Local & Real Property Tax
telecommunication companies operation
(A) Is the position of the city treasurer
tenable? Explain. (3%)
SUGGESTED ANSWER:
Yes. Under Sec. 165 of the Local
Government Code, the taxable period for
the payment of business taxes is the
calendar year.
(B) May the deficiency business tax be paid
in installments without surcharge and
interest? Explain. (3%)
SUGGESTED ANSWER:
Yes, provided there is a valid tax
ordinance enacted for that purpose that
does not impose such surcharge and/or interest
on any taxes not paid (Sec. 192,
Local Government Code).
Local Taxation: Business Tax on
Contractors (2010)
What is the basis for the computation
of business tax on contractors under the
Local Government Code? (2%)
SUGGESTED ANSWER:
The business tax on contractors is a
graduated annual fixed tax based on the
gross receipts for the preceding calendar
year. However, when the gross receipts
amount to P2 million or more, the
business tax on contractors is imposed
as a percentage tax at the rate of 50% of
1% (Sec 143 (e), LGC).
Local Taxation: Legality/
Constitutionality; Legislative Franchise
(2007)
II. The Local Government Code took effect
on January 1, 1992.
PLDT‟s legislative franchise was granted
sometime before 1992. Its franchise
provides that PLDT will only pay 3%
franchise tax in lieu of all taxes.
The legislative franchises of Smart and
Globe Telecoms were granted in 1998. Their
legislative franchises state that they will
pay only 5% franchise tax in lieu of all
taxes.
The Province of Zamboanga del Norte
passed an ordinance in 1997 that imposes
a local franchise tax on all
within the province. The tax is 50% of 1% of
the gross annual receipts of the preceding
calendar year based on the incoming
receipts, or receipts realized, within its
territorial jurisdiction.
Is the ordinance valid? Are PLDT, Smart
and Globe liable to pay franchise taxes?
Reason briefly. (10%)
SUGGESTED ANSWER:
The ordinance is valid. The Local
Government Code explicitly authorizes
provincial governments, notwithstanding
any law or other special law, to impose a
tax on business enjoying a franchise at
the rate of 50% of 1% based on the gross
annual receipts during the preceding
year within the province. (Section 137,
LGC).
PLDT is liable to the franchise tax levied
by the province of Zamboanga del Norte.
The tax exemption privileges on
franchises granted before the passage of
the Local Government Code are
effectively repealed by the latter law.
(PLDT v. City of Davao, 363 SCRA 522
[2001]).
Smart and Globe, however, are not liable
to the franchise tax imposed under the
provincial ordinance. The legislative
franchises of Smart and Globe were
granted in 1998, long after the Local
Government Code took effect. Congress
is deemed to have been aware of the
provisions of the earlier law, when it
granted the exemption. Accordingly, the
latest will of the legislature to grant tax
exemption must be respected.
Local Taxation; Constitutionality;
Professional or Occupation Taxes (2009)
(VIII) The City of Manila enacted Ordinance
No. 55-66 which imposes a municipal
occupation tax on persons practicing
various professions in the city. Among
those subjected to the occupation tax were
lawyers. Atty. Mariano Batas, who has a
law office in Manila, pays the ordinance imposed
occupation tax under protest. He
goes to court to assail the validity of the
ordinance for being discriminatory. Decide
with reasons. (3%)

