Necessity of paying real property tax prior to protest

As a rule, the taxpayer must pay the real property tax assessed prior to protesting a real property tax assessment.   Section 252 of the Local Government Code (LGC) provides:

Section 252. Payment Under Protest. –

(a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words “paid under protest”. The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt. . .

(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code.

In Ty vs. Trampe, the Supreme Court ruled that the payment of the tax prior to protest is not necessary where the taxpayer questions the authority and power of the assessor to impose the assessment and of the treasurer to collect the tax.  If the taxpayer claims that the property is exempt from real property tax, is the taxpayer required to pay the tax pursuant to Section 252 or is the taxpayer covered by Ty vs. Trampe?

In National Power Corporation vs. Province of Quezon and Municipalilty of Pagbilao, G.R. No. 171586, January 25, 2010, the Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real property taxes. Napocor, which entered into a Build-Operate-Transfer (BOT) Agreement with Mirant, protested the assessment before the Local Board of Assessment Appeals (LBAA), claiming entitlement to the tax exemptions provided under Section 234 of the Local Government Code (LGC). The real property taxes assessed were not paid prior to the protest.

The Local Board of Assessment Appeals (LBAA) dismissed Napocor’s petition for exemption for its failure to comply with Section 252 of the LGC requiring payment of the assailed tax before any protest can be made.

The Central Board of Assessment Appeals (CBAA) ultimately dismissed Napocor’s appeal for failure to meet the requirements for tax exemption;  however, the CBAA  agreed with Napocor’s position that the protest contemplated in Section 252 (a) is applicable only when the taxpayer is questioning the reasonableness or excessiveness of an assessment.  According to the CBAA, a payment prior to protest applies only if the taxpayer is subject to the tax but is disputing the correctness of the amount assessed. The CBAA ruled that the requirement of payment prior to protest does not apply where the legality of the assessment is put in issue on account of the taxpayer’s claim that it is exempt from tax.

The Court of Tax Appeals (CTA) en banc agreed with the CBAA’s discussion, relying mainly on the cases of Ty vs. Trampe and Olivarez vs. Marquez.

The Supreme Court disagreed with both the CBAA and the CTA.  The Supreme Court held that by claiming exemption from realty taxation, NAPOCOR is simply raising a question of the correctness of the assessment;  as such, the real property tax must be paid prior to the making of a protest.  On the other hand, if the taxpayer is questioning the authority of the local assessor to assess real property taxes, it is not necessary to pay the real property tax prior to the protest.

The Supreme Court explained Ty vs. Trampe as follows:

The petitioner in Ty v. Trampe questioned before the trial court the increased real estate taxes imposed by and being collected in Pasig City effective from the year 1994, premised on the legal question of whether or not Presidential Decree No. 921 (PD 921) was repealed by the LGC. PD 921 required that the schedule of values of real properties in the Metropolitan Manila area shall be prepared jointly by the city assessors in the districts created therein; while Section 212 of the LGC stated that the schedule shall be prepared by the provincial, city or municipal assessors of the municipalities within the Metropolitan Manila Area for the different classes of real property situated in their respective local government units for enactment by ordinance of the Sanggunian concerned. The private respondents assailed Ty’s act of filing a prohibition petition before the trial court contending that Ty should have availed first the administrative remedies provided in the LGC, particularly Sections 252 (on payment under protest before the local treasurer) and 226 (on appeals to the LBAA).

The Court, through former Chief Justice Artemio Panganiban, declared that Ty correctly filed a petition for prohibition before the trial court against the assailed act of the city assessor and treasurer. The administrative protest proceedings provided in Section 252 and 226 will not apply. The protest contemplated under Section 252 is required where there is a question as to the reasonableness or correctness of the amount assessed. Hence, if a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to “first pay the tax” under protest. Otherwise, the city or municipal treasurer will not act on his protest. Ty however was questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These were not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. Moreover, Ty was raising a legal question that is properly cognizable by the trial court; no issues of fact were involved. In enumerating the power of the LBAA, Section 229 declares that “the proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts x x x.” Appeals to the LBAA (under Section 226) are therefore fruitful only where questions of fact are involved.

With respect to Olivarez vs. Marquez:

Olivarez v. Marquez, on the other hand, involved a petition for certiorari, mandamus, and prohibition questioning the assessment and levy made by the City of Parañaque. Olivarez was seeking the annulment of his realty tax delinquency assessment. Marquez assailed Olivarez’ failure to first exhaust administrative remedies, particularly the requirement of payment under protest. Olivarez replied that his petition was filed to question the assessor’s authority to assess and collect realty taxes and therefore, as held in Ty v. Trampe, the exhaustion of administrative remedies was not required. The Court however did not agree with Olivarez’s argument. It found that there was nothing in his petition that supported his claim regarding the assessor’s alleged lack of authority. What Olivarez raised were the following grounds: “(1) some of the taxes being collected have already prescribed and may no longer be collected as provided in Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3) some properties being taxed are no longer existent; (4) some properties are exempt from taxation as they are being used exclusively for educational purposes; and (5) some errors are made in the assessment and collection of taxes due on petitioners’ properties, and that respondents committed grave abuse of discretion in making the improper, excessive and unlawful the collection of taxes against the petitioner.” The Olivarez petition filed before the trial court primarily involved the correctness of the assessments, which is a question of fact that is not allowed in a petition for certiorari, prohibition, and mandamus. Hence, we declared that the petition should have been brought, at the very first instance, to the LBAA, not the trial court.

The Supreme Court concluded that NAPOCOR’s situation is similar to that in Olivarez:

Like Olivarez, Napocor, by claiming exemption from realty taxation, is simply raising a question of the correctness of the assessment. A claim for tax exemption, whether full or partial, does not question the authority of local assessor to assess real property tax. . .

It was an ill-advised move for Napocor to directly file an appeal with the LBAA under Section 226 without first paying the tax as required under Section 252. Sections 252 and 226 provide successive administrative remedies to a taxpayer who questions the correctness of an assessment. Section 226, in declaring that “any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city, or municipal assessor in the assessment of his property may x x x appeal to the Board of Assessment Appeals x x x,” should be read in conjunction with Section 252 (d), which states that “in the event that the protest is denied x x x, the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of the LGC [Chapter 3 refers to Assessment Appeals, which includes Sections 226 to 231]. The “action” referred to in Section 226 (in relation to a protest of real property tax assessment) thus refers to the local assessor’s act of denying the protest filed pursuant to Section 252. Without the action of the local assessor, the appellate authority of the LBAA cannot be invoked. Napocor’s action before the LBAA was thus prematurely filed.