceed 6 months. (Sec. 167, LGC) Surcharge and Penalties 1. Surcharge. 25% on taxes, fees or charges NOT paid on time 2. Interest. Not exceeding 2% per month of the unpaid taxes, fees or charges INCLUDING surcharges, until the amount is fully paid In no case shall the total interest exceed 36 months. (Sec. 168, LGC) municipal, or barangay treasurer, or their duly authorized deputies. (Sec. 170, LGC) Examination of Books The local treasurer or his deputy duly authorized in writing, may examine the books, accounts and other pertinent records of any person, or association to ascertain and collect the correct amount of tax. Examination shall be made during the regular business hours, ONLY ONCE for every tax period, and shall be certified to by the examining official. (Sec. 171, LGC)

Collecting Authority Provincial, city,

PROF. GISELLA DIZON-REYES one horse, cow, carabao, or other Beast of burden, such as the delinquent taxpayer may select and necessarily used by him in his ordinary occupation his necessary Clothing, and that of all his family household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer, such as he may select, of a value not exceeding P10,000 Provisions, including crops, actually provided for individual or family use sufficient for 4 months the professional Libraries of doctors, engineers, one fishing boat and net, not exceeding the total value of P10,000 by the lawful use of which a fisherman earns his livelihood any material or Article forming part of a house or improvement of any real property (Sec. 185, LGC) 2. Judicial Action The local government may institute an ordinary civil action with regular courts of proper jurisdiction for the collection of delinquent taxes, charges, etc. (Sec. 183, LGC) Valley Trading Co. vs. CFI of Isabela, (1989) LGC does not contain a provision prohibiting courts from enjoining the collection of local taxes. Such lapse may have allowed preliminary injunction under Rule 58, ROC where local taxes are involved. Remedies below) of Taxpayers (See flowchart

IV. LOCAL TAX REMEDIES Remedies of LGUs 1. Tax lien Non-payment of a tax, fee or charge creates a lien superior to all liens or encumbrances in favor of any other person, enforceable by administrative or judicial action a) By Distraint - personal property b) By Levy - real property Exempt Properties: (ToB-CUPLA) Tools and implements necessarily used by the taxpayer in his trade or employment

1. Prior To Assessment a) Pre-assessment Remedies b) Appeal to Secretary of Justice 2. After An Assessment or Payment a) Written protest of assessment b) Claim for refund Requires a written claim for refund or credit to be filed with local treasurer before protest is entertained Must be brought within 2 years from payment of tax or from the xiv

A REVIEWER IN LOCAL GOVERNMENT LAW date the taxpayer became entitled to refund or credit (Sec. 196, LGC) 3. Original Court Action Periods of Assessment and Collection of Local Taxes 1. Assessment. Within 5 years from the date they become due 2. In case of Fraud or Intent to Evade Tax. Within 10 years from discovery of fraud or intent to evade payment. (Sec. 194, LGC) 3. Collection. 5 years from the date of assessment by administrative or judicial action. Instances When Running of Prescription Periods is Suspended 1. When the treasurer is legally prevented from making the assessment or collection 2. When taxpayer requests for reinvestigation and executes a waiver in writing before lapse of the period for assessment or collection. 3. When the taxpayer is out of the country or otherwise cannot be located (Sec. 194 (d), LGC) Remedy for Illegal or Unconstitutional Tax Ordinance STEP 1: Appeal to the Secretary of Justice. Within 30 days from the effectivity of the contested ordinance STEP 2: Decision by the Sec of Justice within 60 days from the date of receipt of the appeal. Appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax levied therein. STEP 3: Appropriate proceedings with competent court. Within 30 days after receipt of adverse decision or the lapse of the 60-day period when Sec has failed to act upon it. (Sec 187, LGC) REAL PROPERTY TAXATION I. BASIC CONCEPTS

PROF. GISELLA DIZON-REYES Definitions

1. Real Property taxation. A direct tax

on ownership of lands and buildings or other improvements thereon payable regardless of whether property is used or not, although value may vary in accordance with such factor Real property tax is a fixed proportion of the assessed value of the property being taxed 2. Real Property. Subject to the definition given by Art. 415 of the Civil Code.

