Tax Articles

Local tax assessments and refund

By Atty Rodel C. Unciano

Section 195 of the Local Government Code (LGC) of 1991 provides a remedy for protesting an assessment of local taxes. Under this provision:

1. A taxpayer may file a written protest with the local treasurer within a period of sixty (60) days from the receipt of the notice of assessment. Otherwise, the assessment shall become final and executory.

2. The local treasurer will then decide the protest within sixty (60) days from the time of its filing.

3. If the local treasurer finds the protest to be wholly or partly meritorious, he will issue a notice cancelling wholly or partially the assessment.

4. If the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly.

5. The taxpayer will have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60)-day period within which to appeal with the court of competent jurisdiction, otherwise the assessment becomes conclusive and unappealable.

On the other hand, under Section 196 of the same code, a taxpayer may claim for the refund or credit of any tax, fee, or charge erroneously or illegally collected within two (2) years from the date of the payment of such tax, fee, or charge. The two-year prescriptive period applies to both administrative claim with the local treasurer and before the courts.

Oftentimes, in local tax assessment cases, taxpayers are constrained in paying the taxes as assessed just for the sake of being able to secure their business permits before the relevant local government unit (LGU).

So, what happens if there is payment of tax on the basis of the assessment issued by the LGU? Can the taxpayer seek a refund of the payments made?

In one case, the Supreme Court had the occasion to rule that a taxpayer who had protested and paid an assessment is not precluded from subsequently instituting an action for refund or credit. However, the taxpayer cannot choose to pay the assessment and seek a refund at any time within the full period of two years as provided under Section 196 of the LGC.

The Court ruled that in case of assessment, the taxpayer may proceed (a) without payment, or (b) with payment of the assessed tax, fee or charge. Whether there is payment of the assessed tax or not, the protest must be made within sixty (60) days from receipt of the notice of assessment, otherwise, the assessment will become final and conclusive. Additionally, the subsequent court action must be initiated within thirty (30) days from denial or inaction by the local treasurer, otherwise, the assessment becomes conclusive and unappealable.

Where no payment is made, the taxpayer's procedural remedy is governed strictly by Section 195. Thus, the protest must be made within sixty (60) days from receipt of the notice of assessment, otherwise, the assessment will become final and conclusive. In case of whole or partial denial of the protest, or inaction by the local treasurer, the taxpayer's only recourse is to appeal the assessment with the court of competent jurisdiction. The appeal before the court does not seek a refund but only questions the validity or correctness of the assessment.

Where payment was made, the taxpayer may maintain an action in court to question the validity and correctness of the assessment under Section 195 of the LGC and at the same time seek a refund of the taxes. However, the taxpayer cannot choose to pay the assessment and seek a refund at any time within the full period of two years from the date of payment as provided under Section 196. If refund is pursued, the taxpayer must administratively question the validity or correctness of the assessment within 60 days from receipt of the notice of assessment, and then bring suit in court within 30 days from either decision or inaction by the local treasurer.

Thus, there are two conditions that must be satisfied in order to successfully prosecute an action for refund in case the taxpayer had received an assessment:

1. Pay the tax and administratively assail the assessment before the local treasurer within 60 days from receipt thereof. The taxpayer cannot choose to pay the assessment and seek a refund at any time within the full period of two years from the date of payment.

2. Bring an action in court within thirty (30) days from decision or inaction by the local treasurer, whether such action is denominated as an appeal from assessment and/or claim for refund of erroneously or illegally collected tax.