Tax Articles

Real Property Taxation – Proper Party

By Atty. Fulvio D. Dawilan

My colleague, Rodel Unciano, started discussing real- property taxation in the last article in this column. I’d like to follow through on the same subject. This time, though, I will not be discussing the taxation of trees as my colleague did. Instead, I will focus on the real-property tax obligation of parties, especially if the beneficial user of the property is other than the owner.

Our laws allow local government units to levy annual ad valorem taxes on real properties not specifically exempted. In the assessment of real- property tax, 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.

For the proper assessment of taxes, the owner or the administrator or their authorized representatives are required to make truthful declaration of the description and value of the properties with the assessor’s office. And jurisprudence dictates that the party responsible for the payment of taxes rests with the person obliged to declare the same for taxation purposes. Thus, the Courts had been consistent in holding that the liability for taxes generally rests on the owner of the real property at the time the tax accrues. This is a necessary consequence that proceeds from the fact of ownership.

The declared owner is, therefore, considered the taxpayer, and presumed to be the person with the primary obligation to shoulder the burden of paying the tax. To be clear, anybody can actually pay the tax. But should there be failure or deficiency in tax payment, the local government may pursue the same only against the owner or the person with legal interest in the property. Assessment issued against a wrong party will result in its invalidity. Needless to say, only the same person has the right to question the reasonableness or correctness of real-property tax assessment. Any other person is an improper party. A controversy usually arises when the use of a real property is with a person other than the owner, such as in cases of leased premises. Which party has the obligation to pay the tax and in cases of assessment or dispute, who has the right to contest the same?

Based on a number of decided cases, personal liability for realty taxes may also rest on the entity with the beneficial use of the real property, such as the tax on property owned by the government but leased to private persons or entities, or when the tax assessment is made on the basis of the actual use of the property. In either case, the unpaid realty tax attaches to the property but is directly chargeable against the taxable person who has actual and beneficial use and possession of the property regardless of whether or not that person is the owner. When the tax liability is imposed on the beneficial use of the real property, or when the assessment is made on the basis of the actual use thereof, the personal liability is on any person who has such beneficial or actual use at the time of the accrual of the tax.

A look at these cases, however, would indicate that the actual owners of the properties involved in these realty-tax controversies are exempt from taxes, such as the government or government instrumentalities. Incidentally, the Local Government Code (LGC) recognizes the exemption from payment of tax of real properties owned by the government, except when the beneficial use of such property is granted, for consideration or otherwise, to a taxable person. The government, therefore, is exempted from the payment of taxes on government properties. But the tax exemption ceases if the beneficial use of the real property is granted to a taxable person.

While the LGC excludes from tax exemption government properties used by taxable entities, it does not identify the party obligated to make the payment. Should that be the government owner or the user, as in the case of a taxable lessee? There seems to be inconstancy in this regard. There are cases holding that the liability for real-property taxes due on government owned properties leased to taxable entities rests upon the owner of the property, which is the government. It is the government which is liable to pay real-property tax on properties on government-owned properties leased to private entities, and that in the event of failure of the government to pay thereof, the real property may be sold at public auction to satisfy the tax delinquency, except if the property is part of the public domain. Predominantly, however, including the most recent cases, the corresponding liability for the payment of taxes on government properties devolves on the taxable beneficial user. Lessees of government properties are, therefore, obliged to pay taxes on the leased premises.

In conclusion, real-property owners are primarily responsible in the payment of real-property taxes. This holds true even if the use of the property is granted to a third party. A non-tax exempt owner cannot escape its responsibility under the beneficial use doctrine. That can be invoked only if the registered owner is tax exempt. As with tax-exempt property owner whose property is used by a taxable person, the owner or the actual/beneficial user can be made liable for the payment of the tax.

For guidance. Happy New Year!