SUGGESTED ANSWER:
The ordinance is valid. The tax imposed
by the ordinance is in the nature of a
professional tax which is authorized by
law to be imposed by cities (Sec 151 in
relation o Sec 139, LGC). The ordinance
is not discriminatory because the City
Council has the power to select the
subjects of taxation and impose the
same tax on those belonging to the same
class. The authority given by law to
cities is to impose a professional tax
only on persons engaged in the practice
of their profession requiring government
examination and lawyers are included
within that class of professionals.
Local Taxation; Legality/
Constitutionality; Regulatory Measures
(2009)
The Sanggunian Bayan of the
Municipality of Sampaloc, Quezon, passed
an ordinance imposing a storage fee of ten
centavos (P0.10) for every 100 kilos of copra
deposited in any bodega within the Is the
ordinance valid? Explain your
answer. (4%)
SUGGESTED ANSWER:
Yes. The municipality is authorized to
impose reasonable fees and charges as a
regulatory measure in an amount
commensurate with the cost of
regulations, inspection and licensing
(Sec 147, LGC). In the case at bar, the
storage of copra in any warehouse within
the municipality can be the proper
subject of regulation pursuant to the
police power granted to municipalities
under the Revised Administrative Code
of the “general welfare clause.” A
warehouse used for keeping or storing
copra is an establishment likely to
endanger the public safety or likely to
gave rise to conflagration because the oil
content of the copra, when ignited, is
difficult to put under control by water
and the use of chemicals is necessary to
put out the fire. It is, thus, reasonable
that the Municipality impose storage
fees for its own surveillance and lookout
(Procter & Gamble Philippine
Manufacturing Corporation v.
Municipality of Jagna, Province of
Bohol, 94 SCRA 894 (1979)).
Local Taxation: Legality/
Constitutionality; Tax Rate (2008)
VIII. The City of Manila enacted an
ordinance, imposing a 5% tax on gross
receipts on rentals of space in privately owned
public markets. BAT Corporation
questioned the validity of the ordinance,
stating that the tax is an income tax, which
cannot be imposed by the city government.
Do you agree with the position of BAT
Corporation? Explain (5%)
SUGGESTED ANSWER:
BAT Corporation is correct in
questioning the ordinance, but not
because it is income tax. The tax
imposed is authorized by Sec. 143 (H) of
the Local Government Code. However,
the maximum rate that can be imposed
by the city is only 3% (Sec. 151, Local
Government Code). Therefore, tax
imposed by Manila is invalid for
exceeding the amount allowed by law.
Local Taxation; Principal Office and
Branches; Situs of Taxation (2010)
(XII) Ferremaro, Inc., a manufacturer of
handcrafted shoes, maintains its principal
office in Cubao, Quezon City. It has
branches/sales offices in Cebu and Davao.
Its factory is located in Marikina City where
most of its workers live. Its principal office
in Quezon City is also a sales office.
Sales of finished products for calendar year
2009 in the amount of P10 million were
made at the following locations:
i) Cebu branch 25%
ii) Davao branch 15%
iii) Quezon City branch 60%
Total 100%
Where should the applicable local taxes on
the shoes be paid? Explain. (3%)
SUGGESTED ANSWER:
Twenty five percent (25%) of total sales
or P2.5 million shall be taxed in Cebu
and 15% of total sales or P1.5 million
shall be taxed in Davao. For the remaining 60%
sales amounting to P6
million which are recorded in the
principal office, 30% thereof or P1.8
million is taxable in Quezon City where
the principal office is located and 70% or
P4.2 million is taxable in Marikina City
where the factory is located.
Under the law, manufacturers
maintaining a branch or sales outlet
shall record the sale in the branch or
sales outlet making the sale and pay the
tax in the city or municipality where the
branch or outlet is located. Since
Ferremaro, Inc. maintains one factory,
the sales recorded in the principal office
shall be allocated and 30% of said sales
are taxable in the place where the
principal office is located while 70% is
taxable in the place where the factory is
located (Sec. 150, LGC).
Local Taxation: Retiring Business (2010)
How are retiring businesses taxed
under the Local Government Code? (2%)
SUGGESTED ANSWER:
Retiring businesses under the LGC are
taxed in their gross sales or gross
receipts in the current year and not in
the preceding year. If the tax paid in the
current year is less than the tax due on
gross sales or receipts of the current
year, the difference shall be paid before
the business is considered officially
retired (Sec 145, LGC).
Local Taxation; Taxing Power; Limitation
(2010)
XYZ Shipping Corporation is a branch
of an international shipping line with
voyages between Manila and the West
Coast of the U.S. The company‟s vessels
load and unload cargoes at the Port of
Manila, albeit it does not have a branch or
sales office in Manila. All the bills of lading and
invoices are issued by the branch office in
Makati which is also the company‟s
principal office.
The City of Manila enacted an ordinance
levying a 2% tax on gross receipts of
shipping lines using the Port of Manila.
Can the City Government of Manila legally
impose said levy on the corporation?
Explain. (3%)
SUGGESTED ANSWER:
No, Manila cannot legally levy the 2%
Gross Receipts Tax on the shipping line,
because taxes on the gross receipts of
transportation contractors and
passengers or freight by hire and
common carriers by air, land or water is
a limitation on the exercise of taxing
powers by local government units (Sec
133 (j), LGC).
Local Taxation: Taxing Power; Nature
(2007)
What is the nature of the taxing
power of the provinces,
municipalities and cities? How
will the local government units
be able to exercise their taxing
powers? (5%)
SUGGESTED ANSWER:
The taxing power of the provinces,
municipalities and cities is directly
conferred by the Constitution by giving
them the authority to create their own
sources of revenue. The local
government units do not exercise the
power to tax as an inherent power or by
a valid delegation of the power by the
Congress, but pursuant to a direct
authority conferred by the Constitution.
(Mactan Cebu International Airport
Authority v. Marcos, 261 SCRA 667
[1996]; NPC v. City of Cabanatuan, 401
SCRA 259 [2003]).
The local government units exercise the
power to tax by levying taxes, fees and
charges consistent with the basic policy
of local autonomy, and to assess and
collect all these taxes, fees and charges
which will exclusively accrue to them.
The local government units are
authorized to pass tax ordinances (levy)
and to pursue actions for the assessment
and collection of the taxes imposed in
the said ordinances. (Section 129, and
132, Local Government Code).
Local Taxation: Actual Use of Property (2002)
The real property of Mr. and Mrs
Angeles, situated in a commercial area in
front of the public market, was declared
in their Tax Declaration as residential
because it had been used by them as their
family residence from the time of its
construction in 1990. However, since
January 1997, when the spouses left for
the United States to stay there
permanently with their children, the
property has been rented to a single
proprietor engaged in the sale of
appliances and agri-products. The
Provincial Assessor reclassified the
property as commercial for tax purposes
starting January 1998. Mr. and Mrs.
Angeles appealed to the Local Board of
Assessment Appeals, contending that the
Tax Declaration previously classifying
their property as residential is binding.
How should the appeal be decided? (5%)
SUGGESTED ANSWER:
The appeal should be decided against
Mr. and Mrs. Angeles. The law focuses
on the actual use of the property for
classification, valuation and assessment
purposes regardless of ownership.
Section 217 of the Local Government
Code provides that "real property shall
be classified, valued, and assessed on the
basis of its actual use regardless of where
located, whoever owns it, and whoever
uses it".
Local Taxation: Coverage (2002)
Aside from the basic real estate tax, give
three (3) other taxes which may be
imposed by provincial and city
governments as well as by municipalities
in the Metro Manila area. (3%)
SUGGESTED ANSWER:
The following real property taxes aside
from the basic real property tax may be
imposed by provincial and city
governments as well as by municipalities
in the Metro Manila area:
1. Additional levy on real property for the
Special Education Fund (Sec. 235,
LGC);
2. Additional Ad-valorem tax on Idle
lands (Sec. 23§, LGC); and
3. Special levy (Sec. 240).
Local Taxation: Exemption; Real Property
Taxes (2002)
Under the Local Government Code, what
properties are exempt from real property
taxes? (5%)
SUGGESTED ANSWER:The following
properties are exempt from real property
taxes: (Sec. 234, LGC).
1. 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;
2. All lands, buildings and improvements
actually, directly, and exclusively
used for religious, charitable or
educational purposes by charitable
institutions, churches, parsonages
or convents appurtenant thereto,
mosques, nonprofit or religious
cemeteries;
3. All machineries and equipment that are
actually, directly and exclusively
used by local water districts and
 government-owned or controlled
corporations engaged in the
supply and distribution of water
and/or generation and
transmission of electric power;
4.All real property owned by duly
registered cooperatives as
provided for under R.A. No.
6938; and
5.Machinery and equipment used for
pollution control and
environmental protection.
Local Taxation: Imposition of Ad Valorem Tax
(2000)
May local governments impose an
annual realty tax in addition to the basic
real property tax on idle or vacant lots
located in residential subdivisions within
their respective territorial jurisdictions?
(3%)
SUGGESTED ANSWER:
Not all local government units may do
so. Only provinces, cities, and
municipalities within the Metro Manila
area (Sec. 232, Local Government Code)
may impose an ad valorem tax not
exceeding five percent (5%) of the
assessed value (Sec. 236, Ibid.) of idle or
vacant residential lots in a subdivision,
duly approved by proper authorities
regardless of area. (Sec.237, Ibid.)
Local Taxation: Legality/ Constitutionality;
Tax Ordinance (2003)
X, a taxpayer who believes that an
ordinance passed by the City Council of
Pasay is unconstitutional for being
discriminatory against him, want to
know from you, his tax lawyer, whether
or not he can file an appeal. In the
affirmative, he asks you where such
appeal should be made: the Secretary of
Finance, or the Secretary of Justice, or
the Court of Tax Appeals, or the regular
courts. What would your advice be to
your client, X? (8%)
SUGGESTED ANSWER:
The appeal should be made with the
Secretary of Justice. Any question on the
constitutionality or legality of a tax
ordinance may be raised on appeal with
the Secretary of Justice within 30 days
from the effectivity thereof. (Sec. 187,
LGC; Hagonoy Market Vendor
Association v. Municipality of Hagonoy,
376 SCRA 376 [2002]).
Local Taxation: Legality; Imposition of Real
Property Tax Rate (2002)
An Ordinance was passed by the
Provincial Board of a Province in the
North, increasing the rate of basic real
property tax from 0.006% to 1 % of the
assessed value of the real property
effective January 1, 2000. Residents of
the municipalities of the said province
protested the Ordinance on the ground
that no public hearing was conducted
and, therefore, any increase in the rate of
real property tax is void. Is there merit in
the protest? Explain your answer. (2%)
SUGGESTED ANSWER:
The protest is devoid of merit. No public
hearing is required before the enactment
of a local tax ordinance levying the basic
real property tax (Art. 324, LGC
Regulations).
ALTERNATIVE ANSWER:
Yes, there is merit in the protest provided
that sufficient proof could be introduced
for the non-observance of public hearing.
By implication, the Supreme Court
recognized that public hearings are
required to be conducted prior to the
enactment of an ordinance imposing real
property taxes. Although it was
concluded by the highest tribunal that
presumption of validity of a tax
ordinance can not be overcome by bare
assertions of procedural defects on its
enactment, it would seem that if the
taxpayer had presented evidence to
support the allegation that no public
hearing was conducted, the Court should
have ruled that the tax ordinance is
invalid. (Belen Figuerres v. Court of
Appeals, GRNo. 119172, March 25,
1999).
Local Taxation: Power to Impose (2003)
In order to raise revenue for the repair
and maintenance of the newly
constructed City Hall of Makati, the City
Mayor ordered the collection of P1.00,
called "elevator tax", every time a person
rides any of the high-tech elevators in the
city hall during the hours of 8:00 a.m. to
10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is
the "elevator tax" a valid imposition?
Explain. (8%)
SUGGESTED ANSWER:
No. The imposition of a tax, fee or
charge or the generation of revenue
under the Local Government Code, shall
be exercised by the SANGUNIAN of the
local government unit concerned through
an appropriate ordinance (Section 132 of
the Local Government Code). The city
mayor alone could not order the
collection of the tax; as such, the
"elevator tax" is an invalid imposition.
Local Taxation: Remission/Condonation of
Taxes (2004)
RC is a law-abiding citizen who pays his
real estate taxes promptly. Due to a
series of typhoons and adverse economic
conditions, an ordinance is passed by
MM City granting a 50% discount for
payment of unpaid real estate taxes for
the preceding year and the condonation
of all penalties on fines resulting from
the late payment. Arguing that the
ordinance rewards delinquent taxpayers
and discriminates against prompt ones,
RC demands that he be refunded an
amount equivalent to one-half of the real
taxes he paid. The municipal attorney
rendered an opinion that RC cannot be
reimbursed because the ordinance did not
provide for such reimbursement. RC files
suit to declare the ordinance void on the
ground that it is a class legislation. Will
his suit prosper? Explain your answer
briefly. (5%)
SUGGESTED ANSWER:
The suit will not prosper. The remission
or condonation of taxes due and payable
to the exclusion of taxes already
collected does not constitute unfair
discrimination. Each set of taxes is a
class by itself and the law would be open
to attack as class legislation only if all
taxpayers belonging to one class were
not treated alike (Juan Luna Subdivision,
Inc., v. Sarmiento, 91 Phil. 371 [1952]).
Local Taxation: Rule of Uniformity and
Equality (2003)
The City of Makati, in order to solve the
traffic problem in its business districts,
decided to impose a tax, to be paid by the
driver, on all private cars entering the
city during peak hours from 8:00 a.m. to
9:00 a.m. from Mondays to Fridays, but
exempts those cars carrying more than
two occupants, excluding the driver. Is
the ordinance valid? Explain. (8%)
SUGGESTED ANSWER:
The ordinance is in violation of the Rule
of Uniformity and Equality, which
requires that all subjects or objects of
taxation, similarly situated must be
treated alike in equal footing and must
not classify the subjects in an arbitrary
manner. In the case at bar, the ordinance
exempts cars carrying more than two
occupants from coverage of the said
ordinance. Furthermore, the ordinance
only imposes the tax on private cars and
exempts public vehicles from the
imposition of the tax, although both
contribute to the traffic problem. There
exists no substantial standard used in the
classification by the City of Makati.
Another issue is the fact that the tax is
imposed on the driver of the vehicle and
not on the registered owner of the same.
The tax does not only violate the
requirement of uniformity, but the same
is also unjust because it places the
burden on someone who has no control
over the route of the vehicle. The
ordinance is, therefore, invalid for
violating the rule of uniformity and
equality as well as for being unjust.
Local Taxation; Situs of Professional Taxes
(2005)
Mr. Fermin, a resident of Quezon City, is
a Certified Public Accountant-Lawyer
engaged in the practice of his two
professions. He has his main office in
Makati City and maintains a branch
office in Pasig City. Mr. Fermin pays his
professional tax as a CPA in Makati City
and his professional tax as a lawyer in
Pasig City. (5%)
a) May Makati City, where he has his
main office, require him to pay his
professional tax as a lawyer? Explain.
SUGGESTED ANSWER:No. Makati City
where Mr. Fermin has his main office
may not require him to pay his
professional tax as a lawyer. Mr. Fermin
has the option of paying his professional
tax as a lawyer in Pasig City where he
practices law or in Makati City where he
maintains his principal office. (Sec.
139[b], Local Government Code)
b) May Quezon City, where he has his
residence and where he also practices his
two professions, go after him for the
payment of his professional tax as a CPA
and a lawyer? Explain.
SUGGESTED ANSWER:
No, the situs of the professional tax is the
city where the professional practices his
profession or where he maintains his
principal office in case he practices his
profession in several places. The local
government of Quezon City has no right
to collect the professional tax from Mr.
Fermin as the place of residence of the
taxpayer is not the proper situs in the
collection of the professional tax.

