c. Appraisal and Assessment (See also RA 12001)

APPRAISAL AND ASSESSMENT

Appraisal – the act or process of determining the value of property as of a specified date for a specific purpose (LGC, Sec. 199(e))¹

All real property, whether taxable or exempt, shall be appraised at the current and fair market value prevailing in the locality where the property is situated. (LGC, Sec. 201)²

Fair Market Value

It is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. (LGC, Sec. 199(l))³

Assessment

The act or process of determining the value of a property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. (LGC, Sec. 199(f))⁴

• Residential
• Agricultural
• Commercial
• Industrial
• Mineral
• Timberland
• Special (LGC, Sec. 215)⁵
• lands, buildings, and other improvements
• actually, directly and exclusively used for hospitals, cultural, or scientific purposes, or
• those owned and used by local water districts, and GOCCs rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power (LGC, Sec. 216)⁶

A non-stock non-profit organization owned a hospital and a medical arts center in Cebu. The medical arts building was built to house its doctors and the latter were paying rentals. Thereafter, the said building classified by the city as “commercial.” But the Supreme Court classified it as “special,” which has a lower rate than commercial, for the following reasons:

• The medical arts building was an integral part of the hospital;
• The medical arts facility was incidental to and reasonably necessary for the operations of the hospital; and
• Charging rentals for the offices used by its accredited physicians was a practical necessity and could not be equated to a commercial venture. (City Assessor of Cebu City v. Association of Benevola De Cebu, Inc., G.R. No. 152904, 8 June 2007)⁷

Residential Land

A land principally devoted to habitation. (LGC, Sec. 199 (u))⁸

Mineral Land

A land in which minerals, metallic or non-metallic, exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials. (LGC, Sec. 199(p))⁹

Cities and municipalities within MMA – may, through their respective sanggunian, classify lands within their jurisdiction in accordance with their zoning ordinances. (LGC, Sec. 215; IRR of LGC, Art. 308¹⁰)

Properties Liable for RPT

• Land
• Buildings
• Machinery and
• Other improvements not otherwise exempted under LGC (LGC, Sec. 232¹¹)

Although the term real property has not been expressly defined in the LGC, early decisions of the Supreme Court in Mindanao Bus Company v. City Assessor & Treasurer and the Board of Tax Appeals of Cagayan De Oro City, G.R. No. L-17870, 29 September 1962¹²; Board of Assessment Appeals v. Manila Electric Company, G.R. No. L-15334, 31 January 1964¹³; Manila Electric Company v. Central Board of Assessment Appeals, G.R. No. L-47943, 31 May 1982¹⁴, seem to suggest that Art. 415 of the Civil Code¹⁵ could also be controlling.

However, in Manila Electric Company v. City Assessor and City Treasurer of Lucena City, G.R. No. 166102, 5 August 2015¹⁶, the SC stated that the definition of machinery in the LGC prevails over the definition of immovables in the Civil Code, for RPT purposes. Hence, transformers, electric posts may qualify as “machinery” under the LGC, even if they wouldn’t have been considered “immovables” in the Civil Code (because they weren’t placed in the tenement by the owner of the tenement and destined for use in the industry or work in the tenement).

Machinery

It embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus, which may or may not be attached, permanently or temporarily, to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes. (LGC, Sec. 199(o))¹⁷

Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), microcomputers, facsimile machines, telex machine, cash dispensers, furniture and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery. (IRR of LGC, Sec. 290(o))¹⁸

Summary of Rules on Machinery

• If permanently attached – may be subject to RPT, but machinery actually, directly, and exclusively used for religious, charitable, or educational purposes is exempt (RA 7160, Secs. 232 and 234(d)).
• If not permanently attached:
• If it is an essential and principal element of an industry without which such industry, work or activity cannot function – subject to RPT
• Apply the definition of machinery in RA 7160, Sec. 199(o), including whether the equipment is actually, directly, and exclusively used for, and designed for or necessary to, the specified purposes of the business or activity.

Improvement

A valuable addition made to a property or amelioration in its condition, which is intended to enhance its value, beauty, or utility, or to adapt it for new or further purposes, amounting to more than a mere replacement of parts involving capital expenditures and labor and normally requiring a building permit. (IRR of LGC, Art 290(m))¹⁹

General Revision of Assessment and Property Classification

The local assessor shall undertake a general revision of real property assessments once every 3 years. (LGC, Sec. 219)²⁰

Effectivity Date of Assessment or Reassessment

All assessments or reassessments made after January 1 of any year shall take effect on January 1 of the succeeding year.

However, the reassessment of real property shall be made within 90 days from the date any causes below occurred, and shall take effect at the beginning of the quarter next following the reassessment:

• partial or total destruction,

Pending the enactment of a schedule of FMV and the effectivity of the revised new assessment levels, the prevailing schedules of market values and the levels currently used by the provincial, city, and municipal assessors shall continue to be applied. (IRR of LGC, Art. 309)²¹

Notification of New or Revised Assessment (LGC, Sec. 223)²²

When real property is assessed for the first time or when an existing assessment is increased or decreased, the local assessor shall, within 30 days, give written notice of such new or revised assessment to the person in whose name the property is declared. The notice may be delivered personally or by registered mail or through the assistance of the punong barangay to the last known address of the person to be served.

The Assessor shall make a classification, appraisal and assessment or taxpayer's valuation when:

• There is an ongoing general revision of property classification and assessment; or

Assessed Value = FMV x Assessment level(%)

RPT = Assessed Value x Tax Rate(%)