June 20, 2012

BUREAU OF LOCAL GOVERNMENT FINANCE OPINION

2nd Indorsement
Respectfully referred to the Regional Director for Local Government Finance,
Department of Finance, Region III, Benigno Aquino Memorial Hall, Provincial Capitol
Compound, San Fernando City, Pampanga, the within preceding Indorsement dated
March 12, 2012 of the City Assessor of Angeles City, relative to the request of Mr.
Emmanuel Y. Angeles, University Chancellor of Angeles University Foundation (AUF), to
drop the property from the roll of taxable properties, and thereafter to reclassify the
property as tax exempt.
It appears from the attached sub-joined letters, both dated February 27, 2012 of
Mr. Angeles addressed to said City Assessor that the following real properties of AUF
was allegedly been classified as taxable, to wit: aATHES

1) AUF Main Campus Used as Classrooms, administration

offices, laboratories, auditorium,
libraries, canteen, and parking spaces
intended for students, faculty and staff.

Conducts Tertiary teaching, training

2) AUF Medical Center
and
research hospital which cater to AUF's
medical students, Nursing and Allied
Medical Professions.

3) Sports Center Used as classrooms, sports activities

and gymnasium.

4) University Hostels (UH) Serve as dormitories for AUF's students

1, 3, 4 & 5 and teachers.

UH3 Also serves as site for the University

Printing Press, maintenance area, and
Newborn Screening Center for the AUF
Medical Center.

UH4 Serves as a laboratory for AUF's Hotel

& Restaurant Management (HRM)
students.

5) Botanical Garden Used for BS Biology program and other

courses

6) Student Dormitory Used exclusively by AUF students

7) NSTP and ROTC Exclusively used by AUF students

activity area
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 8) Sports and Recreation Exclusively used by AUF students
facilities and employees

9) Parking Exclusive used by AUF

10) Storage Area Exclusive used by AUF

Mr. Angeles likewise submitted the following arguments:
1. In Section 19 (2), Article XIV of the 1987 Constitution, educational
institutions are mandated to undertake sports activities, to wit:
"All educational institutions shall undertake regular sports activities
throughout the country in cooperation with athlete clubs and other
sectors."

2. It is likewise required under the Commission on Higher Education's

Manual of Regulations for Private Higher Education Institutions —
"Sec. 26. Institutional Sites and Buildings. — . . . All higher education
institutions are also required to provide for adequate auditoriums, lecture
rooms, and gymnasiums . . . ."

3. The Code of Sanitation of the Philippines also requires playgrounds,

athletic elds, school gardens and other facilities for suitable sports
and games:
"CHAPTER VI. — SCHOOL SANITATION AND HEALTH SERVICES

"SEC. 41. The Physical Environment. — In the design and construction of

the school plant, the following factors shall be considered:
cHaDIA

"b) Grounds. — The acreage shall be large enough to permit playgrounds,

athletic fields and school gardens.

"SEC. 42. The Emotional Environment. — For the promotion of emotional

health of the school population the following requirements shall be
observed:

"xxx xxx xxx

"b) Recreational Facilities. — The school must have save and attractive
playgrounds and adequate facilities for suitable sports and games."

4. Moreover, the tax exemption extends to facilities which are incidental to,
and reasonably necessary for the accomplishment of the main
purpose of an exempt entity. This principle was reiterated in the 2007
case of City Assessor of Cebu City v. Association of Benevola de
Cebu, Inc. Quoting the rule in Herrera v. Quezon City Board of
Assessment Appeals, —
"Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes 'is not limited to property actually
indispensable' therefore (Cooley on Taxation, Vol. 2, p. 1430), but extends
to facilities which are 'incidental to and reasonably necessary for' the
accomplishment of said purposes, such as, in the case of hospitals, 'a
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 school for training nurses, a nurses' home, property use to provide housing
facilities for interns, resident doctors, superintendents, and other members
of the hospital staff, and recreational facilities for students nurses, interns
and residents' (84 C.J.S., 621), such as 'athletic elds', including a 'farm
used for the inmates of the institution (Cooley on Taxation, Vol. 2, p.
1430)."

Contrary thereto, said City Assessor's Of ce of Angeles, as contained under its

abovementioned indorsement, is of the opinion "that the University Hostels or
Dormitory are not used for educational purposes even if the occupants are student of
the Angeles University Foundation."
In this connection, the said tax exemption privileges granted to educational
institutions, among others, was quoted almost verbatim from the Constitution under
Section 28 (3), Article VI, and reiterated under Section 234 (b) of R.A. No. 7160,
otherwise known as the Local Government Code (LGC) of 1991, which provides as
follows:
Section 28 (3), Article VI of the Constitution:
"Section 28(3) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-pro t cemeteries, and all lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or
educational purposes shall be exempt from taxation."

Section 234 (b) of the LGC: HETDAC

"Section 234. Exemptions from Real Property Tax. — The following are exempted
from payment of real property tax:
"xxx xxx xxx.

"(b) Charitable institutions, churches. Parsonages or convents appurtenant

thereto, mosques, nonpro t or religious cemeteries and all lands, buildings and
improvements actually, directly and exclusively used for religious or educational
purposes; (Underscoring supplied)
"xxx xxx xxx."