Local Taxation; Special Levy on Idle Lands
(2005)
A city outside of Metro Manila plans to
enact an ordinance that will impose a
special levy on idle lands located in
residential subdivisions within its
territorial jurisdiction in addition to the
basic real property tax. If the lot owners
of a subdivision located in the said city
seek your legal advice on the matter,
what would your advice be? Discuss.
(5%)
SUGGESTED ANSWER:
other essential and more productive
purpose. (Philippine Legal
Encyclopedia, by Sibal, 1986 Ed.)
Finally, I would advise them to construct
or place improvements on their idle lands
by making valuable additions to the
property or ameliorations in the land's
conditions so the lands would not be
considered as idle. (Sec. 199[m]) In this
manner their properties would not be
subject to the ad valorem tax on idle
lands

I would advise the lot owners that a city,

even if it is outside Metro Manila, may
levy an annual tax on idle lands at the
rate not exceeding five percent (5%) of
the assessed value of the property which
shall be in addition to the basic real
property tax. (Sec. 236, Local
Government Code) I would likewise
advise them that the levy may apply to
residential lots, regardless of land area,
in subdivisions duly approved by proper
authorities, the ownership of which has
been transferred to individual owners
who shall be liable for the additional tax.
(Last par., Sec. 237)

The term "Idle Lands" means, land not

devoted directly to any crop or to any
definite purpose for at least one year
prior to the notice of expropriation,
except for reasons other than force
majeure or any fortuitous event, but used
to be devoted or is suitable to such crop
or is contiguous to land devoted directly
to any crop and does not include land
devoted permanently or regularly to

