LOCAL GOVERNMENT TAXATION CASES:

1. DRILON VS LIM
Facts: The principal issue in this case is the constitutionality of Section 187 of the Local
Government Code. The Secretary of Justice (on appeal to him of four oil companies and
a taxpayer) declared Ordinance No. 7794(Manila Revenue Code) null and void for
non-compliance with the procedure in the enactment of tax ordinances and for
containing certain provisions contrary to law and public policy. The RTC revoked the
Secretary’s resolution and sustained the ordinance. It declared Sec 187 of the LGC as
unconstitutional because it vests on the Secretary the power of control over LGUs in
violation of the policy of local autonomy mandated in the Constitution. The Secretary
argues that the annulled Section 187 is constitutional and that the procedural
requirements for the enactment of tax ordinances as specified in the Local Government
Code had indeed not been observed. (Petition originally dismissed by the Court due to
failure to submit certified true copy of the decision, but reinstated it anyway.)

RTC’s Ruling: The RTC revoked the Secretary’s resolution and sustained the
ordinance. It declared Sec 187 of the LGC as unconstitutional because it vests on the
Secretary the power of control over LGUs in violation of the policy of local autonomy
mandated in the Constitution.

Petitioner’s Argument:
1. The annulled Section 187 is constitutional and that the procedural requirements for
the enactment of tax ordinances as specified in the Local Government Code had indeed
not been observed. (Petition originally dismissed by the Court due to failure to submit
certified true copy of the decision, but reinstated it anyway.)
2. Grounds of non-compliance of procedure
a. No written notices as required by Art 276 of Rules of Local Government Code
b. Not published
c. Not translated to tagalog

Issue 1: WON the lower court has jurisdiction to consider the constitutionality of Sec 187
of the LGC

Held: Yes. BP 129 vests in the regional trial courts jurisdiction over all civil cases in
which the subject of the litigation is incapable of pecuniary estimation. Moreover, Article
X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction
over final judgments and orders of lower courts in all cases in which the constitutionality
or validity of any treaty, international or executive agreement, law, presidential
decree,proclamation, order, instruction, ordinance, or regulation is in question.In the
exercise of this jurisdiction, lower courts are advised to act with the utmost
circumspection, bearing in mind the consequences of a declaration of unconstitutionality
upon the stability of laws, no less than on the doctrine of separation of powers. It is also
emphasized that every court, including this Court, is charged with the duty of a
purposeful hesitation before declaring a law unconstitutional, on the theory that the
measure was first carefully studied by the executive and the legislative departments and
determined by them to be in accordance with the fundamental law before it was finally
approved. To doubt is to sustain. The presumption of constitutionality can be overcome
only by the clearest showing that there was indeed an infraction of the Constitution.

Issue 2: WON Section 187 of the LGC is unconstitutional

Held: Yes. Section 187 authorizes the Secretary of Justice to review only the
constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or
both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is
not also permitted to substitute his own judgment for the judgment of the local
government that enacted the measure. Secretary Drilon did set aside the Manila
Revenue Code, but he did not replace it with his own version of what the Code should
be.. What he found only was that it was illegal. All he did in reviewing the said measure
was determine if the petitioners were performing their functions in accordance with law,
that is, with the prescribed procedure for the enactment of tax ordinances and the grant
of powers to the city government under the Local Government Code. As we see it, that
was an act not of control but of mere supervision.An officer in control lays down the
rules in the doing of an act. If they are not followed, he may, in his discretion, order the
act undone or re-done by his subordinate or he may even decide to do it himself.
Supervision does not cover such authority. The supervisor or superintendent merely
sees to it that the rules are followed, but he himself does not lay down such rules, nor
does he have the discretion to modify or replace them.Significantly, a rule similar to
Section 187 appeared in the Local Autonomy Act. Thatsection allowed the Secretary of
Finance to suspend the effectivity of a tax ordinance if, in his opinion, the tax or fee
levied was unjust, excessive, oppressive or confiscatory.Determination of these flaws
would involve the exercise of judgment or discretion and not merely an examination of
whether or not the requirements or limitations of the law had been observed; hence, it
would smack of control rather than mere supervision. That power was never questioned
before this Court but, at any rate, the Secretary of Justice is not given the same latitude
under Section 187. All he is permitted to do is ascertain the constitutionality or legality of
the tax measure, without the right to declare that, in his opinion, it is unjust, excessive,
oppressive or confiscatory. He has no discretion on this matter. In fact, Secretary Drilon
set aside the Manila Revenue Code only on two grounds, towith, the inclusion therein of
certain ultra vires provisions and non-compliance with the prescribed procedure in its
enactment. These grounds affected the legality, not the wisdom or reasonableness, of
the tax measure. The issue of non-compliance with the prescribed procedure in the
enactment of the Manila Revenue Code is another matter. (allegations: No written
notices of public hearing,no publication of the ordinance, no minutes of public hearing,
no posting, no translation into Tagalog) Judge Palattao however found that all the
procedural requirements had been observed in the enactment of the Manila Revenue
Code and that the City of Manila had not been able to prove such compliance before the
Secretary only because he had given it only five days within which to gather and
present to him all the evidence (consisting of 25 exhibits) later submitted to the trial
court. We agree with the trial court that the procedural requirements have indeed been
observed. Notices of the public hearings were sent to interested parties as evidenced.
The minutes of the hearings are found in Exhibits M, M-1, M-2, and M-3. Exhibits B and
C show that the proposed ordinances were published in the Balitaand the Manila
Standard on April 21 and 25, 1993, respectively, and the approved ordinance was
published in the July 3, 4, 5, 1993 issues of the Manila Standard and in the July 6, 1993
issue of Balita, as shown by Exhibits Q, Q-1, Q-2, and Q-3. The only exceptions are the
posting of the ordinance as approved but this omission does not affect its validity,
considering that its publication in three successive issues of a newspaper of general
circulation will satisfy due process. It has also not been shown that the text of the
ordinance has been translated and disseminated, but this requirement applies to the
approval of local development plans and public investment programs of the local
government unit and not to tax ordinances.

Supreme Court’s Argument:

1. Section 187 authorizes the petitioner to review only the constitutionality or legality
of tax ordinance. What he found only was that it was illegal. That act is not control but
supervision.
2. Control lays down the rules in the doing of act and if not followed order the act
undone or re-done. Supervision sees to it that the rules are followed.
3. Two grounds of declaring Manila Revenue Code null and void (1) inclusion of
certain ultra vires provisions (2) non-compliance with prescribed procedure in its
enactment but were followed.
The requirements are upon approval of local development plans and public investment
programs of LGU not to tax ordinances.
 2. CITY OF MANILA VS HON. JUDGE ANGEL COLET
FACTS: The case involves 10 consolidated petitions involving several corporations
operating as “transportation contractors, persons who transport passenger or freight for
hire, and common carriers by land, air or water” with principal offices in Metro Manila,
and City of Manila’s Ordinance No. 7807 which amended Sec. 21 (B) of the Manila
Revenue Code. Sec.21 (B) imposed business tax on “transportation contractors,
persons who transport passenger or freight for hire, and common carriers by land, air or
water”; while the subject ordinance amended such by lowering the tax rate from 3% per
annum to .5% per annum. The City of Manila, through its City Treasurer, began
imposing and collecting the business tax under Section 21(B) of the Manila Revenue
Code, as amended, beginning January 1994. Because they were assessed and/or
compelled to pay business taxes pursuant to Section 21(B) of the Manila Revenue
Code before they were issued their business permits for 1994, several corporations
questioned the constitutionality of Sec. 21 (B) for being contrary to the Constitution and
the Local Government Code, and asked for the refund of what they had paid as
business tax. The City of Manila, argued that it was constitutional and valid; and such
position was adopted by the RTC and the CA when the case reached the respective
fora. The City argued that the enactment of Sec. 21 (B) is based on the exempting
clause found at the beginning of Sec. 133, in conjunction with Section 143(h), of the
LGC.
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. –
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following: (j) 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 this Code;

SEC. 143. Tax on Business. – The municipality may impose taxes on the following
businesses: (h) On any business, not otherwise specified in the preceding paragraphs,
which the sanggunian concerned may deem proper to tax: Provided, That on any
business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%)
of gross sales or receipts of the preceding calendar year. The sanggunian concerned
may prescribe a schedule of graduated tax rates but in no case to exceed the rates
prescribed herein. (Emphases supplied by the Supreme Court)

ISSUE: Is Sec. 21 (B) of the Manila Revenue Code, as amended, unconstitutional?

HELD: Yes. The power to tax is not inherent in LGUs to whom the power must be
delegated by Congress and must be exercised within the guidelines and limitations that
Congress may provide.

Sec. 5 of Article X of the Constitution granted LGUs the “power to create its own
sources of revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide...” In conformity with said constitutional
provision, the Local Gov’t Code was enacted by Congress.

Sec. 130 of the LGC provides for the fundamental principles governing the taxing
powers of LGUs. Sec. 133 provides for the common limitations on the taxing powers of
LGUs. Among the common limitations on the taxing power of LGUs is Section 133(j) of
the LGC, which states that “unless otherwise provided herein,” the taxing power of
LGUs shall not extend to “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 this Code.”

Section 133(j) of the LGC clearly and unambiguously proscribes LGUs from imposing
any tax on the gross receipts of transportation contractors, persons engaged in the
transportation of passengers or freight by hire, and common carriers by air, land, or
water. Yet, confusion arose from the phrase “unless otherwise provided herein,” found
at the beginning of the said provision, and the City of Manila anchors the validity of Sec.
21 (B) on said phrase. However, the Court is not convinced with the City’s contention.
Sec. 133(j) of the LGC prevails over Sec. 143(h) of the same Code, and Sec. 21(B) of
the Manila Revenue Code, as amended, was manifestly in contravention of the former.

Sec. 133(j) of the LGC is a specific provision that explicitly withholds from any LGU the
power to tax the gross receipts of transportation contractors, common carriers, persons
engaged in the transportation of passengers or freight by hire, and common carriers by
air, land, or water. In contrast, Sec. 143 of the LGC defines the general power of the
municipality (as well as the city, if read in relation to Section 151 of the same Code) to
tax businesses within its jurisdiction.

The succeeding proviso of Section 143(h) of the LGC, viz., “Provided, That on any
business subject to the excise, value-added or percentage tax under the National
Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%)
of gross sales or receipts of the preceding calendar year,” is not a specific grant of
power to the municipality or city to impose business tax on the gross sales or receipts of
such a business. Rather, the proviso only fixes a maximum rate of imposable business
tax in case the business taxed under Section 143(h) of the LGC happens to be subject
to excise, value added, or percentage tax under the NIRC.

The omnibus grant of power to municipalities and cities under Section 143(h) of the
LGC cannot overcome the specific exception/exemption in Section 133(j) of the same
Code.

In the case at bar, the sanggunian of the municipality or city cannot enact an ordinance
imposing business tax on the gross receipts of transportation contractors, persons
engaged in the transportation of passengers or freight by hire, and common carriers by
air, land, or water, when said sanggunian was already specifically prohibited from doing
so. Such construction gives effect to both Sections 133(j) and 143(h) of the LGC. Also,
Sec. 5(b) of the LGC itself, on Rules of Interpretation, provides that in case of doubt,
any tax ordinance shall be construed strictly against the LGU enacting it, and liberally in
favor of the taxpayer. Furthermore, such a construction is pursuant to the legislative
intent to exclude from the taxing power of the LGU the imposition of business tax
against common carriers to prevent a duplication of the so-called “common carrier’s
tax.”

