3. Taxation

Regulation of Activity and Tax

The garbage fee is a charge fixed for the regulation of an activity. It is not a tax and cannot violate the rule on double taxation.

Mactan Cebu International Airport Authority is an instrumentality of the government, not a GOCC; 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 the city is not justified in collecting taxes from petitioner over said properties. (Mactan Cebu International Airport v. City of Lapu-Lapu, G.R. No. 181756, 2015).

Prohibition against taxation of religious, charitable entities, and educational entities

Section 28(3), Article VI, 1987 Constitution:

• 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 and not other taxes [Lladoc v. CIR, G.R. No. L-19201 (1965)].
• In general, special assessments are not covered by the exemption because by nature they are not classified as taxes [Apostolic Prefect v. City Treasurer of Baguio, G.R. No. L-47252 (1941)].

To be entitled to the exemption, the petitioner must prove that:

• It is a charitable institution
• Its real properties are actually, directly and exclusively used for charitable purposes.

Revenue or income from trade, business or other activity, the conduct of which is not related to the exercise or performance of religious, educational and charitable purposes or functions is subject to income tax regardless of how that income is used [National Internal Revenue Code, Sec. 30, final paragraph].

TEST: Whether an enterprise is charitable or not:

• Whether it exists to carry out a purpose recognized in law as charitable; or
• Whether it is maintained for gain, profit, or private advantage.

A charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution (including honoraria to members of the board of trustees) [BIR Ruling No. 558-18, among others].

“Exclusive" – Possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment;

"Exclusively" - 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 Constitution and the law. Solely is synonymous with exclusively [Lung Center of the Philippines v. Quezon City, G.R. No. 144104 (2004)].

Note: Lung Center, supra, did not necessarily overturn the case of Abra Valley. Lung Center just provided a stricter interpretation. In Abra Valley, the Court held: The primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof. Under the 1935 Constitution, the trial court correctly held that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes (incidental to its educational purpose), but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.

Prohibition against taxation of nonstock, non-profit educational institutions

SECTION 4, ARTICLE XIV. All revenues and assets of non-stock, nonprofit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.

Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment.

Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax.

Exemption from real property taxes

SECTION 28(3), ARTICLE VI. 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.

Requirements for Due Process in Taxation

• Public purpose
• Imposed within taxing authority’s territorial jurisdiction
• Assessment or collection is not arbitrary or oppressive

The due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution, as where it can be shown to amount to the confiscation of property [Sison v. Ancheta, G.R. No. L-59431(1984)].