REAL PROPERTY TAX
Real Property Taxation: Beneficial Use of
the Property (2013)
Mr. Amado leased a piece of land
owned by the Municipality of Pinagsabitan
and built a warehouse on the property for
his business operations. The Municipal
Assessor assessed Mr. Amado for real
property taxes on the land and the
warehouse. Mr. Amado objected to the
assessment, contending that he should not
be asked to pay realty taxes on the land
since it is municipal property.
Was the assessment proper? (5%)
SUGGESTED ANSWER:
Yes, the assessment is proper. The land,
although owned by the municipality, is
not exempt from real property tax
because the beneficial use has been
granted to a taxable person. (Sec 234 (a),
LGC)
Real Property Tax; Exemption; Religious
Activities (2010)
A inherited a two-storey building in
Makati from his father, a real estate broker
in the „60s. A group of Tibetan monks
approached A and offered to lease the
building in order to use it as a venue for
their Buddhist rituals and ceremonies. A
accepted the rental of P1 million for the
whole year.
The following year, the City Assessor issued
an assessment against A for non-payment
of real property taxes.
Is the assessor justified in assessing A‟s
deficiency real property taxes? Explain.
(3%)
SUGGESTED ANSWER:
No. The property is exempt from real
property tax by virtue of the beneficial
use thereof by the Tibetan monks for
their religious rituals and ceremonies. A
property that is actually, directly and
exclusively used for religious purposes is
exempt from the real property tax (Sec
234, LGC; Sec 28(3), Article IV, Phil.
Constitution). The test of exemption
from the tax is not ownership but
beneficial use of the property (City of Baguio v.
Busuego, L-29772, Sept 18,
1980).
Real Property Taxation: Liable for
Payment; Taxpayer (2009)
Republic Power Corporation (RPC) is a
government-owned and controlled
corporation engaged in the supply,
generation and transmission of electric
power. In 2005, in order to provide
electricity to Southern Tagalog provinces,
RPC entered into an agreement with Jethro
Energy Corporation (JEC), for the lease of
JEC's power barges which shall be berthed
at the port of Batangas City. The contract
provides that JEC shall own the power
barges and the fixtures, fittings, machinery,
and equipment therein, all of which JEC
shall supply at its own cost, and that JEC
shall operate, manage and maintain the
power barges for the purpose of converting
the fuel of RPC into electricity. The contract
also stipulates that all real estate taxes and
assessments, rates and other charges, in
respect of the power barges, shall be for the
account of RPC.
In 2007, JEC received an assessment of
real property taxes on the power barges
from the Assessor of Batangas City. JEC
sought reconsideration of the assessment
on the ground that the power barges are
exempt from real estate taxes under Section
234 [c] of R.A. 7160 as they are actually,
directly and exclusively used by RPC, a
government-owned and controlled
corporation. Furthermore, even assuming
that the power barges are subject to real
property tax, RPC should be held liable
therefor, in accordance with the terms of
the lease agreement. Is the contention of
JEC correct? Explain your answer. (4%)
SUGGESTED ANSWER:
No, the contention of JEC is not correct.
The owner of the power barges is JEC
which is required to operate, manage
and maintain the power barges for the
purpose of converting the fuel of RPC
into electricity. This belies the claim
that RPC, a government-owned and
controlled corporation engaged in the
supply, generation and transmission of
electric power, is the actual, direct and
exclusive user of the barge, hence, does
not fall within the purview of the
exempting provision of Sec 234(c) of RA
7160. Likewise, the argument that RPC
should be liable to the real property
taxes consonant with the contract is
devoid of merit. The liability for the
payment of the real estate taxes is
determined by law and not by the
agreement of the parties (FELS Energy
Inc. v. The Province of Batangas, 516
SCRA 186 (2007)).
Real Property Taxation: Liable for
Payment; Period (2012)
Mr. Jose Castillo is a resident Filipino
citizen. He purchased a parcel of land in
Makati City in 1970 at a consideration of
P1 Million. In 2011, the land, which
remained undeveloped and idle had a fair
market value of P20 Million. Mr. Antonio
Ayala, another Filipino citizen, is very much
interested in the property and he offered to
buy the same for P20 Million. The Assessor
of Makati City re-assessed in 2011 the
property at P10 Million.
(A) When is Mr. Castillo liable for real
property tax on the land beginning 2011 or
beginning 2012? Explain your answer. (2%)
SUGGESTED ANSWER:
Mr. Castillo shall be liable to the real
property tax based on the re-assessment
beginning 2012. All re-assessments made
after the first day of any year shall take
effect on the first day of January of the
succeeding year (Section 221,LGC).
[Note: The question is misleading. Mr.
Castillo is liable to the real property tax on the
property when he became the owner
thereof although his liability increases upon
re-assessment of the property.]
Real Property Tax: Underground Gasoline
Tanks (2003)
Under Article 415 of the Civil Code, in
order for machinery and equipment to be
considered real property, the pieces must
be placed by the owner of the land and,
in addition, must tend to directly meet
the needs of the industry or works carried
on by the owner. Oil companies install
underground tanks in the gasoline
stations located on land leased by the oil
companies from the owners of the land
where the gasoline stations [are] located.
Are those underground tanks, which
were not placed there by the owner of the
land but which were instead placed there
by the lessee of the land, considered real
property for purposes of real property
taxation under the local Government
Code? Explain. (8%)
SUGGESTED ANSWER:
Yes. The properties are considered as
necessary fixtures of the gasoline station,
without which the gasoline station would
be useless. Machinery and equipment
installed by the
lessee of leased land is not real property
for purposes of execution of a final
judgment only. They are considered as
real property for real property tax
purposes as "other improvements to
affixed or attached real property under
the Assessment Law and the Real
Property Tax Code. (Caltex v. Central
Board of Assessment Appeals, 114 SCRA
296 [1982]).
Real Property Tax; Requirements; Auction
Sales of Property for Tax Delinquency (2006)
Quezon City published on January 30,
2006 a list of delinquent real property
taxpayers in 2 newspapers of general
circulation and posted this in the main
lobby of the City Hall. The notice
requires all owners of real properties in
the list to pay the real property tax due
within 30 days from the date of
publication, otherwise the properties
listed shall be sold at public auction.
Joachin is one of those named in the list.
He purchased a real property in 1996 but
failed to register the document of sale
with the register of Deeds and secure a
new real property tax declaration in his
name. He alleged that the auction sale of
his property is void for lack of due
process considering that the City
Treasurer did not send him personal
notice. For his part, the City Treasurer
maintains that the publication and
posting of notice are sufficient
compliance with the requirements of the
law.
1. If you were the judge, how will you
resolve this issue? (2.5%)SUGGESTED
ANSWER:I will resolve the issue in favor
of Joachin. In auction sales of property
for tax delinquency, notice to delinquent
landowners and to the public in general
is an essential and indispensable
requirement of law, the non-fulfillment
of which vitiates the same (Tiongco v.
Phil. Veterans Bank, G.R. No. 82782,
Aug. 5, 1992). The failure to give notice
to the right person i.e., the real owner,
will render an auction sale void (Tan v.
Bantegui, G.R. No, 154027, October 24,
2005; City Treasurer of Q.C. v. CA, G.R.
No. 120974, Dec. 22, 1997).
2. Assuming Joachin is a registered
owner, will your answer be the same?
(2.5%)SUGGESTED ANSWER:Yes. The
law requires that a notice of the auction
sale must be properly sent to Joachin and
not merely through publication (Tan v.
Bantegui, G.R. No, 154027, October
24,2005; Estate of Mercedes Jacob v. CA,
G.R. No. 120435, Dec. 22, 1997).
Real Property Taxation: Capital Asset vs.
Ordinary Asset (1995)In 1990, Mr. Naval
bought a lot for P1,000,000.00 In a
subdivision with the intention of building
his residence on it. In 1994, he
abandoned his plan to build his residence
on it because the surrounding area
became a depressed area and land values
in the subdivision went down; instead, he
sold it for P800.000.00. At the time of
the sale, the zonal value was
P500.000.00.
1) Is the land a capital asset or an
ordinary asset? Explain. 2) Is there any
income tax due on the sale? Explain.
SUGGESTED ANSWERS:
1.) The land is a capital asset because it is
neither for sale in the ordinary course of
business nor a property used in trade or
business of the taxpayer
2) Yes, Mr. Naval is liable to the 5%
capital gains tax imposed under Section
21(e) of the Tax Code based on the gross
selling price of P800.000.00 which is an
amount higher than the zonal value.
Real Property Taxation: Capital Gains vs.
Ordinary Gains (1998)What is the
difference between capital gains and
ordinary gains? [3%]
SUGGESTED ANSWER:
CAPITAL GAINS are gains realized
from the sale or exchange of capital
assets, while ORDINARY GAINS refer
to gains realized from the sale or
disposition of ordinary assets.
Real Property Taxation: Coverage of
Ordinary Income (1998)What does the term
"ordinary income" include? [2%]
SUGGESTED ANSWER:
The term ordinary income includes any
gain from the sale or exchange of
property which is not a capital asset.
These are the gains derived from the sale
or exchange of property such as stock in
trade of the taxpayer or other property of
a kind which would properly be included
in the inventory of the taxpayer if on
hand at the close of the taxable year, or
property held by the taxpayer primarily
for sale to customers in the course of his