3. MANILA ELECTRIC COMPANY VS PROV. OF LAGUNA

FACTS: When RA 7160 – LGU Code was enacted, enjoining LGUs to create their own
sources of revenue and to levy taxes, the province of Laguna enacted a Provincial
Ordinance imposing 50% tax against 1% of the gross annual receipts of businesses
enjoying a franchise. On the basis of the ordinance, Provincial Treasurer Benito Balazo
sent a demand letter to MERALCO for the payment of corresponding tax. MERALCO
paid the tax under protest. A formal claim for refund was thereafter sent by MERALCO
to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and
continued to pay to the National Government pursuant to P.D. 551 already included the
franchise tax imposed by the Provincial Tax Ordinance. MERALCO, contended that the
imposition of a franchise tax under Sec 2.09 of Laguna Provincial Ordinance No. 01-92
contravened the provisions of Sec 1 of PD 551 which defines a different percentage of
tax (which is 2% of the gross receipts) for franchise grantees generating, distributing,
and selling electric current for light, heat and power, payable to the Commissioner of
Internal Revenue or his duly authorized representative. Such determination is said to be
in lieu of all taxes and assessments of whatever nature imposed by any national or local
authority on earnings, receipts, income and privilege of generation, distribution and sale
of electric current. However, the claim for refund was denied by Governor Jose D. Lina
relying on a more recent law, i.e. RA 7160 than the old decree invoked by MERALCO.
The RTC further denied a complaint for refund for the same and upheld the validity of
the provincial ordinance.

ISSUE: W/N the franchise tax imposed under the Ordinance violates the
non-impairment clause and Sec 1 of PD 551; W/N MERALCO is exempted from
taxation under the LGC or Local Tax Code; thus, should be taxed under PD 551.

RULE: There is no violation of the non-impairment clause. Franchise Taxes are beyond
the purview of the clause for it is not within contractual tax exemptions. In fact, The LGC
expressly repeals laws which are inconsistent with it. Tax exemptions contained in
special franchises are not strictly contractual in nature. Contractual tax exemptions, in
the real sense of the term andwhere the non-impairment clause of the Constitution can
rightly be invoked, are those agreed toby the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered under enabling laws in
which the government, acting in its private capacity, sheds its cloak of authority and
waives its governmental immunity (Because, government descends to be an ordinary
person being a party in a contract). Revocation of this kind of tax exemptions would
impair the obligations of contracts. However, it must not be confused with tax
exemptions granted under franchises. A franchise is in the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. Article XII, Sec 11,
of the 1987 Constitution, like its precursor provisions is explicit that no franchise for the
operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and when
the common good so requires. Hence, the Local Government Code repealed or
modified the inconsistent part or parts of PD 551. As for the present, no law or
amendment has been passed to exempt utility-producing businesses from franchise
taxes.

Prefatorily, it might be well to recall that local governments do not have the inherent power
to tax except to the extent that such power might be delegated to them either by the basic
law or by statute. Presently, under Article X of the 1987 Constitution, a general delegation
of that power has been given in favor of local government units.
Under the regime of the 1935 Constitution no similar delegation of tax powers was
provided, and local government units instead derived their tax powers under a limited
statutory authority. Whereas, then, the delegation of tax powers granted at that time by
statute to local governments was confined and defined (outside of which the power was
deemed withheld), the present constitutional rule (starting with the 1973 Constitution),
however, would broadly confer such tax powers subject only to specific exceptions that the
law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines. The basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units by directly granting them general
and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to
be absolute and unconditional; the constitutional objective obviously is to ensure that,
while the local government units are being strengthened and made more autonomous,[6]
the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled
with multiple and unreasonable impositions; (b) each local government unit will have its
fair share of available resources; (c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform, and just. The 1991 Code
explicitly authorizes provincial governments, notwithstanding “any exemption granted by
any law or other special law, x x x (to) impose a tax on businesses enjoying a franchise.”
Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad
tax powers to local government units, the Local Government Code has effectively
withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by
certain entities. The Code, in addition, contains a general repealing clause in its Section 534
which states that “All general and special laws, acts, city charters, decrees, executive
orders, proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.”

4. NATIONAL POWER CORPORATION VS CITY OF CABANATUAN

FACTS: Petitioner is a government-owned and controlled corporation created under
Commonwealth Act No. 120, as amended. For many years now, petitioner sells electric
power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96
in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the respondent assessed
the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the
latter’s gross receipts for the preceding year. Petitioner refused to pay the tax
assessment arguing that the respondent has no authority to impose tax on government
entities. Petitioner also contended that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees in accordance with sec. 13 of
Rep. Act No. 6395, as amended. The respondent filed a collection suit in the RTC,
demanding that petitioner pay the assessed tax due, plus surcharge. Respondent
alleged that petitioner’s exemption from local taxes has been repealed by section 193 of
the LGC, which reads as follows: “Sec. 193. ​Withdrawal of Tax Exemption Privileges.-
Unless otherwise provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including government
owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.” RTC upheld NPC’s
tax exemption. On appeal the CA reversed the trial court’s Order on the ground that
section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the
exemptions granted to the petitioner.

ISSUE: W/N the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on “businesses enjoying a franchise

HELD: YES. Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence of the state whose
social contract with its citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from necessity;32 without
taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.

One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the national government from the coverage of local
taxation. ​“Although as a general rule, LGUs cannot impose taxes, fees or charges of
any kind on the National Government, its agencies and instrumentalities, this rule now
admits an exception- when specific provisions of the LGC authorize the LGUs to impose
taxes, fees, orcharges on the aforementioned entities.” Sections 151 (scope of taxing
powers of cities) and 137 (franchise tax) of the LGC clearly authorized the city
government of Cabanatuan to impose on the NPC the franchise tax in question.

As commonly used, a franchise tax is "a tax on the privilege of transacting business in
the state and exercising corporate franchises granted by the state." It is not levied on
the corporation simply for existing as a corporation, upon its property or its income, but
on its exercise of the rights or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased to do business and
exercise its franchise. It is within this context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC should be interpreted and understood.
Verily, to determine whether the petitioner is covered by the franchise tax in question,
the following requisites should concur: (1) that petitioner has a "franchise" in the sense
of a secondary or special franchise; and (2) that it is exercising its rights or privileges
under this franchise within the territory of the respondent city government.
NPC fulfills both requisites. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a privilege to do business. The
taxable entity is the corporation which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was created as a separate and distinct
entity from the National Government. It can sue and be sued under its own name, and
can exercise all the powers of a corporation under the Corporation Code.

We also do not find merit in the petitioner's contention that its tax exemptions under its
charter subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must
be shown to exist clearly and categorically, and supported by clear legal provisions. In
the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395
exempting from, among others, "all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities."

It is worth mentioning that section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs.77 But in
enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or other special law," the respondent
city government clearly did not intend to exempt the petitioner from the coverage
thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. As this Court observed in the Mactan
case, "the original reasons for the withdrawal of tax exemption privileges granted to
government-owned or controlled corporations and all other units of government were
that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises." With the added burden of devolution, it is
even more imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due from them.

Section 137 of the LGC clearly states that the LGUs can impose franchise tax
“​notwithstanding any exemption granted by any law or other special law.​ ” This particular
provision of the LGC does not admit any exception. In ​City Government of San Pablo,
Laguna v. Reyes​,74 MERALCO’s exemption from the payment of franchise taxes was
brought as an issue before this Court. The same issue was involved in the subsequent
case of ​Manila Electric Company v. Province of Laguna​.75 Ruling in favor of the local
government in both instances, we ruled that the franchise tax in question is imposable
despite any exemption enjoyed by MERALCO under special laws, ​viz​: “It is our view
that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC to
support their position that MERALCO’s tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
‘notwithstanding any exemption granted by any law or other special law’ is
all-encompassing and clear. ​The franchise tax is imposable despite any exemption
enjoyed under special laws.​

Section 193 buttresses the withdrawal of extant tax exemption privileges.​ By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including
government-owned or controlled corporations except (1) local water districts, (2)
cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals
and educational institutions, are withdrawn upon the effectivity of this code, the obvious
import is to limit the exemptions to the three enumerated entities. It is a basic precept of
statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim ​expressio unius
est exclusio alterius.​ In the absence of any provision of the Code to the contrary, and
we find no other provision in point, any existing tax exemption or incentive enjoyed by
MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC
the local government unit may now impose a local tax at a rate not exceeding 50% of
1% of the gross annual receipts for the preceding calendar based on the incoming
receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax
privileges enjoyed under existing law or charter is clearly manifested by the language
used on (sic) Sections 137 and 193 categorically withdrawing such exemption subject
only to the exceptions enumerated. Since it would be not only tedious and impractical to
attempt to enumerate all the existing statutes providing for special tax exemptions or
privileges, the LGC provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could have been used.”

Issue:
(1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its
stocks are wholly owned by the National Government and its charter characterized is as
a ‘non-profit organization’?
(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of
the Local Government Code (LGC)?

Held:
(1) NO. To stress, a franchise tax is imposed based not on the ownership but on the
exercise by the corporation of a privilege to do business. The taxable entity is the
corporation which exercises the franchise, and not the individual stockholders. By virtue
of its charter, petitioner was created as a separate and distinct entity from the National
Government. It can sue and be sued under its own name, and can exercise all the powers
of a corporation under the Corporation Code. To be sure, the ownership by the National
Government of its entire capital stock does not necessarily imply that petitioner is not
engaged in business.

(2) YES. One of the most significant provisions of the LGC is the removal of the blanket
exclusion of instrumentalities and agencies of the National Government from the
coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees,
or charges of any kind on the National Government, its agencies and instrumentalities,
this rule now admits an exception, i.e. when specific provisions of the LGC authorize the
LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative
purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly
manifested by the language used on Sec. 137 and 193 categorically withdrawing such
exemption subject only to the exceptions enumerated. Since it would be tedious and
impractical to attempt to enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of
such exemptions or privileges. No more unequivocal language could have been used.

5. QUEZON CITY VS ABS-CBN BROADCASTING CORP.

FACTS: Petitioner City Government of Quezon City is a local government unit duly
organized and existing by virtue of Republic Act (R.A.) No. 537, otherwise known as the
Revised Charter of Quezon City. Petitioner City Treasurer of Quezon City is primarily
responsible for the imposition and collection of taxes within the territorial jurisdiction of
Quezon City. ABS-CBN was granted the franchise to install and operate radio and
television broadcasting stations in the Philippines under R.A. No. 7966.
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in
view of the above provision in R.A. No. 9766 that it shall pay a franchise tax x x x in lieu
of all taxes, the corporation developed the opinion that it is not liable to pay the local
franchise tax imposed by Quezon City. ABS-CBN filed a written claim for refund for local
franchise tax paid to Quezon City for 1996 and for the first quarter of 1997. for failure to
obtain any response from the Quezon City Treasurer, ABS-CBN filed a complaint before
the RTC in Quezon City seeking the declaration of nullity of the imposition of local
franchise tax by the City Government of Quezon City for being unconstitutional. It
likewise prayed for the refund of local franchise tax in the amount of P19,944,672.66.
RTC rendered judgment declaring as invalid the imposition on and collection from
ABS-CBN of local franchise tax paid pursuant to Quezon City Ordinance No. SP-91,
S-93, after the enactment of R.A. No. 7966, and ordered the refund of all payments
made. City of Quezon and its Treasurer filed a motion for reconsideration which was
subsequently denied by the RTC. Thus, appeal was made to the CA. CA dismissed the
petition of Quezon City and its Treasurer. According to the appellate court, the issues
raised were purely legal questions cognizable only by the Supreme Court.

