REAL

PROPERT
Y
TAXATION
FABRIGAS, FREEZA JEE M
LLB 3-B
 REAL PROPERTY
TAXATION
REPORT OUTLINE
A. General Principles
B. Real Property and Machinery
C. Appraisal and Assessment
REAL PROPERTY TAX
GENERAL PRINCIPLE

Direct taxes imposed on the privilege to use

real property such as land, building, machinery and
other improvements, unless specifically exempted.
Nature of Real Property Tax
(DIAL UP)
D – direct tax whose burden could not be shifted by the one
who pays to other persons;
I- indivisible single obligation;
A- ad valorem tax based on the assessed value of the property
L- Local tax

U- Imposed on the Use and not on the ownership

P- Progressive / Proportionate depending, to a certain extent
on the use and value of the property
FUNDAMENTAL PRINCIPLES
(PAUCE)

1. The appraisal, assessment, levy and collection of real

property tax shall not be let to any PRIVATE person;
2. Real Property shall be classified for assessment purposes
on the basis of ACTUAL use;
3. Real property shall be assessed on the basis of UNIFORM
classification within each local government unit (LGU)
4. Shall be appraised at its CURRENT and fair market value;
5. Must be EQUITTABLE
What consists Real Property?

1. The list of immovable in Art. 415 of the Civil Code

2. The definition of machinery under Section 199(0)
clarified by the DOF Local Finance Circular 001-
2002
 MACHINERY
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 those which are mobile and 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.
It Includes :

1. REALTY BY DESTINATION machinery essential to the business.

RQUISITE to be classified as REAL PROPERTY

a. Actually, directly, and exclusively used to meet the needs of the particular
industry, business, or activity and
b. By their very nature and purpose and designed for, or necessary to
manufacturing, mining, logging, commercial, industrial, or agricultural
purposes.

Hence, if the machinery is only used in a general purpose, it is not real property.
2. REALTY BY INCORPORATION
machinery permanently attached.

SUMMARY OF RULES ON MACHINERY

1. If permanently attached – subject to RPT
2. If NOT permanently attached
a. Essential and principal element of an industry without
which such industry, work or activity cannot function – subject to RPT
b. Not an essential and principal element of an industry,
work or activity- not subject to RPT
 Mindanao Bus Co. vs City Assessor
G.R. No. L-17870 29 September 1962

FACTS: Petitioner is a public utility company engaged in the transport of passengers and
cargo by motor vehicles in Mindanao with main offices in Cagayan de Oro (CDO).
Petitioner likewise owned a land where it maintains a garage, a repair shop and
blacksmith or carpentry shops. The machineries are placed thereon in wooden and
cement platforms. The City Assessor of CDO then assessed a P4,400 realty tax on said
machineries and repair equipment. Petitioner appealed to the Board of Tax Appeals but it
sustained the City Assessor's decision, while the Court of Tax Appeals (CTA) sustained the
same.
ISSUE: Whether or not the machineries and equipment are considered immobilized and
thus subject to a realty tax
HELD:

NO. Supreme Court decided otherwise and held that said

machineries and equipment are not subject to the assessment of real
estate tax.
Said equipment are not considered immobilized as they are merely incidental, not
essential and principal to the business of the petitioner. The transportation business
could be carried on without repair or service shops of its rolling equipment as they
can be repaired or services in another shop belonging to another.
Caltex Philippines, Inc. v. Board of Assessment
Appeals
G.R. No. L-50466 (May 31, 1982)

This case is about the realty tax on machinery and equipment installed by Caltex
(Philippines) Inc. in its gas stations located on leased land. The machines and
equipment consists of underground tanks, elevated tank, elevated water tanks, water
tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck
hoists, air compressors and tireflators. The city assessor described the said equipment
and machinery in this manner: The said machines and equipment are loaned by Caltex
to gas station operators under an appropriate lease agreement or receipt. It is
stipulated in the lease contract that the operators, upon demand, shall return to Caltex
the machines and equipment in good condition as when received, ordinary wear and
tear excepted. The lessor of the land, where the gas station is located, does not become
the owner of the machines and equipment installed therein
Caltex retains the ownership thereof during the term of the lease. The city
assessor of Pasay City characterized the said items of gas station
equipment and machinery as taxable realty. The city board of tax appeals
ruled that they are personalty. The assessor appealed to the Central Board
of Assessment Appeals.

ISSUE: Whether or not the pieces of gas station equipment and

machinery are subject to realty tax.
HELD:
YES.We hold that the said equipment and machinery, as
appurtenances to the gas station building or shed owned by Caltex
and which fixtures are necessary to the operation of the gas station,
for without them the gas station would be useless, and which have
been attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery subject
to Real Property Tax.
 Meralco vs CBAA
114SCRA 273
FACTS:
Petitioner owns two oil storage tanks, made of steel plates wielded and
assembled on the spot. Their bottoms rest on a foundation consisted of compacted
earth, sand pad as immediate layer, and asphalt stratum as top layer. The tanks merely sit on
its foundation.