trade or business, or property used in
trade or business of a character which is
subject to the allowance for depreciation,
or real property used in trade or business
of the taxpayer. (Sec. 22 [Z] in relation
to Sec. 39[A](1), both of the NIRC).
Real Property Taxation: Exchange of Lot;
Capital Gain Tax (1997)A corporation,
engaged in real estate' development,
executed deeds of sale on various
subdivided lots. One buyer, after going
around the subdivision, bought a corner
lot with a good view of the surrounding
terrain. He paid P1.2 million, and the
title to the property was issued. A year
later, the value of the lot appreciated to a
market value of P1.6 million, and the
buyer decided to build his house thereon.
Upon inspection, however, he discovered
that a huge tower antennae had been
erected on the lot frontage totally
blocking his view. When he complained,
the realty company exchanged his lot
with another corner lot with an equal
area but affording a better view. Is the
buyer liable for capital gains tax on the
exchange of the lots?
SUGGESTED ANSWER:
Yes, the buyer is subject to capital gains
tax on the exchange of lots on the basis
of prevailing fair market value of the
property transferred at the time of the
exchange or the fair market value of the
property received, whichever is higher
(Section 21(e), NIRC). Real property
transactions subject to capital gains tax
are not limited to sales but also
exchanges of property unless exempted
by a specific provision of law.
ALTERNATIVE ANSWER:
No. The exchange is not subject to
capital gains tax because it is merely
done to comply with the intentions of the
parties to the previous contract regarding
the sale and acquisition of a property
with a good view. This is a simple
substitution of the object of sale and
since the previous transaction was
already subjected to tax, no new tax
should be imposed on the exchange (BIR
Ruling No. 21(e) 053-89 008-95).
Real Property Taxation:
Exemption/Deductions; Donor’s Tax (1998)
Ace Tobacco Corporation bought a
parcel of land situated at Pateros and
donated it to the Municipal Government
of Pateros for the sole purpose of
devoting the said land as a relocation site
for the less fortunate constituents of said
municipality. In accordance therewith,
the Municipal Government of Pateros
issued to the occupants/beneficiaries
Certificates of Award giving to them the
respective areas where their houses are
erected. Through Ordinance No. 2,
Series of 1998, the said municipal
government ordained that the lots
awarded to the awardees/donees be
finally transferred and donated to them.
Determine the tax consequence of the
foregoing dispositions with respect to
Ace Tobacco Corporation, the Municipal
Government of Pateros, and the
occupants/beneficiaries. [5%]
SUGGESTED ANSWER:
The donation by Ace Tobacco
Corporation is exempt from the donor's
tax because it qualifies as a gift to or for
the use of any political subdivision of the
National Government (Section 101(2),
NIRC). The conveyance is likewise
exempt from documentary stamp tax
because it is a transfer without
consideration.
Since the donation is to be used as a
relocation site for the less fortunate
constituents of the municipality. It may
be considered as an undertaking for
human settlements, hence the value of
the land may be deductible in full from
the gross income of Ace Tobacco
Corporation if in accordance to a
National Priority Plan determined by the
National Economic Development
Authority. (Sec. 34{H](2)(a), NIRC). If
the utilization is not in accordance to a
National Priority Plan determined by the
National Economic Development
Authority, then Ace Tobacco
Corporation may deduct the value of the
land donated only to the extent of five
(5%) percent of its taxable income
derived from trade or business as
computed without the benefit of the
donation. (Sec. 34[H](2)(a) in relation to
Sec. 34[H](1), NIRC).
The Municipality of Pateros is not
subject to any donor's tax on the value of
land it subsequently donated, it being
exempt from taxes as a political
subdivision of the National Government.
The occupants/beneficiaries are subject
to real property taxes because they now
own the land.
Real Property Taxation: Exemption: Acquiring
New Principal Residence (2000)Last July
12, 2000, Mr. & Mrs. Peter Camacho
sold their principal residence situated in
Tandang Sora, Quezon City for Ten
Million Pesos (P10,000,000.00) with the
intention of using the proceeds to acquire
or construct a new principal residence in
Aurora Hills, Baguio City. What
conditions must be met in order that the
capital gains presumed to have been
realized from such sale may not be
subject to capital gains tax? (5%)
SUGGESTED ANSWER:
The conditions are:1. The proceeds are
fully utilized in acquiring or
constructing a new principal residence
within eighteen (18) calendar months
from the sale or disposition of the
principal residence or eighteen (18)
months from July 12, 2000.
2. The historical cost or adjusted basis of
the real property sold or disposed
shall be carried over to the new
principal residence built or
acquired.
3. The Commissioner of Internal
Revenue must have been
informed by Mr. & Mrs. Peter
Camacho within thirty (30) days
from the date of sale or
disposition on July 12, 2000
 through a prescribed return of
their intention to avail of the tax
exemption.
4.That the said exemption can only be
availed of once every ten (10)
years.
5.If there is no full utilization of the
proceeds of sale or disposition,
the portion of the gain presumed
to have been realized from the
sale or disposition shall be subject
to capital gains tax [Sec. 24 (D)
(2), NIRC of 1997]
Real Property Taxation: Fundamental
Principles (1997)
State the fundamental principles
underlying real property taxation in the
Philippines.SUGGESTED ANSWER:The
following are the fundamental principles
governing real property taxation:
• 1)  Real property shall be appraised at
its current and fair market value;
• 2)  Real property shall be classified for
assessment purposes on the basis
of its actual use:
• 3)  Real property shall be assessed on
the basis of a uniform
classification within each local
government unit;
• 4)  The appraisal, assessment, levy,
and collection of real property tax
shall not be let to any private
person; and
• 5)  The appraisal and assessment of
real property shall be equitable.
Real Property Taxation: Principles &
Limitations: LGU (2000)Give at least two
(2) fundamental principles governing
real property taxation, which are
limitations on the taxing power of local
governments insofar as the levying of the
realty tax is concerned. (2%)
SUGGESTED ANSWER:
Two (2) fundamental principles
governing real property taxation are:
• 1)  The appraisal must be at the current
and fair market value; and
• 2)  Classification for assessment must
be on the basis of actual use. (Sec.
198, Local Government Code)
Real Property Taxation: Property Sold is an
Ordinary Asset (1998)An individual
taxpayer who owns a ten (10) door apart-
ment with a monthly rental of P10,000
each residential unit, sold this property to
another individual taxpayer. Is the seller
liable to pay the capital gains tax? [5%]
SUGGESTED ANSWER:
No. The seller is not liable to pay the
capital gains tax because the property
sold is an ordinary asset, i.e. real
property used in trade or business. It is
apparent that the taxpayer is engaged in
the real estate business, regularly renting
out the ten (10) door apartment.
Real Property Taxation: Underground
Gasoline Tanks (2001)Under Article 415
of the Civil Code, in order for machinery
and equipment to be considered real
property, they must be placed by the
owner of the land and, in addition, must
tend to directly meet the needs of the
industry or works carried on by the
owner. Oil companies, such as Caltex
and Shell, install underground tanks in
the gasoline stations located on land
leased by the oil companies from others.
Are those underground tanks which were
not placed there by the owner of the land
but which were instead placed there by
the lessee of the land, considered real
property for purposes of real property
taxation under the Local Government
Code? Explain your answer. (5%)
SUGGESTED ANSWER:
Yes. The underground tanks although
installed by the lessee, Shell and Caltex,
are considered as real property for
purposes of the imposition of real
property taxes. It is only for purposes of
executing a final judgment that these
machinery and equipment, installed by
the lessee on a leased land, would not be
considered as real property. But in the
imposition of the real property tax, the
underground tanks are taxable as
necessary fixtures of the gasoline station
without which the gasoline station would
not be operational. (Caltex Phils., Inc v.
CBAA, 114 SCRA. 296).
Remedies in Local Taxes
Taxpayer: Local Tax; Period to File
Protest and Appeal (2010)
On May 15, 2009, La Manga Trading
Corporation received a deficiency business
tax assessment of P1,500,000.00 from the
Pasay City Treasurer. On June 30, 2009,
the corporation contested the assessment
by filing a written protest with the City
Treasurer.
On October 10, 2009, the corporation
received a collection letter from the City
Treasurer, drawing it to file on October 25,
2009 an appeal against the assessment
before the Pasay Regional Trial Court (RTC).
(IXa) Was the protest of the corporation
filed on time? Explain. (3%)
SUGGESTED ANSWER:
The protest was filed on time. The
taxpayer has the right to protest an
assessment within 60 days from receipt
thereof (Sec 195, LGC).
Was the appeal with the Pasay RTC
filed on time? Explain. (3%)
SUGGESTED ANSWER:
The appeal was not filed on time. When
an assessment is protested, the treasurer
has 60 days within which to decide. The
taxpayer has 30 days from receipt of the
denial of the protest or from the lapse of
the 60-day period to decide whichever
comes first, otherwise the assessment
becomes conclusive and unappeallable.
Since no decision becomes conclusive
and unappeallable. Since no decision on
the protest was made, the taxpayer
should have appealed to the RTC within
30 days from the lapse of the period to
decide the protest (Sec 195, LGC).
 MAMALATS