ISSUE: Whether or not the phrase in lieu of all taxes indicated in the franchise of the
respondent appellee (Section 8 of RA 7966) serves to exempt it from the payment of the
local franchise tax imposed by the petitioners-appellants.

HELD: No. ​The in lieu of all taxes provision in its franchise does not exempt
ABS-CBN from payment of local franchise tax​. The present controversy essentially
boils down to a dispute between the inherent taxing power of Congress and the
delegated authority to tax of local governments under the 1987 Constitution and
effected under the LGC of 1991. Petitioners argue that the in lieu of all taxes provision
in ABS-CBNs franchise does not expressly exempt it from payment of local franchise
tax. They contend that a tax exemption cannot be created by mere implication and that
one who claims tax exemptions must be able to justify his claim by clearest grant of
organic law or statute.

Taxes are what civilized people pay for civilized society. They are the lifeblood of the
nation. Thus, statutes granting tax exemptions are construed ​stricissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be
clearly shown and based on language in law too plain to be mistaken. Otherwise stated,
taxation is the rule, exemption is the exception. The burden of proof rests upon the party
claiming the exemption to prove that it is in fact covered by the exemption so claimed.

The basis for the rule on strict construction to statutory provisions granting tax
exemptions or deductions is to minimize differential treatment and foster impartiality,
fairness and equality of treatment among taxpayers. He who claims an exemption from
his share of common burden must justify his claim that the legislature intended to
exempt him by unmistakable terms. For exemptions from taxation are not favored in
law, nor are they presumed. They must be expressed in the clearest and most
unambiguous language and not left to mere implications. It has been held that
exemptions are never presumed, the burden is on the claimant to establish clearly his
right to exemption and cannot be made out of inference or implications but must be laid
beyond reasonable doubt. In other words, since taxation is the rule and exemption the
exception, the intention to make an exemption ought to be expressed in clear and
unambiguous terms.

Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3)
percent of all gross receipts of the radio/television business transacted under the
franchise and the franchise tax shall be in lieu of all taxes on the franchise or earnings
thereof. The in lieu of all taxes provision in the franchise of ABS-CBN does not
expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear whether
the exemption would include both local, whether municipal, city or provincial, and
national tax. What is clear is that ABS-CBN shall be liable to pay three (3) percent
franchise tax and income taxes under Title II of the NIRC. But whether the in lieu of all
taxes provision would include exemption from local tax is not unequivocal.

As adverted to earlier, the right to exemption from local franchise tax must be clearly
established and cannot be made out of inference or implications but must be laid
beyond reasonable doubt. Verily, the uncertainty in the in lieu of all taxes provision
should be construed against ABS-CBN. ABS-CBN has the burden to prove that it is in
fact covered by the exemption so claimed. ABS-CBN miserably failed in this regard.

ABS-CBN cites several cases to support its claim that that the in lieu of all taxes clause
includes exemption from all taxes. However, a review of the case law reveals that the
grantees respective franchises expressly exempt them from municipal and provincial
taxes and ABS-CBNs franchise did not embody an exemption similar to those cases.
Too, the franchise failed to specify the taxing authority from whose jurisdiction the taxing
power is withheld, whether municipal, provincial, or national. In fine, since ABS-CBN
failed to justify its claim for exemption from local franchise tax, by a grant expressed in
terms too plain to be mistaken its claim for exemption for local franchise tax must fail.

6. PLDT VS CITY OF DAVAO

Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The
franchise tax was paid “in lieu of all taxes on this franchise or earnings thereof” pursuant
to RA 7082. The exemption from “all taxes on this franchise or earnings thereof” was
subsequently withdrawn by RA 7160 (LGC), which at the same time gave local
government units the power to tax businesses enjoying a franchise on the basis of
income received or earned by them within their territorial jurisdiction. The LGC took
effect on January 1, 1992. The City of Davao enacted Ordinance No. 519, Series of
1992, which in pertinent part provides: Notwithstanding any exemption granted by law
or other special laws, there is hereby imposed a tax on businesses enjoying a franchise,
a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the income receipts realized within the territorial
jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio
Corporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises which
contained “in leiu of all taxes” provisos. In 1995, it enacted RA 7925, or the Public
Telecommunication Policy of the Philippines, Sec. 23 of which provides that any
advantage, favor, privilege, exemption, or immunity granted under existing franchises,
or may hereafter be granted, shall ipso facto become part of previously granted
telecommunications franchises and shall be accorded immediately and unconditionally
to the grantees of such franchises. The law took effect on March 16, 1995. In January
1999, when PLDT applied for a mayor’s permit to operate its Davao Metro exchange, it
was required to pay the local franchise tax which then had amounted to P3,681,985.72.
PLDT challenged the power of the city government to collect the local franchise tax and
demanded a refund of what had been paid as a local franchise tax for the year 1997
and for the first to the third quarters of 1998.

Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the
exemption from payment of the local franchise tax in view of the grant of tax exemption
to Globe and Smart.

Held: No. PLDT is not exempt from franchise tax imposed by City of Davao. Petitioner
contends that because their existing franchises contain “in lieu of all taxes” clauses, the
same grant of tax exemption must be deemed to have become ipso facto part of its
previously granted telecommunications franchise. But the rule is that tax exemptions
should be granted only by a clear and unequivocal provision of law “expressed in a
language too plain to be mistaken” and assuming for the nonce that the charters of
Globe and of Smart grant tax exemptions, then this runabout way of granting tax
exemption to PLDT is not a direct, “clear and unequivocal” way of communicating the
legislative intent.
Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax exemption. The term
refers to exemption from regulations and requirements imposed by the National
Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The
Commission shall exempt any specific telecommunications service from its rate or tariff
regulations if the service has sufficient competition to ensure fair and reasonable rates
of tariffs. Another exemption granted by the law in line with its policy of deregulation is
the exemption from the requirement of securing permits from the NTC every time a
telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on
the basis of language too plain to be mistaken.

R.A. No. 7925 is thus a legislative enactment designed to set the national policy on
telecommunications and provide the structures to implement it to keep up with the
technological advances in the industry and the needs of the public. The thrust of the law
is to promote gradually the deregulation of the entry, pricing, and operations of all public
telecommunications entities and thus promote a level playing field in the
telecommunications industry. There is nothing in the language of 23 nor in the
proceedings of both the House of Representatives and the Senate in enacting R.A. No.
7925 which shows that it contemplates the grant of tax exemptions to all
telecommunications entities, including those whose exemptions had been withdrawn by
the LGC.

The tax exemption must be expressed in the statute in clear language that leaves no
doubt of the intention of the legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in ​strictissimi juris​ against the taxpayer and
liberally in favor of the taxing authority.

In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption
from certain regulatory or reporting requirements, bearing in mind the policy of the law.
It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did
not base its opinion on 23 but on the fact that the franchises granted to them after the
effectivity of the LGC exempted them from the payment of local franchise and business
taxes.

7. PHIL. MATCH CO. LTD. VS CITY OF CEBU

FACTS: This case is about the legality of the tax collected by the City of Cebu on sales
of matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to
customers outside of the City. Ordinance No. 279 of Cebu is "an ordinance imposing a
quarterly tax on gross sales or receipts of merchants,dealers, importers and
manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of
one percent (1%) on the gross sales, receipts or value of commodities sold, bartered,
exchanged or manufactured in the city in excess of P2,000 a quarter. Section 9 of the
ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities
stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as
sales" in the city and shall be taxable. The Philippine Match Co., Ltd., is engaged in the
manufacture of matches. It ships cases or cartons of matches from Manila to its branch
office in Cebu City for storage, sale and distribution within the territories and districts
under its Cebu branch or the whole Visayas-Mindanao region. The company does not
question the tax on the matches of matches consummated in Cebu City. It assails the
legality of the tax which the city treasurer collected on out-of- town deliveries of
matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped
directly to customers outside of the city; (2) transfers of matches to newsmen assigned
to different agencies outside of the city and (3) shipments of matches to provincial
customers pursuant to salesmen's instructions.

ISSUE: (1) WON the City of Cebu can tax sales of matches which were perfected and
paid for in Cebu City but the matches were delivered to customers outside of the City.
(2) WON the trial court erred in not ordering defendant acting city treasurer to pay
exemplary damages

HELD:
1. Yes. The city can validly tax the sales of matches to customers outside of the city as
long as the orders were booked and paid for in the company's branch office in the city.
Those matches can be regarded as sold in the city, as contemplated in the ordinance,
because the matches were delivered to the carrier in Cebu City. Generally, delivery to
the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer & Co. vs.
Yangco, 38 Phil. 602).The municipal board of Cebu City is empowered "to provide for
the levy and collection of taxes for general and purposes in accordance with law" (Sec.
17[a], Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of
Cebu city). The taxing power validly delegated to cities and municipalities is defined in
the Local Autonomy Act, Republic Act No. 2264 The prohibition against the imposition
of percentage taxes (formerly provided for in section 1 of Commonwealth Act No.472)
refers to municipalities and municipal districts but not to chartered cities. The taxing
power of cities, municipalities and municipal districts may be used (1) "upon any person
engaged in any occupation or business, or exercising any privilege" therein; (2) for
services rendered by those political subdivisions or rendered in connection with any
business, profession or occupation being conducted therein, and (3) to levy, for public
purposes, just and uniform taxes, licenses or fees.The sales in the instant case were in
the city and the matches sold were stored in the city. The fact that the matches were
delivered to customers, whose places of business were outside of the city, would not
place those sales beyond the city's taxing power. Those sales formed part of the
merchandising business being assigned on by the company in the city. Inessence, they
are the same as sales of matches fully consummated in the city.

2. No. The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the
Civil Code. It is argued that the city treasurer refused and neglected without just cause
to perform his duty and to act with justice and good faith. The company faults the city
treasurer for not following the opinion of the city fiscals, as legal adviser of the city, that
all out-of-town deliveries of matches are not subject to sales tax because such
transactions were effected outside of the city's territorial limits. The city treasurer acted
within the scope of his authority and in consonance with his bona fide interpretation of
the tax ordinance. The fact that his action was not completely sustained by the courts
would not him liable for the court have upheld his act of taxing sales of matches booked
and paid for in the city.

Facts: Cebu City imposed a quarterly tax (sales tax of 1%) on gross sales or
receipts of merchants, dealers, importers and manufacturers or any commodity
doing business in Cebu City, through Ordinance 279. Section 9 of the Ordinance
provided that, for the purpose of the tax, “all deliveries of goods or commodities
stored in Cebu City, or if not stored are solld in that city sahll be considered as
sales in the city and shall be taxable.” Philippine Match Co. Ltd., with principal
office in Manila, questioned the legality of the tax collected by the City of Cebu on
sales of matches stored by the company in Cebu City but delivered to customers
outside the city.

Issue: Whether the City of Cebu can tax sales of matches which were perfected
and paid for in Cebu City but where the matches were delivered to customers
outside the city.