3. Improvement.

A valuable addition made to a property or amelioration in its condition amounting to more than a mere replacement of parts involving capital expenditures and labor.

Nature/Characteristics 1. It is a direct tax on the ownership or use of real property 2. It is an ad valorem tax. Value is the tax base 3. It is proportionate because the tax is calculated on the basis of a certain percentage of the value assessed. 4. It creates obligation a single, indivisible

5. It attaches on the property (i.e., a lien) and is enforceable against it. 6. With respect to LGUs, it is levied thru a delegated power

Fundamental Principles (CAPUE)

1.
Current fair market value is the basis for assessment

2.
Actual use shall be the classification for assessment basis of

3.
Private persons cannot be left to the appraisal, assessment, levy and collection of real property tax.

4.

Uniform classification within each local government unit shall be observed.

Governing Law: LGC 1991

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5.
Equitable appraisal and assessment is required. [Section 197, Local Government Code] II. PROPERTIES SUBJECT TO TAX 1. Land 2. Buildings 3.Machinery 4.Other improvements not otherwise exempted under the LGC 5.The LGC contains no definition of real property; but defines the following:

PROF. GISELLA DIZON-REYES Mindanao Bus Co. v City Assessor of Cagayan de Oro (1997), Board of Assessment Appeals v Meralco, Meralco v Board of Assessment Appeals. The SC has generally held in these cases that Art 415 CC provides an exclusive enumeration of what constitutes real property. FOR TAX PURPOSES however, it is common for otherwise personal properties under the CC to be classified as real property. Lesson: the NIRC and the LGC code prevail in classifying property for tax purposes. III. TAXES AND RATES IMPOSED

1) Improvement. A valuable addition to a

property or amelioration in its condition; more than a repair of parts involving capital expenditure and labor, intended to enhance its value, beauty, or utility or to adopt it for new or further purposes. [Section 199(m), LGC] 2) Machinery Machines, equipment, mechanical contrivances, instruments, appliances or apparatus, which may or may not be attached, permanently or temporarily, to real property. Includes physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or selfpropelled Those not attached to real property but are actually, directly, and exclusively used for the particular industry's needs and which by their very nature are necessary to the industry's purposes. [Section 199(o), Local Government Code] The definition above is so broad such that everything used for the needs of an industry can be classified as machinery, subject to RPT; This was solved by Sec 290 Paragraph (o) of the LGC's IRR General Purpose Rule

A. Basic Real Property Tax. Annual ad valorem ax that may be levied by LGUs on real property and improvements thereon LGU 1. Province 2. City RATE OF BASIC TAX not exceeding 1% of assessed value not exceeding 2%

3. Municipality within not exceeding 2%. Metro Manila * Proceeds above are shared with municipalities and barangays.

B. 1) Additional 1% Education Fund

Special Levies such as: tax for the Special

2) Additional as valorem tax of 5% on idle lands 3) Tax imposed on property especially benefited by structures or developments undertaken by the local government. Idle Lands (Sec. 237, LGC) (a) Agricultural Lands. More than 1 hectare in area, suitable for cultivation, dairying, inland fishery, and other agricultural use, 1/2 of which is uncultivated or unimproved NOT Idle Lands: Agricultural lands planted with at least 50 trees to a hectare Lands actually used for grazing purposes xvi

An object used indirectly for the general purpose of the business shall NOT be treated as real property.

A REVIEWER IN LOCAL GOVERNMENT LAW (b) Non-agricultural lands. Located in a city or municipality, more than 1,000 sq.m, 1/2 of which remains unutilized by the owner or person with legal interest.

PROF. GISELLA DIZON-REYES 3. Ordinance

IV. EXEMPT PROPERTIES (RCW- CPE) (c) Grounds for EXEMPTION from idle lands tax: a. force majeure; b. civil disturbance; c. natural calamity; or d. any cause or circumstance which physically or legally prevents the owner or person having legal interest from improving, utilizing or cultivating the same.