CHAPTER XXXII LOCAL BUSINESS TAXES

Q:Congress, after much public hearing and consultations with various sectors of
society, came to the conclusion that it will be good for the country to have only
one system of taxation by centralizing the imposition and collection of all taxes in
the national government. Accordingly, it is thinking of passing a law that would
abolish the taxing power of all local government units. In your opinion, would
such a law be valid under the present Constitution? Explain your answer.

A: No. The law centralizing the imposition and collection of all taxes in the national
government would contravene the Constitution which mandates that: “Each local
government unit shall have the power to create their own sources of revenue and to levy
taxes, fees, and charges subject to such guidelines and limitations as Congress may provide
consistent with the basic policy of local autonomy.” It is clear that Congress can only give
the guidelines and limitations on the exercise by the local governments of the power to tax
but what was granted by the fundamental law cannot be withdrawn by Congress.

Q: In order to raise revenue for the repair and maintenance of the newly
constructed City Hall of Makati, the City Mayor ordered the collection of P1.00,
called “elevator tax”, every time a person rides any of the high-tech elevators in
the city hall during the hours of 8:00am to 10:00 am and 4:00pm to 6:00 pm. Is
the “elevator tax” a valid imposition? Explain.
A: No. The imposition of a tax, fee or charge or the generation of revenue under the Local
Government Code shall be exercised by the Sanggunian of the local government unit
concerned through an approporiate ordinance (Sec. 132, LGC). The city mayor alone could
not order the collection of the tax. As such, the “elevator tax” is an invalid imposition.
Q:The City of Manila enacted an ordinance, imposing 5% tax on gross receipts on
rentals of space in privately-owned public markets. BAT Corporation questioned
the validity of the ordinance, stating that the tax is an income tax, which cannot
be imposed by the city government. Do you agree with the position of BAT
Corporation? Explain.

A: Bo, I do not agree with the position of BAT Corporation. The 5% tax on gross receipts of
rentals of space in privately-owned public markets imposed under the ordinance of City of
Manila is not an income tax, which may not be imposed by the city government, but a valid
license tax or fee for the regulation of business. (Progressive Development Corporation v
Quezon City, GR No. 36081, April 24, 1989).

Q: XYZ Shipping Corporation is a branch of an international shipping line with

voyages between Manila and West Coast of the U.S. The company’s vessels load
and unload cargoes at the Port of Manila, albeit it does not have a branch or sales
office in Manila. All the bills of lading and invoices are issued by the branch in
Makati which is also the company’s principal office. The City of Manila enacted an
ordinance levying a 2% tax on gross receipts of shipping lines using the Port of
Manila. Can the city government of Manila legally impose said levy on the
corporation?

A: The situs is the place or incident of an event or location of property, and the situs of a
tax is, therefore, the place where the tax has to be paid. Section 150 of the LGC provides
for the situs of the tax imposed on taxpayers enumerated therein. The recording of sales of
goods and services subject to the local business taxes shall be made in the branch or sales
outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to
the municipality or city where such branch or sales outlet is located. In cases where there is
no such branch or sales outlet in the city or municipality where the sale or transaction is
made, the sale shall be duly recorded in the principal office and the taxes due shall accrue
and shall be paid to such city or municipality (Sec. 150[a], LGC). In this case, the principal
office in Makati City which issued the bills of landing and the invoices to the customers has
no branch in the City of Manila, where the business transactions take place. In view thereof,
the sales allocation shall be made as follows: 30% to the sales recorded in the principal
office in Makati City shall be taxable by the city where the principal office is located, and
70% of the total sales recorded in Makati City shall be taxable by the City of Manila, where
transaction is had (Sec. 150[b], LGC).