Held: The city can validly tax the sales of matches to customers outside of the
city as long as the orders were booked and paid for in the company’s branch
office in the city. Those matches can be regarded as sold in the city, as
contemplated in the ordinance, because the matches were delivered to the carrier
in Cebu City. Generally, delivery to the carrier is delivery to the buyer (Article
1523, Civil Code). A different interpretation would defeat the tax ordinance in
question or encourage tax evasion through the simple expedient of arranging for
the delivery of the matches at the outskirts of the city though the purchases were
effected and paid for in the company’s branch office in the city. The municipal
board of the city is empowered to provide for the levy and collection of taxes for
general and special purposes in accordance with law.
 8. ONGSUCO VS MALONES
Facts: Petitioners are stall holders at the Maasin Public Market. After a meeting with the
stall holders, Sangguniang Bayan of Maasin approved Municipal Ordinance No. 98-01,
entitled "The Municipal Revised Revenue Code."The Code contained a provision for
increased rentals for the stalls and the imposition of goodwill fees in the amount of
P20,000.00 andP15,000.00 for stalls located on the first and second floors of the
municipal public market, respectively. The same Code authorized respondent to enter
into lease contracts over the said market stalls, and incorporated a standard contract of
lease for the stall holders at the municipal public market.Sangguniang Bayan of Maasin
approved Resolution No. 68, series of 1998, moving to have the meeting declared
inoperative as a public hearing, because majority of the persons affected by the
imposition of the goodwill fee failed to agree to the said measure. However,Resolution
No. 68, series of 1998, of the Sangguniang Bayan of Maasin was vetoed by respondent
on 30 September 1998. Respondent wrote a letter to petitioners informing them that
they were occupying stalls in the newly renovated municipal public market without any
lease contract, as a consequence of which, the stalls were considered vacant and open
for qualified and interested applicants.Petitioners filed a Petition for
Prohibition/Mandamus, with Prayer for Issuance of Temporary Restraining Order and/or
Writ of Preliminary Injunction, against respondent. The RTC found that petitioners could
not avail themselves of the remedy of mandamus or prohibition. Because they failed to
show a clear legal right to the use of the market stalls without paying the goodwill fees
and also on the ground of non-exhaustion of administrative remedies. This decision was
affirmed by the Court of Appeals.

Issues: W/N there was a need for the exhaustion of administrative remedies- NO
W/N the imposition of the goodwill fees is valid- NO, it is defective due to lack of public
hearings

Held/Ratio:

The Court determines that there is no need for petitioners to exhaust administrative remedies
before resorting to the courts. It is true that the general rule is that before a party is allowed to
seek the intervention of the court, he or she should have availed himself or herself of all the
means of administrative processes afforded him or her. Hence, if resort to a remedy within the
administrative machinery can still be made by giving the administrative officer concerned every
opportunity to decide on a matter that comes within his or her jurisdiction, then such remedy
should be exhausted first before the courts judicial power can be sought. The premature
invocation of the intervention of the court is fatal to ones cause of action. The doctrine of
exhaustion of administrative remedies is based on practical and legal reasons.The availment of
administrative remedy entails lesser expenses and provides for a speedier disposition of
controversies. Furthermore, the courts of justice, for reasons of comity and convenience, will shy
away from a dispute until the system of administrative redress has been completed and complied
with, so as to give the administrative agency concerned every opportunity to correct its error and
dispose of the case. However, there are several exceptions to this rule.

The rule on the exhaustion of administrative remedies is intended to preclude a court

from arrogating unto itself the authority to resolve a controversy, the jurisdiction over
which is initially lodged with an administrative body of special competence. Thus, a case
where the issue raised is a purely legal question, well within the competence; and the
jurisdiction of the court and not the administrative agency,would clearly constitute an
exception.

Paragraph 2(a) of Section 5, Article VIII of the Constitution, expressly establishes the appellate
jurisdiction of this Court, and impliedly recognizes the original jurisdiction of lower courts over
cases involving the constitutionality or validity of an ordinance. In this case, the parties are not
disputing any factual matter on which they still need to present evidence. The sole issue
petitioners raised before the RTC in Civil Case No. 25843 was whether Municipal Ordinance
No. 98-01 was valid and enforceable despite the absence, prior to its enactment, of a public
hearing held in accordance with Article 276 of the Implementing Rules and Regulations of the
Local Government Code. This is undoubtedly a pure question of law, within the competence and
jurisdiction of the RTC to resolve.

With regards to the validity of MO 98-01, the court finds the argument of the respondent
specious. For the valid enactment of ordinances imposing charges, certain legal requisites must
be met. Section 186 of the Local Government Code identifies such requisites as follows: ​Power
to Levy Other Taxes, Fees or Charges​. Local government units may exercise the power to levy
taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or
taxed under the provisions of the National Internal Revenue Code, as amended, or other
applicable laws: ​Provided,​ That the taxes, fees or charges shall not be unjust, excessive,
oppressive, confiscatory or contrary to declared national policy: ​Provided, further, ​That the
ordinance levying such taxes, fees or charges shall not be enacted without any prior public
hearing conducted for the purpose.
Section 277 of the Implementing Rules and Regulations of the Local Government Code
establishes in detail the procedure for the enactment of such an ordinance: In addition to the
requirement for publication or posting, the sanggunian concerned shall cause the sending of
written notices of the proposed ordinance, enclosing a copy thereof, to the interested or affected
parties operating or doing business within the territorial jurisdiction of the LGU concerned. The
notice or notices shall specify the date or dates and venue of the public hearing or hearings. The
initial public hearing shall be held not earlier than ten (10) days from the sending out of the
notice or notices, or the last day of publication, or date of posting thereof, whichever is later; No
tax ordinance or revenue measure shall be enacted or approved in the absence of a public hearing
duly conducted in the manner provided under this Article. It is categorical, therefore, that a
public hearing be held prior to the enactment of an ordinance levying taxes, fees, or charges; and
that such public hearing be conducted as provided under Section 277 of the Implementing Rules
and Regulations of the Local Government Code.

There is no dispute herein that the notices sent to petitioners and other stall holders at
the municipal public market were sent out,informing them of the supposed "public
hearing" to be held on 11 August 1998. Even assuming that petitioners received their
notice, the "public hearing" was already scheduled, and actually conducted, only five
days later. This contravenes Article 277 (b) (3) of the Implementing Rules and
Regulations of the Local Government Code which requires that the public hearing be
held no less than ten days from the time the notices were sent out, posted, or
published.When the Sangguniang Bayan of Maasin sought to correct this procedural
defect through Resolution No. 68, series of 1998 vetoed the said resolution. Although
the Sangguniang Bayan may have had the power to override respondent's veto, it no
longer did so.The defect in the enactment of Municipal Ordinance No. 98 was not cured
when another public hearing was held on 22 January 1999,after the questioned
ordinance was passed by the Sangguniang Bayan and approved by respondent on 17
August 1998. Section 186 of the Local Government Code prescribes that the public
hearing be held prior to the enactment by a local government unit of an ordinance
levying taxes, fees, and charges.Since no public hearing had been duly conducted prior
to the enactment of Municipal Ordinance No. 98-01, said ordinance is void and cannot
be given any effect. Consequently, a void and ineffective ordinance could not have
conferred upon respondent the jurisdiction to order petitioners' stalls at the municipal
public market vacant.

9. CAGAYAN ELECTRIC POWER VS CITY OF CAGAYAN DE ORO

Facts: Cagayan Electric is a holder of a legislative franchise under Republic Act 3247
where payment of 3% tax on gross earnings is in lieu of all taxes and assessments
upon privileges, etc. In 1968, RA 5431 amended the franchise by making all corporate
taxpayers liable for income tax except those indicated in paragraph (c) (1) of Section 24
of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other
towns and the tax exemption was reenacted. In 1973, the Commissioner required the
company to pay deficiency income taxes for 1968 to 1971.
Issue: Whether the withdrawal of the franchise’s tax exemption violates the
non-impairment clause of the Constitution.

Held: Congress could impair the company’s legislative franchise by making it liable for
income tax. The Constitution provides that a franchise is subject to amendment,
alteration or repeal by the Congress when the public interest so requires. RA 3247 itself
provides that the franchise is subject to amendment, etc. by Congress. The enactment
of RA 5431 had the effect of withdrawing the company’s exemption from income tax.
The exemption was restored by the enactment of RA 6020. The company is liable only
for the income tax for the period of 1 January to 3 August 1969.

10. YAMANE VS BA LEPANTO CONDOMINIUM CORP.

Facts: Respondent BA-Lepanto Condominium Corporation (the “Corporation”) is a
condominium corporation constituted in accordance with the Condominium Act, which
owns and holds title to the common and limited common areas of the BA- Lepanto
Condominium (the “Condominium”), situated in Makati City its membership comprises
the various unit owners. The Corporation is authorized, under Article V of its Amended
By-Laws, to collect regular assessments from its members for operating expenses,
capital expenditures on the common areas, and other special assessments as provided
for in the Master deed with declaration of Restrictions of the Condominium.
The Corporation received a Notice of Assessment signed by the City Treasurer. The
Notice of Assessment stated that the Corporation is “liable to pay the correct city
business taxes.” The Notice of Assessment was silent as to the statutory basis of the
business taxes assessed. The Corporation responded with a written tax protest
addressed to the City treasurer. According to respondent, under both the Makati Code
and the Local government Code, “business” is defined as “trade or commercial activity
regularly engaged in as a means of livelihood or with a view to profit.” "It was submitted
that the Corporation, as a condominium corporation, was organized not for profit, but to
hold title over the common areas of the Condominium, to manage the Condominium for
the unit owners, and to hold title to the parcels of land on which the Condominium was
located. Neither was the Corporation authorized, under its articles of incorporation or
bylaws to engage in profit-making activities. The assessments it did collect from the unit
owners were for capital expenditures and operating expenses. The protest was rejected
by the City Treasurer and insisted that the collection of dues from the unit owners was
effected primarily “to sustain and maintain the expenses of the common areas, with the
end in view of getting full appreciative living values for the individual condominium
occupants and to command better marketable prices for those occupants” who would in
the future sell their respective units. In short, the petitioner avers that it is engaged in
business for profit making. Because of the denial of the protest, respondent filed an
Appeal with the RTC of Makati. However, the latter dismissed the case. As a recourse,
respondent filed a Petition for Review under Rule 42 of the Rules of Civil Procedure with
the CA. It was dismissed outright because only decisions of the RTC brought on appeal
from a first level court could be elevated for review under Rule 42 However, it was
reinstated # the CA because of 2ec! 345 of the LC statin that the remed of the taxpayer
on the denial of the protest filed with the local treasurer is to appeal the denial with the
court of competent jurisdiction. Afterwards, the CA reversed the ruling of the RTC.

Issue:
a) Whether the RTC, in deciding an appeal taken from a denial of a protest by a local
treasurer under Section 195 of the Local Government Code, exercises “original
jurisdiction” or “appellate jurisdiction”
b) Whether or not the City of Makati may collect business taxes on condominium
corporations

Held:
a) The review taken by the RTC over the denial of the protest by the local treasurer
would fall within that court’s original jurisdiction. The review is the initial judicial
cognizance of the matter!. Moreover, labeling the said review as an exercise of
appellate jurisdiction is inappropriate, since the denial of the protest is not the judgment
or order of a lower court, but of a local government official. Republic Act No. 9282
definitely proves that the CTA exercises exclusive appellate jurisdiction to review on
appeal decisions,orders or resolutions of the Regional trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction. Moreover, the provision also states that the review is triggered “by filing a
petition for review under a procedure analogous to that provided for under Rule 42 of
the 1997 Rules of Civil Procedure.” Republic Act No. 9282,however, would not apply to
this case simply because it arose prior to the effectivity of that law.

b) No. Section 143 of the Code specifically enumerates several types of business on
which municipalities and cities may impose taxes. However, the Corporation does not
fall under such law. Moreover, nowhere in the Makati Revenue Code that would serve
as the legal authority for the collection of business taxes from condominiums in Makati.
We can elicit from the Condominium Act that a condominium corporation is precluded
by statute from engaging in corporate activities other than the holding of the common
areas, the administration of the condominium project, and other acts necessary,
incidental or convenient to the accomplishment of such purposes. Neither the
maintenance of livelihood, nor the procurement of profit, fall within the scope of
permissible corporate purposes of a condominium corporation under the Condominium
Act. None of these stated corporate purposes are geared towards maintaining a
livelihood or the obtention of profit. Even though the Corporation is empowered to levy
assessments or dues from the unit owners, these amounts collected are not intended
for the incurrence of profit by the Corporation or its members, but to shoulder the
multitude of necessary expenses that arise from the maintenance of the Condominium
project.