However, the Supreme Court, in the case of City of Baguio vs. Fernando S.
Busuego, G.R. No. L-29772 promulgated on September 18, 1990, held that "the sole
determinative factor for exemption from realty taxes is the USE to which the property is
devoted. And where 'use is the test, the ownership is immaterial' (Martin on the Revenue
Administration Code, 1961, Vol. II, p. 487, citing Apostolic prefect of Mt. Province vs.
Treasurer of Baguio City, 71 Phi. 547)."
Premises considered, for the said properties of AUF to be exempt from the
payment of real property tax, it must conform with the test as stated in the case above
cited as well as with the provision of Sec. 217 of the Local Government Code of 1991
which provides that:
"Section 217. Actual Use of Real Property as Basis for Assessment. — Real
Property shall be classi ed, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and whoever uses it."

Clearly, all lands, buildings and improvements of educational institutions which

are actually, directly and exclusively used for educational purposes are exempt from
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 real property tax. Conversely, if the same properties are used other than its intended
purposes, the same shall not be entitled to real property tax exemption granted under
the abovementioned provisions of law.
With regard to facilities which are incidental to and reasonably used, and
necessary for the accomplishment of the purpose, this Bureau, in its 2nd Indorsement
dated August 27, 2003, copy enclosed, treating on a similar subject matter, ruled in
part, as follows:
"xxx xxx xxx.

'1. Although a part of the building is functioning as an of ce, still, the

undersigned deem that the subject real properties (land and
building) of CMHJI are being used actually, directly and exclusively
for its religious purposes. We nd the operations of the Circulation
Of ce as only 'incidental' for the accomplishment of their religious
existence and purpose. Also, we cannot assume that the same is
income-generating considering the minimal rates being charged, as
observed. We deem that the same only necessary to continuously
run the said Circulation Office in spreading the word of God.
"xxx xxx xxx.

"Moreover, attention is also invited to the clari catory portion in Supreme Court
(SC) Decisions, as embodied under CBAA Decision Case No. L-08:
Classi cation/Actual Use in clarifying the term 'actually, directly and exclusively
used,' to wit:
'1. Abra Valley College, Inc. vs. Aquino (G.R. No. L-39086, June 15, 1988,
162 ACRA 106), citing Herrera vs. Quezon City Board of Assessment
Appeals (G.R. No. L-1570, September 30, 1961, 3 SCRA 1860) and
Commissioner of Internal Revenue vs. Bishop of the Missionary
District (14 SCRA 991):
. . . Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is not limited to property actually
indispensable therefore (Cooley on Taxation, Vol. 2, p. 1430), but
extends to facilities which are incidental to and reasonably
necessary for the accomplishment of said purposes, such as in the
case of hospitals, a school for training nurses, a nurses home, a
property used to provide housing facilities for student nurses,
interns, and residents (18 C. Juris Secundum 621) such as athletics
elds, including a farm used for inmates of the institutions. (Cooley
on Taxation, Vol. 2, p. 1430)cTAaDC

2. Herrera vs. Quezon City Board of Assessment Appeals (3 SCRA 186

[1961] and Commissioner of Internal Revenue vs. Bishop of
Missionary District (14 SCRA 191 [1965]):
'It must be stressed however, that while this court allows a more liberal
and nonrestrictive interpretation of the phrase 'exclusively used for
educational purposes' as provided for in Article VI, Section 22,
paragraph 3 of the 1935 Philippine Constitution, reasonable
emphasis has always been made that exemption extends to
facilities which are incidental to and reasonably necessary for the
accomplishment of the mean purpose. . . .' (Underlining supplied)

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 "It is clear, therefore, that the term 'actually, directly and exclusively used' under
Section 234(b) of the Code is not limited to and does not preclude such other
'incidental uses' attached to the primary use of a property.
"In the instant case, the Circulation Of ce of CMHJI, which is a part of the subject
building is considered as incidental to and reasonably necessary in achieving the
main purpose of the said congregation in spreading the Word of God. The Living
Quarters which house the local and foreign missionaries of CMHJI who are
indeed distinguished parsonages that constitute religious institutions, are likewise
incidental to and necessary in the accomplishment of the existence and purpose.
"xxx xxx xxx."

In view of the above discussion, and if indeed, upon further veri cation by that
Of ce, the subject properties of AUF which are being used actually, directly and
exclusively for educational purposes, including those real properties which are found to
be incidental to and reasonably necessary in achieving the educational purposes of
AUF, should be dropped from the roll of "taxable" properties and entered in the "exempt"
roll of real properties. Otherwise, those properties shall remain in the "taxable" roll of
real properties.
In addition thereto, if indeed the subject Dormitory is owned by the school and
erected within the AUF campus, the same should be dropped from the roll of "taxable"
properties and entered in the "exempt" roll of real properties. Otherwise it shall remain
in the "taxable" roll of real properties.
Be guided accordingly. TEIHDa

(SGD.) SALVADOR M. DEL CASTILLO

OIC-Executive Director

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