Q: What is the basis for the computation of business tax on contractors under the
Local Government Code?

A: “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 the
materials supplied with the services and 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 (Sec.131 [n], LGC).

Q: ABC Corporation is registered as a holding company and has an office in the

City of Makati. It has no actual business operations. It invested in another
company and its earnings are limited to dividends from this investment, interests
on its bank deposits, and foreign exchange gains from its foreign currency
account. The City of Makati assessed ABC Corporation as a contractor or one that
sells services for a fee. Is the City of Makati correct?

A: No. The corporation cannot be considered as a contractor because it does not render
services for a fee. A contractor is one whose activity consists essentially in the sale of all
kinds of services for a fee, regardless of whether or not the performance of the service calls
for the exercise or use of the physical or mental faculties of such contractor or its
employees. To be considered as a contractor, the corporation must derive income from
doing active business of selling services and not from deriving purely passive income. Only
income arising from the performance of services to its customers is subject to local business
tax. Accordingly, a mere holding company cannot be assessed by the City of Makati as a
contractor (Sec. 131 [h], LGC; Orlyete Company [Phil. Branch]) v City of Makati, CTA,
November 14, 2012).

Q: Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer

engaged in the practice of his two professions. He has his main office in Makati
City and maintains a branch office in Pasig City. Mr. Fermin pays his professional
tax as a CPA in Makati City and his professional tax as a lawyer in Pasig City.

a. May Makati City, where he has his main office, require him to pay his
professional tax as a lawyer? Explain.
b. May Quezon City, where he has his residence and where he also practices his
two professions, go after him for the payment of his professional tax as a CPA and
a lawyer? Explain.
A: a. No. Mr. Fermin is given the option to pay either in the city where he practices his
profession or where he maintains his principal office in case he practices his profession in
several places. The professional tax paid as a lawyer in Pasig City, a place where he
practices his profession, will entitle him to practice his profession in any part of the
Philippines without being subjected to any other national or local tax, license, or fee for the
practice of such profession (Sec. 139, in relation to Sec. 151, LGC).
b. No. The professional tax shall be paid only once for every taxable year and the payment
shall be made either in the city where he practices his profession or where he maintains his
principal office. The city of residence cannot require him to pay his professional taxes (Sec.
139, in relation to Sec. 151, LGC).

Q: MNO Corporation was organized on July 1, 2006 to engage in trading of school

supplies, with principal place of business in Cubao, Quezon City. Its book of
accounts and income statement show the following date:
July 1, 2006 to December 31, 2006 P5,000,000
January 1,2007 to June 30, 2007 10,000,000
July 1, 2007 to December 31, 2007 15,000,000
Since MNO Corporation adopted fiscal year ending June 30 as its taxable year for
income tax purposes, it paid its 2%business tax for fiscal year ended June
30,2007 based on gross sales of P15,000,000. However, the Quezon City treasurer
assesses the corporation for deficiency business tax for 2007 based on gross sales
of P25,000,000, alleging that local business taxes should be computed based on
calendar year.
a. Is the position of the city treasurer tenable? Explain.
b. May the deficiency business tax be paid on installments without surcharge and
interest? Explain.

A:
a. Yes, the City Treasurer is correct in using the gross sales for the calendar year of P25
million for purposes of computing the 2% local business tax for the year 2007. The tax
period of local taxes, fees and charges is the calendar year, except when otherwise provided
in the Code (Sec. 165, LGC). The use of the fiscal year by corporations for purposes of
computing taxes is allowed only under the National Internal Revenue Code, but not under
the Local Government Code.
b. The local levies may be paid on quarterly installments (Sec. 165, LGC) within the first
twenty days of each quarter. The time for payment may be extended by the Sanggunian
concerned, without surcharges or penalties, but only for a period not exceeding six months
(Sec. 167, LGC).

Q: Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal

office in Cubao, Quezon City. It has branches/sales offices in Cebu and Davao. Its
factory is located in Marikina City, where most of its workers live. Its principal
office in Quezon City is also a sales office. Sales of finished product for 2009 in the
amount of P10 million were made at the following locations: (i) Cebu – 25%; (ii)
Dacao – 15%’ and (iii) Quezon City – 60%. Where should the applicable local
taxes on the shoes be paid?

A: The sales made in the Cebu branch (25%) and the Davao branch (15%) shall be
reported by the respective branches in their books and the local taxes due thereon will be
paid to the city of Cebu and Davao, respectively. However, the sales recorded in the books
of Quezon City to the extent of 60% shall be allocated as follows: 30% of 60% shall be paid
to the Quezon City government, while the 70% of the 60% shall be allocated and paid to
the Marikina City government, where the factory is located.

Q:The municipality of Argao, Province of Cebu passed a tax ordinance requiring all
professionals practicing in the municipality to pay a tax equivalent to 2% of their
gross income. A certified true copy of the ordinance was sent to the Secretary of
Finance for review on March 1, 1989 and was received by him on the same day. On
15 August 1989 even as the tax ordinance remained unacted upon by the
Secretary of Finance, the municipality started collecting the tax to question. The
members of the Philippine Bar in the municipality questioned the legality of the
ordinance and sought the suspension of the collection of the tax, but the
municipality argued that since the Secretary has not taken any action on the
ordinance for more than one hundred twenty days after his receipt thereof, the
legality of the ordinance can no longer be questioned and insisted on the collection
of the tax. Is the tax ordinance in question legal?

A: No, the tax ordinance is not legal as the Local Tax Code allows provinces and cities, to
the exclusion of municipalities, to impose an annual occupation tax on all persons engaged
in the exercise of practice of their profession or calling in specified amounts which in the
case of lawyers is P75.00 per annum (Secs 11 and 12 in relation to Sec. 23, Local Tax
Code). A person authorized to practice his profession or calling shall pay the tax to the
province where he practices his professions or calling or maintains his office. No local
government unit can impose a tax on income (Sec. 5. Local Tax Code).
2) Is the Municipality correct in insisting on collecting the tax?
B: No, the Municipality was incorrect in insisting on the collection of the tax. Once the tax
on occupation is paid as stated in paragraph (a) above, the lawyer is entitled to practice his
profession or calling in all parts of the Philippines without being subject to any other
national or local tax, license or fee for the practice of such profession or calling.
3) Will the inaction of the Secretary of Finance bar the professionals in the Municipality from
questioning the legality of that ordinance?
C: The inaction of the Secretary of Finance does not bar the professionals in the Municipality
from questioning the legality of the ordinance. While it is true that the Secretary of Finance
may himself suspend the tax ordinance within a 120-day period from receipt thereof, his
failure to do so, however, has no preclusive effect on taxpayers who may be adversely
affected by the ordinance.
4) What remedies are available to the taxpayer to enable him to question the legality of that
ordinance?
D: The taxpayer may pursue his remedies either administratively or judicially. He may, as
the case warrants, file a formal protest with the Secretary of Finance or query with the
Provincial Fiscal whose opinion is declaratory relief (if circumstances still warrant) or to pay
the tax and thereafter to file an action for refund within six [now 2] years after such
payment.