Nowhere therein is there any citation made by the City Treasurer of any provision
of the Revenue Code which would serve as the legal authority for the collection of
business taxes from condominiums in Makati.

Reference to the local tax ordinance is vital, for the... power of local government
units to impose local taxes is exercised through the appropriate ordinance
enacted by the sanggunian, and not by the Local Government Code alone.[44]
What determines tax liability is the tax ordinance, the Local Government Code
being the enabling law for the local legislative body.

City Treasurer failed to cite the specific statutory basis of the tax.

Condominium corporations are generally exempt from local business taxation

under the Local Government Code.

The assessment appears to be based solely on the Corporation's collection of

assessments from unit owners, such... assessments being utilized to defray the
necessary expenses for the Condominium Project and the common areas.

Hence, the assailed tax assessment has no basis under the Local Government
Code or the Makati Revenue Code

11. ERICSSON TELECOMMUNICATIONS VS CITY OF PASIG

Facts: Ericsson Telecommunications, Inc. is a corporation engaged in the design,
engineering, and marketing of telecommunication facilities/system with principal
address at Pasig City. It was assessed by the City Treasurer of Pasig City of business
tax deficiency for the years 1998 and 1999 and also for 2000 and 2001 based on its
gross revenues. Petitioner filed a Protest arguing that that the local business tax on
contractors should be based on gross receipts and not gross revenue.

FACTS: E​ ricsson Telecommunications, Inc. (petitioner), a corporation with 

principal office in Pasig City (respondent), is engaged in the design, 
engineering, and marketing of telecommunication facilities/system. In an 
Assessment Notice dated October 25, 2000 issued by the City Treasurer of Pasig 
City, petitioner was assessed a business tax deficiency for the years 1998 and 
1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on 
its gross revenues as reported in its audited financial statements for the years 
1997 and 1998. Petitioner filed a Protest claiming that the computation of the 
local business tax should be based on ​gross receipts​ and not on gross revenue. 
Respondent issued another Notice of Assessment to petitioner on November 
19, 2001, this time based on business tax deficiencies for the years 2000 and 
2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on 
its gross revenues for the years 1999 and 2000. Again, petitioner filed a 
Protest, reiterating its position that the local business tax should be based on 
gross receipts​ and not gross revenue. Respondent denied petitioner’s protest 
and gave the latter 30 days within which to appeal the denial. Petitioner filed a 
petition for review with the RTC of Pasig, praying for the annulment and 
cancellation of petitioner’s deficiency local business taxes totaling 
P17,262,205.66. 

Issue: What should be the basis of the local business tax? Gross receipts or gross
revenue?

Held: The basis should be gross receipts. Paragraph e, Section 143 of the Local
Government Code provides that “The municipality may impose taxes on the following
businesses: (e) On contractors and other independent contractors, in accordance with
the following schedule:
With gross receipts for the preceding calendar year in the amount of: Amount of Tax Per
Annum
The above provision specifically refers to gross receipts.

Section 131 of the Local Government Code defines gross sales or receipts as follows:
"Gross Sales or Receipts" - include the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the amount
charged or materials supplied with the services and the deposits or advance payments
actually or constructively received during the taxable quarter for the services performed
or to be performed for another person excluding discounts if determinable at the time of
sales, sales return, excise tax, and value-added tax (VAT);
The law is clear. Gross receipts include money or its equivalent actually or
constructively received in consideration of services rendered or articles sold, exchanged
or leased, whether actual or constructive.

“Gross Revenue” - covers money or its equivalent actually or constructively received,

including the value of services rendered or articles sold, exchanged or leased, the
payment of which is yet to be received. This is in consonance with the International
Financial Reporting Standards, which defines revenue as the gross inflow of economic
benefits (cash, receivables, and other assets) arising from the ordinary operating
activities of an enterprise (such as sales of goods, sales of services, interest,
royalties,and dividends), which is measured at the fair value of the consideration
received or receivable.

In petitioner's case, its audited financial statements reflect income or revenue which
accrued to it during the taxable period although not yet actually or constructively
received or paid. This is because petitioner uses the accrual method of accounting,
where income is reportable when all the events have occurred that fix the taxpayer's
right to receive the income, and the amount can be determined with reasonable
accuracy; the right to receive income, and not the actual receipt, determines when to
include the amount in gross income.The imposition of local business tax based on
petitioner's gross revenue will inevitably result in the constitutionally proscribed double
taxation – taxing of the same person twice by the same jurisdiction for the same thing –
inasmuch as petitioner's revenue or income for a taxable year will definitely include its
gross receipts already reported during the previous year and for which local business
tax has already been paid.

ISSUE: 
What is the extent of the Power of Local Taxation? 
  
RULING: 
The power to tax is primarily vested in the Congress; however, it may be 
exercised by local legislative bodies pursuant to direct authority conferred by 
Section 5, Article X of the Constitution. Under the latter, the exercise of the 
power may be subject to such guidelines and limitations as Congress may 
provide. Respondent assessed deficiency local business taxes on petitioner 
based on the latter’s gross revenue as reported in its financial statements, 
arguing that g
​ ross receipts​ is synonymous with gross earnings/revenue, 
which, in turn, includes uncollected earnings. Petitioner, however, contends 
that only the portion of the revenues which were actually and constructively 
received should be considered in determining its tax base. 
Thus, respondent committed a palpable error when it assessed petitioner’s 
local business tax based on its gross revenue as reported in its audited 
financial statements, as Section 143 of the Local Government Code and 
Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be 
computed based on g ​ ross receipts​. 

12. ORLEYTE COMPANY PHILIPPINE BRANCH VS CITY OF MAKATI

LOCAL GOVERNMENT TAXATION - REAL PROPERTY TAXATION:

13. DEMAALA VS COMMISSION ON AUDIT

14. LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY

FACTS: Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823,
seeks exemption from real property taxes when the City Assessor issued Tax
Declarations for the land and the hospital building. Petitioner predicted on its claim that
it is a charitable institution. The request was denied, and a petition hereafter filed before
the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for reversal of the
resolution of the City Assessor. Petitioner alleged that as a charitable institution, is
exempted from real property taxes under Sec 28(3) Art VI of the Constitution. QC-LBAA
dismissed the petition and the decision was likewise affirmed on appeal by the Central
Board of Assessment Appeals of Quezon City. The Court of Appeals affirmed the
judgment of the CBAA.

ISSUE:
1. Whether or not petitioner is a charitable institution within the context of PD 1823 and
the 1973 and 1987 Constitution and Section 234(b) of RA 7160.
2. Whether or not petitioner is exempted from real property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within the context of
the 1973 and 1987 Constitution. Under PD 1823, the petitioner is a non-profit and
non-stock corporation which, subject to the provisions of the decree, is to be
administered by the Office of the President with the Ministry of Health and the Ministry
of Human Settlements. The purpose for which it was created was to render medical
services to the public in general including those who are poor and also the rich, and
become a subject of charity. Under PD 1823, petitioner is entitled to receive donations,
even if the gift or donation is in the form of subsidies granted by the government.

2. ​ ​The petition was partly granted. The respondent Quezon City Assessor was directed
to determine the precise portions of the land and the area thereof which are leased to
private persons, and to compute the real property taxes due thereon as provided for by
law.​ Under PD 1823, the lung center does not enjoy any property tax exemption
privileges for its real properties as well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property
taxes only. This provision was implanted by Sec.243 (b) of RA 7160.which provides that
in order to be entitled to the exemption, the lung center must be able to prove that: it is a
charitable institution and; its real properties are actually, directly and exclusively used
for charitable purpose. Accordingly, the portions occupied by the hospital used for its
patients are exempt from real property taxes while those leased to private entities are
not exempt from such taxes.

Moreover, P.D. No. 1823 only speaks of tax exemptions as regards to:

● income and gift taxes for all donations, contributions, endowments and
equipment and supplies to be imported by authorized entities or persons and by
the Board of Trustees of the Lung Center of the Philippines for the actual use and
benefit of the Lung Center; and

● taxes, charges and fees imposed by the Government or any political

subdivision or instrumentality thereof with respect to equipment purchases
(expression unius est exclusion alterius/expressium facit cessare tacitum).

Second Issue:​ those portions of its real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly and exclusively
used for charitable purposes.

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.

Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges: ​The Lung
Center of the Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality thereof with
respect to equipment purchases made by, or for the Lung Center.

It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have been among the enumeration of
tax exempt privileges under Section 2.

Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: ​Charitable
institutions, churches and parsonages or convents appurtenant thereto, mosques,
non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and
exclusively used for religious, charitable or educational purposes shall be exempt from
taxation.

The tax exemption under this constitutional provision covers property taxes only. What
is exempted is not the institution itself . . .; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used for religious,
charitable or educational purposes.”

In light of the changes in the Constitution, the petitioner cannot rely on our ruling in
Herrera v. Quezon City Board of Assessment Appeals which was promulgated on
September 30, 1961 before the 1973 and 1987 Constitutions took effect.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to
the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that
(a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY
and EXCLUSIVELY used for charitable purposes.

“​Exclusive​” is defined as possessed and enjoyed to the exclusion of others; debarred

from participation or enjoyment; and “​exclusively​” is defined, “in a manner to exclude;
as enjoying a privilege exclusively.” If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is subject to taxation.
The words “​dominant use​” or “​principal use​” cannot be substituted for the words
“used exclusively” without doing violence to the Constitutions and the law. ​Solely​ is
synonymous with exclusively.

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.

Accordingly, 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.

15. GOVERNMENT SERVICE INSURANCE SYSTEM VS CITY TREASURER OF

MANILA
FACTS: Petitioner GSIS owns or used to own two (2) parcels of land, Katigbak property
and Concepcion-Arroceros property. Both the GSIS and the Metropolitan Trial Court
(MeTC) of Manila occupy the Concepcion-Arroceros property, while the Katigbak
property was under lease with Manila Hotel Corporation (MHC).
The City Treasurer of Manila assessed GSIS unpaid real property taxes due from 1992
to 2002, broken down as follows: (a) PhP54,826,599.37 for the Katigbak property; and
(b) PhP48,498,917.01 for the Concepcion-Arroceros property. The letter warned of the
inclusion of the subject properties public auction of all delinquent properties in Manila
should the unpaid taxes remain unsettled.
The City Treasurer of Manila issued separate Notices of Realty Tax Delinquency with
warning of seizure and/or sale. GSIS wrote back emphasizing the GSIS' exemption from
all kinds of taxes, including realty taxes, under Republic Act No. (RA) 8291. GSIS filed a
petition for certiorari and prohibition with prayer for a restraining and injunctive relief
before the Manila RTC. RTC dismissed GSIS petition and ruled that it is liable.

