In the Philippines, real property tax assessments must adhere to specific guidelines ensuring fairness and uniformity. The Supreme Court ruled that Quezon City Ordinance No. 357, Series of 1995, which based real property tax on the sale price or zonal value instead of actual use and fair market value, was invalid. This decision clarifies that local governments cannot arbitrarily set property taxes based solely on transaction values, reinforcing the principle of equitable taxation based on uniform standards and actual property use.

Real Estate Roulette: Can Purchase Price Dictate Your Property Tax?

Allied Banking Corporation, as trustee for College Assurance Plan Philippines, Inc. (CAP), challenged the Quezon City government’s ordinance that assessed real property tax based on the higher of the sale price or the Bureau of Internal Revenue (BIR) zonal valuation. This ordinance mandated that properties sold or transferred after its effectivity would be taxed based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the BIR, whichever was higher. Allied Banking Corp. argued that this method violated the constitutional rights to equal protection and uniform taxation, as it treated newly acquired properties differently from others. The central legal question was whether Quezon City could assess real property tax based solely on the property’s transfer value rather than its actual use and fair market value.

The petitioner contended that re-assessment based on the sale or transfer price was an invalid classification of real properties, contravening the principle of uniformity in taxation. Further, they argued that such re-assessment violated Sections 219 and 220 of the Local Government Code, which stipulate that property assessments should not be increased more than once every three years, except for new improvements or changes in actual use. This frequent re-assessment, triggered merely by a sale or transfer, created an uneven playing field, as similarly situated properties were taxed differently, solely based on whether they had been recently sold. This ran counter to the fundamental principles of taxation under Section 130 of the Local Government Code, which requires uniformity and equity in local taxation.

In response, the Quezon City government eventually repealed the assailed proviso through Ordinance No. SP-1032, S-2001. However, a dispute remained regarding the validity of the tax collection under the repealed ordinance prior to its repeal, and whether Allied Banking Corp. was entitled to a refund of taxes paid under protest. The city argued that the repealing ordinance should be applied prospectively, meaning that taxes collected before the repeal were still valid. Moreover, they contended that Allied Banking Corp. had failed to exhaust administrative remedies before seeking judicial relief, specifically by not appealing to the Local Board of Assessment Appeals. The trial court initially dismissed Allied Banking Corporation’s petition, citing failure to exhaust administrative remedies and declaring the issue moot due to the repealing ordinance.

The Supreme Court addressed the procedural and substantive issues raised. Regarding the exhaustion of administrative remedies, the Court acknowledged the general rule that requires taxpayers to pursue administrative channels before resorting to judicial intervention. However, an exception exists when only legal questions are at issue. Ultimately, the Court decided that the need to determine the amounts paid under protest and attorney’s fees made administrative recourse necessary. Furthermore, this meant the SCt refrained from a ruling on constitutionality.

The heart of the Supreme Court’s analysis rested on the validity of the assessment method prescribed by the ordinance. The Court emphasized that real property must be appraised at its current and fair market value, reflecting the price a willing buyer would pay a willing seller, considering all potential uses of the property. In evaluating the methods prescribed by the Local Assessment Regulations No. 1-92 for determining fair market value, namely the sales analysis, income capitalization, and reproduction cost approaches, the Court held that the assailed provision in the ordinance was invalid, emphasizing that assessors must consider all circumstances and elements of value.

Accordingly, this Court holds that the proviso directing that the real property tax be based on the actual amount reflected in the deed of conveyance or the prevailing BIR zonal value is invalid not only because it mandates an exclusive rule in determining the fair market value but more so because it departs from the established procedures stated in the Local Assessment Regulations No. 1-92 and unduly interferes with the duties statutorily placed upon the local assessor by completely dispensing with his analysis and discretion which the Code and the regulations require to be exercised.

Moreover, the Court pointed out the Quezon City Government lacked statutory authority for appraisals based solely on conveyance values. This contravenes the principle that property classification, valuation, and assessment should hinge on actual use, and interferes with free contracting. The ordinance could pressure owners into undervaluing properties and stifle wealth distribution. Therefore, the Supreme Court declared the assailed provision null and void ab initio for being ultra vires. The case reaffirms local assessors’ mandated procedures, directing appraisal at current and fair market value in accordance with established guidelines.

FAQs

What was the key issue in this case?	The central issue was whether Quezon City’s ordinance could validly base real property tax solely on the sale price or BIR zonal value, rather than the property’s actual use and fair market value. The Supreme Court found this practice invalid.
What did the Supreme Court decide?	The Supreme Court ruled that the Quezon City ordinance was invalid because it mandated an exclusive rule in determining the fair market value, thus, departing from established procedures stated in the Local Assessment Regulations. The decision underscored the importance of considering the property’s actual use and other factors.
What is “fair market value” in property assessment?	“Fair market value” refers to the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy, taking into consideration all uses to which the property is adapted and might in reason be applied. This involves analyzing various market data, income capitalization, and reproduction costs.
Why was the Quezon City ordinance considered a violation?	The ordinance violated the Local Government Code and Local Assessment Regulations because it did not properly account for these varying factors in determining valuation. It interfered with the local assessor’s duty to exercise discretion and conduct thorough analyses.
What is the significance of actual use in property assessment?	The significance of actual use in property assessment stems from its need to align with legal and uniform principles to guarantee that assessments reflect how the property currently operates. By determining classification based on actual usage the process creates a systematic method that steers the property value evaluation toward fair taxation rather than relying solely on transfer considerations.
What are the implications of this decision for local governments?	The decision clarifies that local governments must adhere to established guidelines when assessing real property taxes, reinforcing assessors’ discretion and standardized market value assessment methods. In short it must involve an appraisal procedure that mirrors best evaluation practice.
Did Allied Banking Corporation get a refund?	The Supreme Court did not directly order a refund. It instructed Allied Banking Corp. to lodge its claim with the Local Board of Assessment Appeals, provided it was not yet barred by the statute of limitations.
What should property owners do if they believe their property is unfairly assessed?	Property owners who believe their property is unfairly assessed should first pay the tax under protest, file a written protest with the local treasurer, and if denied, appeal to the Local Board of Assessment Appeals within the prescribed period. They can find further guidance by consulting with the government websites and experts.

This case underscores the judiciary’s role in safeguarding the fundamental principles of taxation. By affirming that property tax assessments must be grounded in actual use and fair market value, the Supreme Court protects taxpayers from arbitrary and inequitable tax burdens. This ruling ensures that local governments exercise their taxing powers within the bounds of the law, promoting a more just and predictable tax system.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Allied Banking Corporation v. Quezon City, G.R. No. 154126, October 11, 2005