The municipal treasurer of Batangas made an assessment for realty tax on the two
tanks, based on the report of the Board of Assessors. MERALCO wished to oppose this
assessment as they averred that the tanks are not real properties.

ISSUE: Whether or not the oil storage tanks are subject to real property tax.
 HELD
YES.
While the two storage tanks are not embodied in the land, they may
nevertheless be considered as improvements in the land, enhancing its
utility and rendering it useful to the oil industry.

For purposes of taxation, the term real property may include things,
which should generally be considered as personal property. it is familiar
phenomenon to see things classified as real property for purposes of
taxation which on general principle may be considered as personal
property.
LGU’s that may levy Real Property tax

1. Province
2. City
3. Municipality within Metro Manila
APPRAISAL and ASSESSMENT
Appraisal is the act or process of determining the value of the property as of a specific
date for a specific purpose.

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.

Fair market value is the price at which the property may be sold by the
seller who is not compelled to sell and bought by a buyer who is not
compelled to buy.
 Appraisal and Assessment of
a. ForMachinery
BRAND NEW MACHINERY
The fair market value of a brand new machinery shall be the ACQUISITION COST
b. In ALL OTHER CASE
The fair market value shall be determined by dividing the remaining economic life of the
machinery by its estimated economic life and multiplied by the replacement or reproduction
cost.
Remaining Economic Life Replacement or
Estimated economic life X Reproduction Cost

If machinery is imported, the acquisition cost will include all the charges necessary to
bring the thing into the Philippines.
C. DEPRECIATION ALLOWANCE
Depreciation Allowance shall be made for machinery at a rate not
exceeding 5% of its original cost or its replacement cost.

 However, as long as the machinery is useful and in operation,

the value will not be less than 20% of its original value. It can
never be zero.
BASIS OF ASSESSMENT OF PROPERTY TAX

GENERAL RULE:
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.

ACTUAL USE refers to the purpose for which the property is

principally or predominantly utilized by the person in possession
therof.
 Unpaid real taxes attaches to the property and is
chargeable against the taxable person who had actual or
beneficial use and possession of, regardless of whether or not
he is the owner. (Testate Estate of Lim v Manila, GR No. 90693,
February 21, 1990)
EXCEPTION: In cases where there are mixed land uses,
the predominance rule is applied.
FOR MIXED LAND USES:
For lands located in areas of mixed land uses, such as residential with
commercial or industrial, the predominant use of the land in that area shall
govern the classification, valuation and assessment t thereof.
FOR BUILDINGS USED FOR A PURPOSE DIFFERENT FROM THAT WHICH THE
LAND IS CLASSIFIED:
A lot or a parcel of land classified and appraised as commercial or
industrial occupied by the building used for both residential and commercial
or industrial purposes shall be assessed on the basis of the predominant use
of the building.
CLASSES OF REAL PROPERTY
For the purpose of Assessment, real property y should be classified as:

• Residential
• Agricultural
• Commercial
• Industrial
• Mineral
• Timberland, or
• Special, which are:
• Land, buildings, and other improvements actually, directly, and exclusively used for
hospitals, cultural, or scientific purposes, and
• Those owned and used by local water districts and GOCCs rendering essential public
services in the supply and distribution of water.
 A hospital which previously classified as “special”
cannot be reclassified to “commercial” s imply because it
charges rental or the use of its offices by its accredited
physicians.
A facility which is incidental and reasonably
necessary for the operation should likewise be classified as
“special”. (City Assessor Cebu v Association of Benevola de
Cebu, GR. No. 152904, June 8, 2007)
 PROCEDURE IN THE
ADMINISTRATION OF REAL
PROPERTY TAX
 PROCEDURE IN THE ADMINISTRATION OF REAL
PROPERTY TAX

Step 1 Declaration of Real Property

Step 2 Listing of Real Property in the Assessment Rolls
Step 3 Appraisal and Valuation of Real Property
Step 4 Determine Assessed Value and tax Due
Step 5 Payment and Collection of Taxes
 Step 1 Declaration of Real Property
Declaration of Real property by the Owner or Administrator (SEC. 202-203)
It shall be the duty of all persons, natural, or judicial owning or administering real
property, including the improvements therein, arer required to prepare and file.
File a sworn declaration with the assessor - once every 3 years during the period
from January 1 to June 30.
For newly acquired property
WHEN: Must file with the assessor within 60 days from date of transfer WHAT: Sworn
statement containing the fair market value and description of the property.
For improvement on property
WHEN: Must file within 60 days upon completion or occupation (whichever comes earlier)
WHAT: Sworn statement containing the fair market value and description of the property.
PURPOSE OF TAX DECLARATION
A tax declaration only enables the assessor to identify the
property for the purpose of determining the assessment levels. It
does not bind the assessor when he makes his assessment.