ISSUES: 1. Whether petitioner is exempt from the payment of real property taxes from
1992 to 2002;
2. Whether petitioner is exempt from the payment of real property taxes on the property
it leased to a taxable entity; and
3. Whether petitioner's real properties are exempt from warrants of levy and from tax
sale for non-payment of real property taxes.
RULING: The petition is meritorious. ​x x x The tax exemption the property of the Republic
or its instrumentalities carries ceases only if, as stated in Sec. 234(a) of the LGC of 1991,
“beneficial use thereof has been granted, for a consideration or otherwise, to a taxable
person.” GSIS, as a government instrumentality, is not a taxable juridical person under
Sec. 133(o) of the LGC. GSIS, however, lost in a sense that status with respect to the
Katigbak property when it contracted its beneficial use to MHC, doubtless a taxable
person. Thus, the real estate tax assessment of Php 54,826,599.37 covering 1992 to 2002
over the subject Katigbak property is valid insofar as said tax delinquency is concerned as
assessed over said property.

First Issue: GSIS Exempt from Real Property Tax.

Full tax exemption granted through PD 1146:
In 1977, PD 1146 otherwise known as the Revised Government Service Insurance Act
of 1977, was issued, providing for an expanded insurance system for government
employees.

Sec. 33 of PD 1146 provided for a new tax treatment for GSIS, thus: Exemption from
Tax, Legal Process and Lien. — ...the System, its assets, revenues including all
accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees,
charges or duties of all kinds.
RA 7160 enacted in 1991 lifted GSIS tax exemption under Sec. 193 and 234.
SEC. 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or -controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.
SEC. 234. Exemption from Real Property Tax. — . . . 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 corporation are hereby withdrawn upon the effectivity of this Code.

From the foregoing provisos, full tax exemption granted to GSIS under PD 1146,
particular insofar as realty tax was deemed withdrawn.

Full tax exemption reenacted through RA 8291 PD 1146 was further amended and
expanded by RA 8291 which took effect on June 24, 1997. Full tax exemption privilege
of GSIS was restored, the operative provision being Sec. 39 which reads as: SEC. 39.
Exemption from Tax, Legal Process and Lien. — ... the GSIS, its assets, revenues
including all accruals thereto, and benefits paid, shall be exempt from all taxes,
assessments, fees, charges or duties of all kinds.
These exemptions shall continue unless expressly and specifically revoked and any
assessment against the GSIS as of the approval of this Act are hereby considered
paid…

Moreover, these exemptions shall not be affected by subsequent laws to the contrary
unless this section is expressly, specifically and categorically revoked or repealed by
law and a provision is enacted to substitute or replace the exemption referred to herein
as an essential factor to maintain or protect the solvency of the fund, notwithstanding
and independently of the guaranty of the national government to secure such solvency
or liability. The funds and/or the properties referred to herein as well as the benefits,
sums or monies corresponding to the
benefits under this Act shall be exempt from attachment, garnishment, execution, levy
or other processes issued by the courts, quasi-judicial agencies or administrative
bodies…

Given the foregoing perspectives, the following may be assumed: (1) Pursuant to Sec.
33 of PD 1146, GSIS enjoyed tax exemption from real estate taxes, among other tax
burdens, until January 1, 1992 when the LGC took effect and withdrew exemptions from
payment of real estate taxes privileges granted under PD 1146; (2) RA 8291 restored in
1997 the tax exempt status of GSIS by reenacting under its Sec. 39 what was once
Sec. 33 of P.D. 1146; and (3) If any real estate tax is due to the City of Manila, it is, only
for the interim period, or from 1992 to 1996, to be precise.

Second Core Issue: Beneficial Use Doctrine Applicable

The leased Katigbak property shall be taxable pursuant to the "beneficial use" principle
under Sec. 234 (a) of the LGC.
Sec. 234 (a), quoted below, exempts from real estate taxes real property owned by the
Republic, unless the beneficial use of the property is, for consideration, transferred to a
taxable person.
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.
This exemption, however, must be read in relation with Sec. 133 (o) of the LGC, which
prohibits LGUs from imposing taxes or fees of any kind on the national government, its
agencies, and instrumentalities:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. —
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following: (o) Taxes,
fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units.

The provisions allow the Republic to grant the beneficial use of its property to an agency
or instrumentality of the national government. Such grant does not necessarily result in
the loss of the tax exemption. The tax exemption the property of the Republic or its
instrumentality carries ceases only if, as stated in Sec. 234 (a) of the LGC of 1991,
"beneficial use thereof has been granted, for a consideration or otherwise, to a taxable
person."

GSIS, as a government instrumentality, is not a taxable juridical person under Sec. 133
(o) of the LGC. GSIS, however, lost in a sense that status with respect to the Katigbak
property when it contracted its beneficial use to MHC, doubtless a taxable person. Thus,
the real estate tax assessment of PhP54,826,599.37 covering 1992 to 2002 over the
subject Katigbak property is valid insofar as said tax delinquency is concerned as
assessed over said property. As a matter of law and contract, MHC stands liable to pay
the realty taxes due on the Katigbak property.

Third Core Issue: GSIS Properties Exempt from Levy

A valid tax levy presupposes a corresponding tax liability. Nonetheless, it will not be
remiss to note that it is without doubt that the subject GSIS properties are exempt from
any attachment, garnishment, execution, levy, or other legal processes.
SEC. 39. Exemption from Tax, Legal Process and Lien. — . . . . The funds and/or the
properties referred to herein as well as the benefits, sums or monies corresponding to
the benefits under this Act shall be exempt from attachment, garnishment, execution,
levy or other processes issued by the courts, quasi-judicial agencies or administrative
bodies...

16. FELS ENERGY VS PROVINCE OF BATANGAS

Facts:  Two  consolidated  cases  were  filed  by  FELS  Energy,  Inc.  (FELS)  and  National 
Power  Corporation  (NPC),  respectively.  NPC  entered  into  a  lease  contract  with  Polar 
Energy,  Inc.  over  diesel  engine  power  barges  moored  at  Batangas.  The  contract, 
denominated  as  an  Energy  Conversion  Agreement,  was  for  a  period  of  five  years 
wherein, NPC shall be responsible for the payment of: 
(a) all taxes, import duties, fees, charges and other levies imposed by the National 
Government 
(b) all real estate taxes and assessments, rates and other charges in respect of the 
Power Barges 
 
Subsequently,  Polar  Energy,  Inc.  assigned  its  rights  under  the  Agreement  to  FELS. 
Thereafter,  FELS  received  an  assessment  of  real  property  taxes  on  the power barges. 
The  assessed  tax,  which  likewise  covered  those  due  for  1994,  amounted  to 
P56,184,088.40  per  annum.  FELS  referred  the  matter  to  NPC,  reminding  it  of  its 
obligation  under  the  Agreement  to  pay  all  real  estate taxes. It then gave NPC the full 
power  and  authority  to  represent  it  in  any  conference  regarding  the  real  property 
assessment of the Provincial Assessor. 
NPC  sought  reconsideration  of  the  Provincial  Assessor’s  decision  to  assess  real 
property  taxes  on  the  power  barges.  However,  the  motion  was  denied.  The  Local 
Board  of  Assessment  Appeals  (LBAA)  ruled  that  the  power  plant  facilities,  while  they 
may  be  classified  as  movable  or  personal  property,  are  nevertheless  considered  real 
property  for  taxation  purposes  because  they are installed at a specific location with a 
character of permanency. 
FELS  appealed  the  LBAA’s  ruling  to  the  Central  Board  of  Assessment  Appeals  (CBAA). 
The  CBAA  rendered  a  Decision  finding  the  power  barges  exempt  from  real  property 
tax.​ ​It was later reversed by the cbaa upon reconsideration and affirmed by the CA 
 
ISSUE 
Whether  power  barges,  which  are  floating  and  movable,  are  personal  properties  and 
therefore, not subject to real property tax. 
 
RULING 
No.  Article  415  (9)  of  the  New  Civil  Code  provides that "[d]ocks and structures which, 
though  floating,  are  intended by their nature and object to remain at a fixed place on 
a  river,  lake,  or  coast"  are  considered  immovable  property.  Thus,  power  barges  are 
categorized  as  immovable  property  by  destination,  being  in  the  nature  of  machinery 
and  other  implements  intended  by  the  owner  for  an  industry  or  work  which  may  be 
carried  on  in  a  building  or  on  a  piece  of  land  and  which  tend  directly  to  meet  the 
needs of said industry or work. 
The  findings  of  the  LBAA  and  CBAA  that  the  owner  of  the  taxable  properties  is 
petitioner  FELS  is  the  entity being taxed by the local government. As stipulated under 
the Agreement: 
OWNERSHIP  OF  POWER  BARGES.  POLAR  shall  own  the  Power  Barges  and  all  the 
fixtures,  fittings,  machinery  and  equipment  on  the  Site  used  in  connection  with  the 
Power  Barges  which  have  been  supplied  by  it  at  its  own  cost.  POLAR  shall  operate, 
manage  and  maintain  the  Power  Barges  for  the  purpose  of  converting  Fuel  of 
NAPOCOR into electricity. 
It  follows  then  that  FELS  cannot  escape  liability  from  the  payment  of  realty  taxes  by 
invoking its exemption in Section 234 (c) of R.A. No. 7160, 
 
…the  law  states  that  the machinery must be actually, directly and exclusively used by 
the government owned or controlled corporation;  
 
The  agreement  POLAR  undertakes  that  until  the  end  of  the  Lease  Period,  it  will 
operate  the  Power  Barges  to  convert  such  Fuel  into  electricity.  Therefore,  FELS  shall 
be  liable  for  the  realty  taxes  and  not  the  NPC  who  is  not  actually,  directly  and 
exclusively  using  the  same.  It  is  a  basic  rule  that  obligations  arising  from  a  contract 
have the force of law between the parties. 

