b. Exemptions

Go-WatCh-ECo (LGC, Sec. 234)

• Owned by the Government or any of its political subdivisions.

EXCEPTIONS:

• Real property owned by GOCCs is generally subject to RPT unless an exemption under LGC, Sec. 234 applies. Under Sec. 234(c), only machinery and equipment actually, directly, and exclusively used by local water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power are exempt.

Compare these with properties owned by government instrumentalities (like PEZA) which are exempt from RPT. (City of Lapu-Lapu v. Philippine Economic Zone Authority, G.R. No. 184203, 26 November 2014)¹)

MWSS is a government instrumentality vested with corporate powers or a government corporate entity as classified by Executive Order No. 596² and GOCC Act of 2011³. Hence, it is exempt from RPT, unless the beneficial use of its properties has been extended to a taxable person. (Metropolitan Waterworks Sewerage System v. Local Government of Quezon City, G.R. No. 194388, 7 November 2018⁴)

The following are classified by jurisprudence as government instrumentality vested with corporate powers or government corporate entity, as adopted by E.O. 596 and GOCC Act of 2011:

• Manila International Airport Authority (MIAA)
• Mactan-Cebu International Airport Authority (MCIAA)
• Philippine Ports Authority (PPA)
• Philippine Deposit Insurance Corporation (PDIC)
• Metropolitan Waterworks and Sewerage System (MWSS)
• Philippine Rice Research Institute (PRRI)
• Laguna Lake Development Authority (LLDA)
• Philippine Fisheries Development Authority (PFDA)
• Bases Conversion and Development Authority (BCDA)
• Cebu Port Authority (CPA)
• Cagayan de Oro Port Authority
• San Fernando Port Authority
• Local Water Utilities Administration (LWUA)
• Asian Productivity Organization (APO) (MWSS v. The Local Government of Quezon City, G.R. No. 194388, November 7, 2018, J. Leonen)
• When beneficial use has been granted to a taxable person.

Parcels of land owned by the State but leased to a private commercial establishment are subject to RPT since private commercial establishments are the taxable beneficial users of the parcels of land owned by the State. (City of Pasig, Represented by the City Treasurer and the City Assessor, Vs., Republic of the…, G.R. No. 185023, 24 August 2011⁵)

The Mactan-Cebu International Airport Authority, is a government instrumentality and 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 exempt from RPT. However, the portions of the land leased to taxable persons like private parties are subject to RPT. (Mactan-Cebu International Airport Authority v. City of Lapu-Lapu and Elena T. Pacaldo, G.R. No. 181756, 15 June 2015⁶)

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

A charitable institution does not lose its character and its exemption simply because it derives income from paying patients so long as the money received is devoted to the charitable object it was intended to achieve, and no money inures to the benefit of persons managing the institution. However, a hospital, even though it was a charitable institution, was not exempt from real property tax on the portions of its property not actually, directly, and exclusively used for charitable purposes. Those leased out for commercial purposes are subject to real property tax. (Lung Center of the Philippines v. Quezon City and Constantino P. Rosas, G.R. No. 144104, 29 June 2004⁷)

Take note that this provision was lifted from the 1987 Constitution, which reads:

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. (1987 Constitution, Art. VI, Sec. 28 (3)⁸)

Therefore, machinery is not included in this exemption. Improvements do not include machinery. As such, machinery that is permanently attached to land and buildings is subject to RPT, even though this is actually, directly, and exclusively used for religious, charitable or educational purposes. (Local Finance Circular No. 01-2001⁹)

However, there is an issue as to the machinery of nonstock, non-profit educational institutions used actually, directly, and exclusively for educational purposes because of another constitutional provision, which reads:

All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. (1987 Constitution, Art. XIV, Sec. 4(3)¹⁰)

Therefore, a machinery (which is an asset) of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes is exempt from RPT. (CIR v. DLSU, G.R. No. 196596¹¹; Local Finance Circular No. 01-2002¹²)

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

Requisites:

• This exemption applies solely to machinery and equipment;
• The property must be actually, directly, and exclusively used by local water districts and government-owned or controlled corporations (GOCCs); and
• Such local water districts and GOCCs must be engaged in the generation and transmission of electric power, and/or the supply and distribution of water.

The real property tax exemption privilege granted to the National Power Corporation (NPC) cannot be transferred or extended to another entity through a contractual agreement. (Fels Energy, Inc. v. Province of Batangas and the Office of the Provincial Assessor of Batangas, G.R. No. 168557, 16 February 2007)¹³)

A contractual stipulation making NPC undertake the tax obligations does not confer standing to protest the assessment. The real property tax is a statutory liability enforceable by the local government unit by operation of law, distinct from inter-party contractual commitments. Under the law, the tax burden attaches to Mirant based on its ownership, possession, and actual use of the power plant and its machineries, rather than to NAPOCOR. (National Power Corporation v. Province of Quezon and Municipality of Pagbilao, G.R. No. 171586, January 25, 2010) [Owner check: verify the decision’s attribution and whether it supports the preceding formulation.]