IF PROPERTY IS DECLARED FOR THE FIRST TIME –(SEC.222)

If declared for the first time, real property shall be assessed for back taxes:
For not more than 10 years prior to date of initial assessment Taxes shall
be computed on the basis of applicable schedule of values in force during
the corresponding period.
Declaration by the Provincial/ City/ Municipal Assessor
When any person required under Sec 202 of the LGC
refuses or fails to make declaration within the prescribed
time, the provincial, city or municipal assessor shall himself
declare the property in the name of the defaulting owner, if
known or against the unknown owner. No oath by the
assessor is required.
 STEP 2: LISTING OF REAL PROPERTY IN THE
ASSESSMENT ROLLS (SECS. 205, 207)
Real property shall be listed, valued and assessed in the name of the owner, administrator,
or anyone having legal interest in the property.
Exceptions:
1. Undivided Real property- in the name of the estate or heirs or devisees without
designating them individually;
2. In cases of undivided real property other than that owned by a deceased- in the name
of one or more co-owner.
3. Corporation, partnership, and association- same as individuals
4. Owned by Republic of the Philippines, its instrumentalities, political subdivision,
beneficial use is transferred to a taxable person- in the name of the possessor.
All declarations shall be kept and filed under a uniform classification system to be
established by the provincial, city or municipal assessor.
STEP 3: APPRAISAL AND VALUATION
OF REAL PROPERTY (SECS. 212-214,
224-225)
STEP 4: DETERMINE ASSESSED
VALUE (SEC. 218)
ASSESMENT LEVELS
The percentage applied to the fair market value of the real property to
determine the taxable value(assessed value) of the property.

(a) On Lands:
CLASS ASSESSMENT LEVELS
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%
(b) On Machineries
CLASS ASSESSMENT LEVELS
Agricultural 40%
Residential 50%
Commercial 80%
Industrial 80%

Whenever real property has been divided into condominium, each

condominium owned shall be separately assessed, for purposes of real property
taxation and other tax purposes to the owner thereof and tax on each such
condominium shall constitute a lien solely thereof.
(c) Special Classes: The assessment levels for all lands, buildings, machineries and
other improvements.
ACTUAL USE ASSESSMENT LEVELS
Cultural 15%
Scientific 15%
Hospital 15%
Local water districts 10%
Government-owned or controlled corporations
engaged in the supply and distribution of water 10%
and/or generation and transmission of electric power
General Revision of Real Property
Assessments
The provincial, city or municipal assessor shall undertake a general
revision of real property assessments within two (2) years after the
effectivity of this Code and every three (3) years thereafter.
Valuation of Real Property
The provincial, municipal or city assessor or his duly authorized
representative shall make a classification, appraisal and assessment of real
property irrespective of any previous assessment or taxpayer’s valuation
thereon when:

1. Real property is declared and listed for taxation purposes for the first time
2. There is an ongoing general revision of property classification and assessment;
3. A request is made by the person in whose name the property is declared

That the assessment of real property shall not be increased oftener than
once every three (3) years except in case of new improvements substantially
increasing the value of said property or of any change in its actual use.
Date of Effectivity of Assessment or
Reassessment
All assessments or reassessments made after the first (1st) day of January of
any year shall take effect on the first (1st) day of January of the succeeding
year.
EXCEPTION: Reassessment shall take effect at the beginning of the quarter next following
the reassessment of made due to :
1. Partial or total destruction,
2. Major change in its actual use
3. Any great and sudden inflation or deflation of real property values
4. Gross illegality of the assessment
5. When made or to any other abnormal cause,
STEP 5: PAYMENT AND COLLECTION
OF TAX
(a) Accrual of Tax:
January of every year and such will constitute as a superior lien. (Sec. 246)
(b) Time and Manner of Payment: (Sec. 250)
1. basic real property tax in 4 equal installments (March 31, June 30,
September 30, December 30)
2. special levy – governed by ordinance
(c) Interest for Late Payment (Sec. 255)
1. two percent (2%) for each month on unpaid amount until the
delinquent amount is paid
2. provided in no case shall the total interest exceeds 36 months
(d) For Advance and Prompt Payment
1. Advance payment – discount not exceeding 20% of annual tax (Sec. 251, LCG)
2. Prompt payment – discount not exceeding 10% of annual tax due (Art 342 IRR)

COLLECTION OF TAX (SEC. 247)

It shall be the responsibility of the city or municipal treasurer concerned. The city
or municipal treasurer may deputize the barangay treasurer to collect all taxes on real
property located in the barangay; provided, the barangay treasurer is properly bonded.
PERIOD TO COLLECT (SEC. 270)
1. within five (5) years from the date they become due
2. within ten (10) years from discovery of fraud, in case there is fraud or
intent to evade

SUSPENSION OF PRESCRIPTIVE PERIOD (SEC. 270)

1. local treasurer is legally prevented to collect tax.
2. 2. the owner or property requests for reinvestigation and writes a waiver
before expiration of period to collect.
3. 3. the owner of property is out of the country or cannot be located.