The CBAA and LBAA power barges are real property and are thus subject to real
property tax. This is also the inevitable conclusion, considering that G.R. No. 165113
was dismissed for failure to sufficiently show any reversible error. Tax assessments by
tax examiners are presumed correct and made in good faith, with the taxpayer having
the burden of proving otherwise. [48] Besides, factual findings of administrative bodies,
which have acquired expertise in their field, are generally binding and conclusive upon
the Court; we will not assume to interfere with the sensible exercise of the judgment of
men especially trained in appraising property. Where the judicial mind is left in doubt,
itis a sound policy to leave the assessment undisturbed. We find no reason to depart
from this rule in this case.In Consolidated Edison Company of New York, Inc., et al. v.
The City of New York, et al., apower company brought an action to review property tax
assessment. On the city’s motion to dismiss, the Supreme Court of New York held that
the barges on which were mounted gas turbine power plants designated to generate
electrical power, the fuel oil barges which supplied fuel oil to the power plant barges,
and the accessory equipment mounted on the barges were subject to real property
taxation.Moreover, Article 415 (9) of the New Civil Code provides that “[d]ocks and
structures which,though floating, are intended by their nature and object to remain at a
fixed place on a river, lake, orcoast” are considered immovable property. Thus, power
barges are categorized as immovable property by destination, being in the nature of
machinery and other implements intended by the owner for an industry or work which
may be carried on in a building or on a piece of land and whichtend directly to meet the
needs of said industry or work.Petitioners maintain nevertheless that the power barges
are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they
are actually, directly and exclusively used by petitioner NPC, a government- owned and
controlled corporation engaged in the supply, generation, and transmission of electric
power.We affirm the findings of the LBAA and CBAA that the owner of the taxable
properties is petitioner FELS, which in fine, is the entity being taxed by the local
government. As stipulated under Section 2.11, Article 2 of the Agreement:OWNERSHIP
OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings,machinery and equipment on the Site used in connection with the Power Barges
which have been supplied by it at its own cost. POLAR shall operate, manage and
maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into
electricity.It follows then that FELS cannot escape liability from the payment of realty
taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160. Indeed, the law
states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation;nevertheless, petitioner FELS still cannot
find solace in this provision because Section 5.5, Article 5 of the Agreement
provides:OPERATION. POLAR undertakes that until the end of the Lease Period,
subject to the supply of the necessary Fuel pursuant to Article 6 and to the other
provisions hereof, it will operate the PowerBarges to convert such Fuel into electricity in
accordance with Part A of Article 7.It is a basic rule that obligations arising from a
contract have the force of law between the parties. Not being contrary to law, morals,
good customs, public order or public policy, the parties to the contract are bound by its
terms and conditions. Time and again, the Supreme Court has stated that taxation is the
rule and exemption is the exception. The law does not look with favor on tax exemptions
and the entity that would seek to be thus privileged must justify it by words too plain to
be mistaken and too categorical to be misinterpreted. Thus, applying the rule of strict
construction of laws granting tax exemptions, and the rule that doubts should be
resolved in favor of provincial corporations, we hold that FELS is considered a taxable
entity. The mere undertaking of petitioner NPC under Section 10.1 of the Agreement,
that it shall be responsible for the payment of all real estate taxes and assessments,
does not justify the exemption. The privilege granted to petitioner NPC cannot be
extended to FELS. The covenant is between FELSand NPC and does not bind a third
person not privy thereto, in this case, the Province of Batangas.It must be pointed out
that the protracted and circuitous litigation has seriously resulted in the local
government’s deprivation of revenues. The power to tax is an incident of sovereignty
and is unlimited in its magnitude, acknowledging in its very nature no perimeter so that
security against its abuse is to be found only in the responsibility of the legislature which
imposes the tax on the constituency who are to pay for it. The right of local government
units to collect taxes due must always be upheld to avoid severe tax erosion. This
consideration is consistent with the State policy to guarantee the autonomy of local
governments and the objective of the Local Government Code that they enjoy genuine
and meaningful local autonomy to empower them to achieve their fullest development
as self-reliant communities and make them effective partners in the attainment of
national goals.In conclusion, we reiterate that the power to tax is the most potent
instrument to raise the needed revenues to finance and support myriad activities of the
local government units for the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace, progress, and prosperity of the
people.
 

Issue:WON the petition is time barred

Held: Yes. Section 226 of R.A. No. 7160, otherwise known as the Local Government
Code of 1991,provides: SECTION 226. Local Board of Assessment Appeals. – Any
owner or person having legal interest in the property who is not satisfied with the action
of the provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of assessment,
appeal to the Board of Assessment Appeals of the province or city by filing a petition
under oath in the form prescribed for the purpose, together with copies of the tax
declarations and such affidavits or documents submitted in support of the appeal.We
note that the notice of assessment which the Provincial Assessor sent to FELS on
August 7,1995, contained a reiteration of Section 226. Instead of appealing to the Board
of Assessment Appeals (as stated in the notice), NPC opted to file a motion for
reconsideration of the Provincial Assessor's decision, a remedy not sanctioned by law.
The remedy of appeal to the LBAA is available from an adverse ruling or action of the
provincial, city or municipal assessor in the assessment of the property. It follows then
that the determination made by the respondent Provincial Assessor with regard to the
taxability of the subjectreal properties falls within its power to assess properties for
taxation purposes subject to appeal before the LBAA.We fully agree with the
rationalization of the CA, citing the case of Callanta v. Office of the Ombudsman, where
we ruled that under Section 226 of R.A. No 7160, the last action of the local assessor
on a particular assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The procedure likewise
does not permit the property owner the remedy of filing a motion for reconsideration
before the local assessor.

To reiterate, if the taxpayer fails to appeal in due course, the right of the local
government to collect the taxes due with respect to the taxpayer’s property becomes
absolute upon the expiration of the period to appeal. [38] It also bears stressing that the
taxpayer’s failure to question the assessment in the LBAA renders the assessment of
the local assessor final, executory and demandable, thus, precluding the taxpayer from
questioning the correctness of the assessment, orfrom invoking any defense that would
reopen the question of its liability on the merits.In fine, the LBAA acted correctly when it
dismissed the petitioners’ appeal for having been filed out of time; the CBAA and the
appellate court were likewise correct in affirming the dismissal. Elementary is the rule
that the perfection of an appeal within the period therefor is both mandatory and
jurisdictional, and failure in this regard renders the decision final and executory

17. NATIONAL POWER CORPORATION VS CENTRAL BOARD OF

ASSESSMENT APPEALS
FACTS: First Private Power Corporation (FPPC) entered into a Build-Operate-Transfer
(BOT) agreement with NAPOCOR for the construction of Bauang Diesel Power Plant
and creation of Bauang Power Plant Corporation (BPPC). The pertinent provisions of
the BOT agreement, include among others:“2.03 NAPOCORxxx shall be responsible for
the payment of all real estate taxes and assessments, rates, and other charges in
respect of the Site and the buildings and improvements thereon.” The Municipal
Assessor of Bauang issued a Notice of Assessment and Tax Bill to BPPC. NAPOCOR
sought tax exemption on the basis if Sec. 234(c) of R.A. No. 7160.

ISSUE: Under the terms of the BOT, can the GOCC be deemed the actual, direct, and
exclusive user of machineries and equipment for tax exemption purposes? If not, can it
pass on its tax-exempt status to its BOT partner, a private corporation, through the BOT
agreement?

HELD: NO. Neither can NAPOCOR pass its tax–exempt status to its BOT partner.
NAPOCOR’s basis for its claimed exemption – Section 234(c) of the LGC – is clear and
not at all ambiguous in its terms. Exempt from real property taxation are: (a) all
machineries and equipment; (b) [that are] actually, directly, and exclusively used by; (c)
[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.
By [BOT’s] express terms, BPPC has complete ownership – both legal and beneficial –
of the project, including the machineries and equipment used, subject only to the
transfer of these properties without cost to NAPOCOR after the lapse of the period
agreed upon. As agreed upon, BPPC provided the funds for the construction of the
power plant, including the machineries and equipment needed for power generation;
thereafter, it actually operated and still operates the power plant, uses its machineries
and equipment, and receives payment for these activities and the electricity generated
under a defined compensation scheme. Notably, BPPC – as owner-user – is
responsible for any defect in the machineries and equipment.
Consistent with the BOT concept and as implemented, BPPC – the
owner-manager-operator of the project – is the actual user of its machineries and
equipment. BPPC’s ownership and use of the machineries and equipment are actual,
direct, and immediate, while NAPOCOR’s is contingent and, at this stage of the BOT
Agreement, not sufficient to support its claim for tax exemption.

18. NATIONAL POWER CORPORATION VS PROVINCE OF QUEZON

Doctrine: Exemption from Real Property Tax under Section 234. The
government-owned or controlled corporation claiming exemption must be the entity
actually, directly, and exclusively using the real properties, and the use must be devoted
to the generation and transmission of electric power.The test of exemption is the use,
not the ownership of the machineries devoted to generation and transmission of electric
power.

FACTS:
• NPC is a GOCC that entered into a Built Operate Transfer under an Energy
Conversion Agreement (ECA)agreement with Mirant for a power plant on NPCs lot in
Pagbilao, Quezon.
• NPC had the obligation to pay all taxes that government may impose on Mirant under
the ECA.
• The Municipality of Pagbilao assessed real property taxes on the power plant and
machineries 1.5B for 1997 –2007.
• NPC filed a petition before the Local Board of Assessment Appeals - asking them to
declare them exempt from payment of property tax on equipment used for power
generation under section 234 of the LGC. NPC also objected to the assessment against
Mirant and claims exemption under Sec 234 c and e of the LGC. They further state that
should they not be entitled to claim the exemptions then they are entitled to a
lowerassesment level and and allowance for deprecation
• LBAA dismissed the NPCs petition. NPC appealed to the CBAA which affirmed the
LBAA decision. MR by NPC was also denied. NPC then appealed to the CTA but the
CTA en banc resolved to dismiss NPCs petition. Hence this case filed by NPC

Facts:​ The province of Quezon assessed Mirant Pagbilao Corporation for unpaid 
real property taxes in the amount of Php 1.5billion for the machineries located in its 
power plant in Pagbilao, Quezon, NAPOCOR, which entered into a 
build-to-operate-transfer agreement with Mirant, was furnished a copy of the tax 
assessment. NAPOCOR protested the assessment before the local board of 
assessment appeals, claiming entitlement to the tax exemption provided under 
section 234 of the local government code.

ISSUE: (1) Is NPC exempt from payment of the real property taxes?
(2) Does NPC have the right to protest the assessment?

HELD :
1. (a) NPC not exempt. NPC sought jurisdiction of the CBAA hence estopped from
questioning such jurisdiction.
NPC claims CBAA had no authority to exercise jurisdiction on appeal of LBAAs decision
since there was no finding of fact – such decision is null and void CTA claims that NPC
was not the proper party to protest the real property tax assessment. While NPC says
that they have legal interest due to their beneficial ownership of the plant and
machineries.Further they claim that machineries also include ANTI POLLUTION
DEVICES wc should have been excluded from assessment (Sec 234e) The Court held
that NPC is estopped from questioning the CBAAs jurisdiction since it was NPC itself
which sought the jurisdiction of the CBAA and even participated in the proceedings.

(b) NPCs claim of tax exemption without merit since they failed to prove the 2 elements
in Sec 234 of the LGC:
a. the machineries and equipment are actually, directly, and exclusively used by local
water districts and government-owned or controlled corporations; and
b. the local water districts and government-owned and controlled corporations claiming
exemption must be engaged in the supply and distribution of water and/or the
generation and transmission of electric power.

Neither NPC and Mirant failed to satisfy both requirements. Here Mirant, a private
corporation, was the one who used/operated the machineries.NPCs claim of beneficial
ownership is unavailing. The test of exemption is the use, not the ownership of the
machineries devoted to generation and transmission of electric power

2. No. NPC is neither the owner or possessor /user of the subject machineries. Their
claim of ownership is merely contingent. Hence, they do not have the personality to
protest the tax imposed by law to Mirant.
Section 226 of the LGC lists down the entities vested with the personality to contest and
assessment. – (1) The OWNERand (2)THE PERSON LEGAL INTEREST OVER THE
PROPERTY.The ECA terms clearly vest ownership with Mirant.NPC claims that it will
own the machineries at the end of 25 years, hence it is the beneficial owner of the plant.
However jurisprudence states that legal interest should be an interest that is actual and
material, direct and immediate, not simply contingent or expectant.

