Opinion No. 175
Series of 2006

August 16, 2006

MR. WESLEY V. REDIMANO
Chairman of the Board
San Pedro Water District
110 J.P. Rizal Street
San Pedro, Laguna

Sir:

This has reference to your letter requesting opinion in the matter of real property taxation involving water districts in accordance with the pertinent provisions of Republic Act No. 7160, otherwise known as the Local Government Code of 1991.

In your letter, you cited Section 193 of RA 7160 as basis for exemption for the payment of real property tax of water districts, viz:

"Section 193, Withdrawal of Tax Exemption Privileges - Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts, cooperatives registered under R.A. No. 6938, non-stock and non-profit hospital and educational institutions are hereby withdrawn upon the effectivity of this Code." (emphasis supplied)

We treat the purpose of your letter as a clarification relative to our previous Opinion No. 177, dated October 08, 2003, addressed to the General Manager of Cagayan de Oro City Water District on the issue of real property tax in which we opined, thus:

"Based on the aforecited provision of law, it would appear that the enjoyment of all water districts, Cagayan de Oro City Water district included, on the exemption from payment of real property tax ended on December 31, 1991, a day before the effectivity of R.A. 7160.

However, we reiterate and confirm our previous opinions that except for the payment of real property tax, water districts, pursuant to Section 46 of P.D. 198, as amended, are still exempt from payment of other taxes, charges and fees that the local government units may impose in the performance of its taxing and revenue raising powers in accordance with the pertinent provisions of the Local Government Code of 1991," (emphasis supplied)

On Section 193 of the Local Government Code of 1991, (RA 7160) the Supreme Court in the case of MIAAA vs. City of Parañaque, G.R. No. 115650 promulgated on July 20, 2006, clarifies:

xxx xxx xxx

First: there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states, "unless otherwise provided in this Code. By its own words, Section 193 admits the superiority of other provisions of the Local Government Code." xxx xxx (emphasis supplied)

Relative thereto, Section 234 of the Local Government Code provides:

Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property tax:

(a) xxx xxx xxx

(b) xxx xxx xxx

(c) all machineries and equipment that are actually, directly and exclusively used by local water districts and government owned and controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power.

xxx xxx xxx

Except as provided herein, any exemption from payment of real property tax previously granted to, or personally enjoyed by all persons whether natural or juridical including all government owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. (emphasis supplied)

Interpreting Section 193 in relation to the last paragraph of Section 234 of the Local Government Code of 1991, we arrived at the following inescapable conclusions:

1. That the tax exemption privilege still granted to local water districts in accordance with Section 193 does not include exemption from payment of real property tax, as the said privilege has expressly been withdrawn under the last paragraph of Section 234 of the Local Government Code.

2. Section 234 is more specific and thus a superior provision over Section 193 of the Local Government Code in the matter of real property tax.

3. That only machineries and equipment that are actually, directly and exclusively used by local water districts are exempt from payment of real property tax.

4. That lands, buildings and other improvements used and owned by local water districts are not exempt from payment of real property tax.

Relative to real property tax on land, building and other improvements used and owned by water districts, pertinent provisions of RA 7160, provides, viz:

CHAPTER 2 - Appraisal and Assessment of Real Property.

SEC. 201 Appraisal of Real property. 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. (emphasis supplied)

xxx xxx xxx

SEC. 215. Classes of Real Property for Assessment Purposes. For purposes of assessment, real property shall be classified as residential, agricultural, commercial, industrial, mineral, territorial or special. (emphasis supplied)

SEC. 216. Special Classes of Real Property - All lands, buildings and other improvements thereon actually directly and exclusively used for hospitals, cultural or scientific purposes and those owned and used by local water districts, and government owned and controlled corporations rendering essential public services in the supply and distribution of water and/or generation and supply of electric power shall be classified as special (emphasis supplied)

xxx xxx xxx

Sec 218 Assessment levels

xxx xxx xxx

(d) On Special Classes. The assessment levels for all lands, buildings, machineries and other improvements.

Actual Use                                                                            Assessment Level
Cultural                                                                                 15%
Scientific                                                                               15%
Hospital                                                                                15%
Local Water District
Government owned and controlled
corporation engaged in the supply
and distribution of water and/or
generation and transmission of
electric power                                                                          10%
(emphasis supplied)

On the basis of the foregoing, it is our considered view that a local water district is exempt only from payment of real property tax on its machineries and equipment but it is liable for payment of tax on other real property such as lands, buildings add improvements thereon in accordance with the Local Government Code of 1991.

Opinion No. 177, Series of 2003 dated October 08, 2003 on real property tax involving water districts is hereby clarified accordingly.

Very truly yours,

(Signed) AGNES VST. DEVANADERA
Government Corporate Counsel