1. Owned

by the Republic of the Philippines or any of its political subdivisions except when beneficial use is granted for a consideration or to a taxable person.

2. Charitable

Special Education Fund Paid in addition to Basic Property Tax

institutions, churches, parsonages, or convents appurtenant thereto, mosques, non-profit or religious cemeteries, and all lands, buildings, and improvements actually, directly and exclusively used for religious, charitable, or educational purposes.

3. Machinery

Proceeds from 1% tax on real property are automatically released to school boards. In case of provinces, proceeds will be divided equally between provincial and municipal school boards

and equipment actually, directly and exclusively used by local Water utilities and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power.

4. Real property owned by duly registered

Cooperatives as provided for under Republic Act No. 6938 (Cooperative Code of the Philippines).

For the maintenance, construction and repair of public schools; facilities, equipment, research, sports development Special Levy Levied on lands within an LGU's jurisdiction, benefited by governmentsponsored works or projects based on assessed value thereof

5. Machinery and equipment used for

Pollution control and Environmental protection. [Section 234, Local Government Code] Proof of Exemption 1. Docume ntary evidence such as affidavits, by-laws, contract, articles of incorporation 2. local assessor 3. 30 days from date of declaration Given to Within

Rates shall not exceed 60% of actual cost of projects and improvements

Does not apply to lands exempt from basic property tax nor on portions donated to LGU

4. Failure to file, will be listed as in Assessment Rolls as taxable GOCCs

Philippine Ports Authority vs. City of Iloilo

Requirements: (2003): GOCCs are NOT covered by the exemption since the exemption only refers to instrumentalities without personalities distinct from the government. xvii

1. Public hearing 2. Notification to owners

A REVIEWER IN LOCAL GOVERNMENT LAW Mactan Airport V. MIAA Provision involved Sec 133 (o), LGC. LGUs not allowed to levy (o) taxes/fees/charg es of any kind on the national govt, its agencies, instrumentalities and LGUs. Sec 234 (a), LGC. Properties exempt from RPT: (a) real properties owned by the Republic or any of its political subdivisions Sec 133 (o), LGC Sec 234 (a), LGC SC Ruling Mactan Airport Authority is a GOCC, not exempt from RPT. Legislature in amending the law specifically deleted GOCCS from the enumeration in Sec 234(a).

PROF. GISELLA DIZON-REYES A. Classes of Real Property Assessment Purposes 1. 2. 3. 4. 5. 6. 7. Commercial Agricultural Residential Timberland Industrial Mineral Special

for

Mactan Airport Authority vs. Marcos (1996)

B. Basis of Assessment and Appraisal

1. Assessment. Actual use, regardless of

location, owner, or actual user

2. Appraisal. Current FMV prevailing in the

locality where property is situated

Manila Airport Authority vs. CA (2006)

MIAA falls under the term instrumentality outside the scope of LGSs local taxing powers under Sec 133(o).

C. Payment and Collection

a. Accrual of
Tax: January 1st of every year; shall constitute a superior lien. (Sec. 246)

Charitable Institutions

LUNG CENTER of the PHILS vs. QUEZON

CITY (June 2004): A charitable institution doesn't lose its character and its exemption simply because it derives income from paying patients so long as the money received is devoted to the charitable object it was intended to achieve, and no money inures to the benefit of persons managing the institution. Property leased to private entities is NOT exempt from RPT, as it is not actually, directly and exclusively used for charitable purposes. Portions of the land occupied by the hospital and portions used for its patients, whether paying or non-paying, are EXEMPT from real property taxes. V. APPRAISAL AND ASSESSMENT OF REAL PROPERTY

b. Time

and Manner of Payment: (Sec. 250) 1. basic real property tax in 4 equal installment s (March 31, June 30, September 30, December 30) 2. special levy governed by ordinance xviii

A REVIEWER IN LOCAL GOVERNMENT LAW

c. Interest
for Late Payment (Sec. 255) 1. two percent (2%) for each month on unpaid amount until the delinquent amount is paid 2. provided in no case shall the total interest exceed thirty-six (36) months. d. For Advance and Prompt Payment 1. Advance payment discount not exceeding 20% of annual tax (Sec. 251, LCG) 2. Prompt payment discount not exceeding 10% of annual tax due (Art 342 IRR)