NB:GOCC and LGU: No privity between such even if both are public corporations

Legal  interest  is  defined  as  interest  in  property  or  a  claim  cognizable  at  law, 
equivalent  to  that  of  a  legal  owner  who  has  legal  title  to  the  property.  Given  this 
definition,  NAPOCOR  is  clearly  not  vested  with  the requisite interest to protest the 
tax  assessments,  as  it  is not an entity having the legal title over the machines. It has 
absolutely  no  solid  claim  of  ownership  or  even  of  use  and  possession  of  the 
machineries as the July 15, 2009 decision explained. 
A BOT agreement is not a mere financing agreement. 
Under  BOT  agreements,  the  private  corporation/investors  are  the  owners  of  the 
facility  or  machinery  concerned.  Apparently,  even  NAPOCOR and Mirant recognize 
this  principle;  article  2.12  of  their  BOT  agreement  provides  that  until  the  transfer 
date,  Mirant  shall  directly  or  indirectly,  own  the  power  station  and  all  the  fixtures, 
fitting,  machinery  and  equipment  on  the  site  shall  operate,  manage  and  maintain 
the power station for the purpose of converting fuel of NAPOCOR into electricity. 
The  protest  contemplated  under  section  252  is  required  where  there  is  a  question 
as  to  the  reasonableness  or  correctness  of  the  amount  assessed.  Hence  if  a 
taxpayer  disputes  the  reasonableness  of  an  increase  in  a  real  property  tax 
assessment,  he  is  required  to  “first  pay  the  tax.”  Otherwise,  the  city  or  municipal 
treasurer will not act on his protest. 
19. MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY VS CITY OF
LAPU-LAPU
Facts: ​Petitioner, ​Mactan-​ Cebu International Airport Authority (MCIAA) was created by
Congress under Republic Act No. 6958. Upon its creation, petitioner enjoyed exemption from
realty taxes imposed by the National Government or any of its political subdivision. However,
upon the effectivity of the LGC the Supreme Court rendered a decision that the petitioner is no
longer exempt from realty estate taxes.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the ​Mactan International Airport which included the airfield, runway, taxi way and
the lots on which these are built. Petitioner contends that these lots, and the lots to which they
are built, are utilized solely and exclusively for public purposes and are exempt from real
property tax. Petitioner based its claim for exemption on DOJ Opinion No. 50.

Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a
petition for Prohibition, TRO, and a writ of preliminary injunction with RTC Lapulapu which
sought to enjoin respondent City from issuing the warrant of levy against petitioner’s properties
from selling them at public auction for delinquency in realty tax obligations.

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the
corresponding tax ordinances, respondent City could not impose and collect real property tax, an
additional tax for the SEF, and penalty interest from petitioner.

RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.

(fait accompli)

RULING OF THE CA: Court of Appeals held that petitioner’s airport terminal building,
airfield, runway, taxiway, and the lots on which they are situated are not exempt from real estate
tax reasoning as follows: Under the Local Government Code (LGC for brevity), enacted pursuant
to the constitutional mandate of local autonomy, all natural and juridical persons, including
government-owned or controlled corporations (GOCCs), instrumentalities and agencies, are no
longer exempt from local taxes even if previously granted an exemption. The only exemptions
from local taxes are those specifically provided under the Code itself, or those enacted through
subsequent legislation.

WHEREFORE,​ in view of the foregoing, judgment is hereby rendered by us as follows:

1. We ​DECLARE​ the airport terminal building, the airfield, runway, taxiway and the lots
on which they are situated​NOT EXEMPT​ from the real estate tax imposed by the
respondent City of Lapu-Lapu;
2. We ​DECLARE​ the imposition and collection of the real estate tax, the additional levy
for the Special Education Fund and the penalty interest as ​VALID​ and ​LEGAL​.
However, pursuant to Section 255 of the Local Government Code, respondent city can
only collect an interest of 2% per month on the unpaid tax which total interest shall, in no
case, exceed thirty-six (36) months;

We ​DECLARE​ the sale in public auction of the aforesaid properties and the eventual forfeiture
and purchase of the subject property by the respondent City of Lapu-Lapu as​NULL​ and ​VOID​.
However, petitioner MCIAA’s property is encumbered only by a limited lien possessed by the
respondent City of Lapu-Lapu in accord with Section 257 of the Local Government Code.

RULING OF THE SUPREME COURT:

MIAA is not a government-owned or controlled corporation​ under Section 2(13) of the
Introductory Provisions of the Administrative Code ​because it is not organized as a stock or
non-stock corporation.​Neither is MIAA a government-owned or controlled corporation under
Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. ​MIAA is a government instrumentality vested with corporate powers and
performing essential public services​ pursuant to Section 2(10) of the Introductory Provisions of
the Administrative Code. ​As a government instrumentality, MIAA is not subject to any kind of
tax by local governments​ under Section 133(o) of the Local Government Code. The exception to
the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity
under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus
are properties of public dominion. Properties of public dominion are owned by the State or the
Republic.
As properties of public dominion owned by the Republic, there is no doubt whatsoever that the
Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of
the Local Government Code. ​This Court has also repeatedly ruled that properties of public
dominion are not subject to execution or foreclosure sale.

1. Petitioner’s properties that are actually, solely and exclusively used for public purpose,
consisting of the airport terminal building, airfield, runway, taxiway and the lots on
which they are situated, ​EXEMPT​ from real property tax imposed by the City of
Lapu-Lapu.
2. VOID​ all the real property tax assessments, including the additional tax for the special
education fund and the penalty interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner’s properties, except the
assessment covering the portions that petitioner has leased to private parties.
3. NULL and VOID​ the sale in public auction of 27 of petitioner’s properties and the
eventual forfeiture and purchase of the said properties by respondent City of Lapu-Lapu.
We likewise declare ​VOID​ the corresponding Certificates of Sale of Delinquent Property
issued to respondent City of Lapu-Lapu.

Ruling:

The petitioner is an instrumentality of the government; thus, its properties actually,

solely and exclusively used for public purposes, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they are situated, are not...
subject to real property tax and respondent City is not justified in collecting taxes from
petitioner over said properties.

in 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan
ruling.

The 2006 MIAA case... had, since the promulgation of the questioned Decision and
Resolution, reached finality and had in fact been either affirmed or cited in numerous
cases by the Court... the 2006 MIAA case was decided by the Court en banc while the
1996 MCIAA case was decided by a Division.

in the 2006 MIAA case, we held that MIAA’s airport lands and buildings are exempt from
real estate tax imposed by local governments; that it is not a GOCC but an
instrumentality of the national government, with its real properties being owned by the
Republic of... the Philippines, and these are exempt from real estate tax.

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also
mentioned several other government instrumentalities, among which was the Philippine
Fisheries Development Authority.

Philippine Ports Authority (PPA)... the GSIS was also a government instrumentality...
petitioner MCIAA is vested with corporate powers but it is not a stock or non-stock
corporation, which is a necessary condition before an agency or instrumentality is
deemed a government-owned or controlled corporation.

petitioner MCIAA has capital under... its charter but it is not divided into shares of stock.
It also has no stockholders or voting shares.

the airport lands and buildings of MCIAA are properties of public dominion because they
are intended for public use. As properties of public dominion, they indisputably belong to
the State or the Republic of the Philippines, and are outside the commerce of... man...
unless petitioner leases its real property to a taxable person, the specific property
leased becomes subject to real property tax;... only those portions of petitioner’s
properties which are leased to taxable persons like private parties are subject to... real
property tax by the City of Lapu-Lapu.

20. MANILA INTERNATIONAL AIRPORT AUTHORITY VS CITY OF PASAY

Facts: Petitioner Manila International Airport Authority (MIAA) operates and administers
the Ninoy Aquino International Airport(NAIA) Complex under Executive Order No.903
(EO 903), otherwise known as the Revised Charter of the Manila International Airport
Authority. Under Sections 3 and 22 of EO 903, approximately 600 hectares of land,
including the runways, the airport tower, and other airport buildings, were transferred to
MIAA. The NAIA Complex is located along the border between Pasay City and
Parañaque City.MIAA received Final Notices of Real Property Tax Delinquency from the
City of Pasay for the taxable years 1992 to 2001. The City of Pasay, through its City
Treasurer, issued notices of levy and warrants of levy for the NAIA Pasay properties.
Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay
properties if the delinquent real property taxes remain unpaid. MIAA filed with the Court
of Appeals a petition for prohibition and injunction with prayer for preliminary injunction
or temporary restraining order. The petition sought to enjoin the City of Pasay from
imposing real property taxes on, levying against, and auctioning for public sale the NAIA
Pasay properties.
Court of Appeals: Upheld the power of the City of Pasay to impose and collect realty
taxes on the NAIA Pasay properties.Sections 193 and 234 of Republic Act No.7160 or
the Local Government Code withdrew the exemption from payment of real property
taxes granted to natural or juridical persons, including government-owned or controlled
corporations. SinceMIAA is a government-owned corporation,it follows that its tax
exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the
Local Government Code.

Issue: WON the NAIA Pasay properties of MIAA are exempt from real property tax –
YES.

Held: 1. MIAA is a government"instrumentality" that does not qualify as a

"government-owned or controlled corporation. Under Section 133(o) of the Local
Government Code, local government units have no power to tax instrumentalities of the
national government. Therefore, MIAA is exempt from any kind of tax from the local
governments.A government "instrumentality" may or may not be a "government-owned
or controlled corporation" (Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987). A Government-owned or controlled corporation must be
"organized as a stock or non-stock corporation." MIAA is not organized as a stock or
non-stock corporation. It is not a stock corporation because it has no capital stock
divided into shares. It is also not a non-stock corporation because it has no members.
The Government cannot be considered as the sole member of MIAA because non-stock
corporations cannot distribute any part of their income to their members.Section 11 of
the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury. MIAA is like any other government instrumentality, but is vested
with corporate powers to perform efficiently its governmental functions. When the law
vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation.
2. The airport lands and buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under Section 234(a) of the
Local Government Code.(Note: In Manila International Airport Authority v. Court of
Appeals 2006: ​this Court already resolved the issue of whether the airport lands and
buildings of MIAA are exempt from tax under existing laws. The 2006 MIAA case
originated from a petition for prohibition and injunction which MIAA filed with the Court
of Appeals, seeking to restrain the City of Parañaque from imposing real property tax
on, levying against, and auctioning for public sale the airport lands and buildings located
in Parañaque City. The only difference between the 2006 MIAA case and this case is
that the 2006 MIAA case involved airport lands and buildings located in Parañaque City
while this case involved airport lands and buildings located in Pasay City.

To summarize, MIAA is not a government-owned or controlled corporation under

Section 2(13) of the Introductory Provisions of the Administrative Code because it is not
organized as a stock or non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987 Constitution because
MIAA is not required to meet the test of economic viability. MIAA is a government
instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As
a government instrumentality, MIAA is not subject to any kind of tax by local
governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable
entity under the Local Government Code. Such exception applies only if the beneficial
use of real property owned by the Republic is given to a taxable entity.

Finally,​ the Airport Lands and Buildings of MIAA are properties devoted to public use
and thus are properties of public dominion. ​Properties of public dominion are owned by
the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those ​intended for public use​, such as roads, canals, rivers, torrents, p ​ orts and
bridges c ​ onstructed by the State,​ banks, shores, roadsteads, and ​others of similar
character;​
(2) Those which belong to the State, without being for public use, and are ​intended for
some public service o ​ r for the development of the national wealth.
The term "ports x x x constructed by the State" includes airports and seaports. The
Airport Lands and Buildings of MIAA are intended for public use, and at the very least
intended for public service. Whether intended for public use or public service, the Airport
Lands and Buildings are properties of public dominion. As properties of public dominion,
the Airport Lands and Buildings are owned by the Republic and thus exempt from real
estate tax under Section 234(a) of the Local Government Code.

21. CITY ASSESSOR OF CEBU CITY VS ASSOC. OF BENEVOLA DE CEBU

22. STA. LUCIA REALTY AND DEVELOPMENT VS CITY OF PASIG
23. MANILA ELECTRIC COMPANY VS CITY ASSESSOR AND CITY
TREASURER OF LUCENA
24. CAPITOL WIRELESS INC. VS PROV. TREASURER OF BATANGAS
25. CITY OF LAPU-LAPU VS PHILIPPINE ECONOMIC ZONE AUTHORITY
26. NATIONAL POWER CORPORATION VS PROVINCIAL TREASURER OF
BENGUET