Where an entity merely assumes the tax liability of another party by contract while that other party continues to operate and use the subject property, the assuming entity lacks the requisite legal interest to protest the statutory tax assessed against the operator. (NAPOCOR v. Province of Quezon, G.R. No. 171586, January 25, 2010, J. Brion)

Persons Having Legal Interest in the Property

• The entity in whose name the real property is declared, listed, valued, and assessed;
• The person who may be summoned by the local assessor for information necessary to establish the market value of the realty;
• The person authorized to protest the assessment before the Local Board of Assessment Appeals (LBAA) and appeal an adverse decision to the Central Board of Assessment Appeals (CBAA);
• The person who may be held liable for or exempt from the idle land tax;
• The person entitled to notice of any proposed ordinance enacting a special levy and eligible to raise objections against it;
• The person who may pay the real property tax;
• The person entitled to notice of the levy on the real property to enforce payment of delinquent real property tax;
• The person who can forestall a public auction sale by satisfying the delinquent taxes, interest, and surcharges; and
• The person possessing the right of redemption over the property following a public auction sale for tax delinquency. (NAPOCOR v. Province of Quezon, G.R. No. 171586, January 25, 2010, J. Brion)

Real Property Owned by Cooperatives Duly Registered Under R.A. No. 6938

Section 234 of the Local Government Code (LGC)¹⁴ exempts all real property owned by cooperatives without qualifying restrictions. The statute does not mandate that the cooperative itself must directly use the property. Consequently, leasing the real property to another entity does not constitute a ground for forfeiting the tax exemption. (Provincial Assessor of Agusan Del Sur v. Filipinas Palm Oil Plantation, Inc., G.R. No. 183416, 17 July 2017)¹⁵)

PHILRECA, an electric cooperative registered under P.D. No. 269¹⁶, argued that the 1991 LGC infringed upon the equal protection clause by confining tax relief solely to cooperatives registered under R.A. No. 6938¹⁷. The Supreme Court sustained the validity of the classification, holding that it is germane to the legislative purpose and applies uniformly to all members of the specified class. Tax exemptions from local taxation (LGC, Sec. 193)¹⁸, including real property tax (LGC, Sec. 234)¹⁹, are explicitly conferred upon cooperatives covered under R.A. No. 6938²⁰. (PHILRECA v. Secretary of Interior and Local Government, G.R. No. 143076)²¹)

Machinery and Equipment for Pollution Control and Environmental Protection

Pursuant to Section 234(e) of the 1991 LGC²², the exemption accorded to machinery and equipment dedicated to pollution control and environmental protection is anchored on actual usage, which demands a direct, immediate, and actual application of the asset to the exempt purpose. (Provincial Assessor of Marinduque v. Court of Appeals and Marcopper Mining Corporation, G.R. No. 170532, 24 April 2009)²³)

Classifications of Real Property Tax Exemptions

1. Ownership Exemptions

Exemptions predicated on ownership cover real properties owned by:

• The Republic of the Philippines;
• Provinces;
• Cities;
• Municipalities;
• Barangays; and
• Registered cooperatives.

2. Character Exemptions

Exemptions based on the character of the institution cover:

• Charitable institutions;
• Houses and temples of prayer, including churches, parsonages or convents appurtenant thereto, and mosques; and
• Non-profit or religious cemeteries.

3. Usage Exemptions

Exemptions grounded on actual, direct, and exclusive use cover:

• All lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes;
• Machineries and equipment actually, directly, and exclusively used by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and
• Machinery and equipment used for pollution control and environmental protection, intended to foster a balanced ecology alongside industrial modernization, which local governments may not subject to real property tax. (Mactan Cebu International Airport Authority v. Marcos, G.R. No. 120082, 11 September 1996)²⁴)

Note: Except as provided under the LGC, all real property tax exemptions previously granted to or enjoyed by any person, whether natural or juridical, including government-owned or controlled corporations, were withdrawn upon the effectivity of the Code. (LGC, Sec. 234)

Proof of Tax Exemption

File with the local assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (i.e. corporate charters, title of ownership, articles of incorporation, contracts, affidavits, etc.) (LGC, Sec. 206)²⁸

If the required evidence is not submitted, the property shall be listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be dropped from the assessment roll. (LGC, Sec. 206)

Exempted Idle Lands

Idle lands may be exempted from the additional tax by reason of:

• Force majeure;