PROF. GISELLA DIZON-REYES 3. the owner of property is out of the country or cannot be located

VI. REMEDIES
TAXATION

IN

REAL

PROPERTY

A. Remedies Government

Available

to

Local

a. Administrative/Extrajudicial i. Lien ii. Levy iii. Distraint. Notice posted and published prior to distraint of personal property iv. Purchase by local treasurer of property in case there is no bidder or bid is insufficient

e. Collecting
Officer (SEC. 247): City or municipal treasurer or deputized barangay treasurer provided bind is given.

b. Judicial LGU may enforce collection through filing of civil action within periods prescribed in Sec.270

Collection Period (Sec 270, LGC) within five (5) years from the date they become due within ten (10) years from discovery of fraud, in case there is fraud or intent to evade Instances for prescription periods suspension of Levy Imposable only on property subject to tax, personal liability rests on taxpayer
NOTICE OF DELINQUENCY posted at the main entrance of provincial/city hall and published for 2 consecutive weeks WARRANT OF LEVY

f.

1. local

treasurer is legally prevented to collect tax. for reinvestigation and writes a waiver before expiration of period to collect.

2. the owner or property requests

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with duly authenticated certificate stating the taxpayer's name, amount and description of property ADVERTISEMENT 30 days after service of warrant sale at a public auction will be advertised REDEMPTION within 1 year ISSUANCE OF FINAL DEED In case of failure to redeem

PROF. GISELLA DIZON-REYES Suit assailing validity of local tax sale 2. After Sale

a.

After sale and before redemption, or before expiration of 1 year term, real property shall remain in the possession of delinquent taxpayer (usufruct) B. Remedies Available to Taxpayer 1. On Assessments a. Administrative Protest payment under protest is required within 30 days to provincial, city, or municipal treasurer. No protest shall be entertained unless the tax is first paid. (Sec. 252 LGC) Claim for Tax Refund or Credit (Sec. 253) the taxpayer may file a written claim for refund or credit with the provincial or city treasurer within two years from the date the taxpayer is entitled to such reduction or adjustment. in case of denial of refund or credit, appeal to LBAA as in protest case.

Redemption of real property 1 year from the date of sale (Sec. 261 LGC) Amount of delinquent tax Expenses of sale from date of delinquency to date of sale Interest of not more than 2% per month on purchase price from date of sale to date of redemption (not more than 36 months). Certificate of redemption to be issued, certificate of sale invalidated b. Court action assailing validity of sale No such action shall be entertained without a deposit with the court of sales price + 2% per month interest Appeals Process PAYMENT UNDER PROTEST WRITTEN PROTEST WITH LOCAL TREASURER 30 days from payment of tax TREASURER DECIDES Within 60 days from payment of tax If protest is approved by treasurer, apply for refund or credit APPEAL WITH LBAA If protest is denied or in case of treasurer's inaction after lapse of 60 days APPEAL WITH CBAA Within 30 days from receipt of adverse decision by LBAA APPEAL TO CTA Within 30 days from receipt of adverse decision by CBAA SUPREME COURT Within 15 days from receipt of adverse decision by CBAA

i.

ii.

Ramie Textiles vs Mathay (1997) Protest is not a prerequisite to a claim for refund on payment made under the mistaken belief that it is required by law to pay.

b.

Judicial Action Appeal Suit assailing validity of tax Suit to declare invalidity of tax due to irregularity in assessment and collection

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A REVIEWER IN LOCAL GOVERNMENT LAW * An Appeal DOES NOT suspend the collection of tax as assessed VII. SPECIAL PROVISIONS

PROF. GISELLA DIZON-REYES

Condonation/Remission 1. By the Sanggunian Grounds: a. Failure of crops; b. Substantial decrease in the price of agricultural or agri-based products; or c. Calamity in the LGU

2. By the President of the Philippines when public interest so requires.

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