Q:
1. Tax lien- Local taxes, fees, charges and other revenues constitute a lien,
superior to all liens, charges or encumbrances in favor of any person, enforceable
by appropriate administrative or judicial action, not only upon any property or
rights therein which may be subject to the lien but also upon property used in
business, occupation, practice of profession or calling, or exerciseo f privilege with
respect to which the lien is imposed. The lien may be extinguished upon full
payment of the delinquent local tax fee or charge, including related surcharges or
interest (Sec. 173, LGC).
2. Distraint and levy – The civil remedies for the collection of local taxes, fees or
charges, including the applicable surcharges and interests, fees or charges, may
either be (a) by the administrative remedies of distraint of personal property of
whatever kind, including securities and bank accounts, and levy of real property
and interest therein, or (b) by judicial action. Either of these remedies, or both,
may be pursued concurrently or simultaneously at the discretion of the local
government unit concerned (Sec. 174, LGC).
3. Judicial action. – The local government may institute an ordinary civil action
with the regular courts of proper jurisdiction for the collection of delinquent taxes,
fees, charges or revenues (Sec. 183, LGC). The term “civil action” would preclude
a criminal case as a proper remedy for the collection of delinquent local taxes
(Republic v Patanao, 20 SCRA 712)

Q: How are retiring businesses taxed under the Local Government Code?

A: Upon the termination of business subject to tax under Section 143 of the Local
Government Code, it is required to submit a sworn statement of gross sales or receipts for
the current year. If the tax paid during the year be less than the tax due on said gross sales
or receipts of the current year, the difference shall be paid before the business is considered
officially retired (Sec 145, LGC).

Q: On May 15, 2009, La Manga Trading Corporation received a deficiency business

tax assessment of P1,500,000 from Pasay City Treasurer. On June 30, 2009, the
corporation contested the assessment by filing a written protest with the City
Treasurer. On October 10, 2009, the corporation received a collection letter from
the City Treasurer, drawing it to file on October 25, 2009 an appeal against the
assessment before the Pasay Regional Trial Court. (a) Was the protest of the
corporation filed on time? (b) Was the appeal with the Pasay RTC filed on time?

A: a.Yes. Since the business tax assessment was received on May 15, 2009 and the protest
thereto was filed on June 30, 2009, or a total period of 49 days, the taxpayer thus timely
filed such protest. The law allows the taxpayer to files its protest within 60 days from the
date of receipt of assessment.

b.The taxpayer shall, within 30 days from receipt of the denial of the protest or from the
lapse of the 60-day period prescribed within which to appeal with the court of competent
jurisdiction; otherwise, the assessment becomes conclusive and unappealable. The fifth
sentence of Section 195 of the LGC of 1991 does not provide for any administrative appeal.
Hence, the taxpayer can only appeal to a court of competent jurisdiction. In this case, the
local treasurer is acting as a quasi-judicial agency. Under Section 49 of the 1997 Rules of
Civil Procedure, appeals from quasi-judicial agencies, in the exercise of judicial functions,
shall be brought to the Court of Appeals. In this case, the appeal was brought by the
corporation to the Pasay RTC, which is not the court of competent jurisdiction. Thus, the
appeal was not filed on time.

Q: X, a taxpayer who believes that an ordinance passed by the City Council of

Pasay is unconstitutional for being discriminatory against him, wants to know
from you, his tax lawyer whether or not he can file an appeal. In the affirmative,
he asks you where such appeal should be made: the Secretary of Finance, or the
Secretary of Justice, or the Court of Tax Appeals, or the regular courts. What
would you advice your client, X?

A: The appeal should be filed with the Secretary of Justice. Any question on the
constitutionality or legality of a tax ordinance may be raised on appeal with the Secretary of
Justice within 30 days from the effectivity thereof (Sec. 187, LGC; Hagonoy Market Vendor
Association v Mun. of Hagonoy, GR No. 137621, February 6, 2002).

CHAPTER XXXIII: REAL PROPERTY TAX

Q: Mr. Jose Castillo is a citizen, who purchased a parcel of land in Makati City in
1970 at a consideration of P1 million. In 2011, the land, which remained
undeveloped and idle, had a fair market value of P20 million. The Assessor of
Makati re-assessed in 20122 the property at P10 million. When is Mr. Castillo
liable for real property tax on the land based on the re-assessed fair market value,
beginning 2011 or 2012?

A. Mr. Castillo shall be liable to the real property tax based on the re-assessed fair market
value of P10 million beginning 2012. All re-assessments made after the first day of any
year shall take effect on the first of January of the succeeding year (Sec. 21, LGC). The
fair market value of P20 million as determined by the Commissioner shall be used only
for the purposes of national internal revenue taxes.

Q: A city outside of Metro Manila plans to enact an ordinance that will impose a
special levy on idle lands located in residential subdivisions within its territorial
jurisdiction in addition to the basic real property tax. If the lot owners of a
subdivision located in the said city seeks your legal advice on the matter, what
would your advice be? Discuss.

A: My advice would be that the city’s plan to enact on ordinance that will impose such
special levy on idle lands is not legally allowed, unless these lands are specially benefited by
a public works projects or improvements funded by the city government (Sec. 240, LGC). I
will likewise advise them that before the city council could enact an ordinance imposing a
special levy, it shall conduct a public hearing thereon; notify in writing the owners of the
real property to be affected or the persons having legal interest therein as to the date and
place thereof and afford the latter the opportunity to express their positions or objections
relative to the proposed ordinance (Sec. 242, LGC).
Q: In view of the street widening and cementing of roads and the improvement of
drainage and sewers in the district of Ermita, the City Council of the City of Manila
passed on an ordinance imposing and collecting a special levy on lands in the
district. Jose Reyes a landowner and resident of Ermita, submitted a protest again
the special levy fifteen (15) days after the last publication of the ordinance
alleging that the special levy was exorbitant since the rate thereof was more than
the maximum rate of two percent (2%) of the assessed value of the real
properties allowed by Section 39 of Presidential Decree No. 464, as amended.
Assuming that Jose Reyes is able to prove that the rate of the special levy is more
than the aforesaid percentage limitation of 2%, will his protest prosper?

A: The special levy under the Real Property Tax Code on lands, specially benefited by the
proposed infrastructure, may not exceed 60% of the cost of said improvement. All lands
comprised within the district benefited are subject to the special levy except lands exempt
from the real property tax (Sec. 47, Real Property Tax). The protest shall be filed not later
than 30 days after the publication of the ordinance and may be submitted to the City
Sanggunian signed by a majority of the landowners affected by the proposed work. If no
such protest is filed in the manner above specified, the city ordinance shall become final and
effective. The levy imposed under the ordinance should be within the limit of 60% of the
total cost of the proposed improvement.
The rate of two percent (2%) of the assessed value under Section 39 of P.D. 464 refers to
the real property tax and not to special levies.

Q: May local governments impose an annual reality tax in addition to the basic real
property tax on idle or vacant lots located in residential subdivisions within their
respective territorial jurisdictions?

A: Not all local government units may do so. Only provinces, cities, and municipalities within
the Metro Manila area (Sec. 232, LGC) may impose an ad valorem tax not exceeding five
percent (5%) of the assessed value (Sec. 236, LGC) of idle or vacant residential lots in a
subdivision, duty approved by proper authorities regardless of area (Sec. 237, LGC)