Herarc Realty Corporation vs. Provincial Treasurer of Batangas

The registered owner of real property who is not tax-exempt is personally liable for real property taxes for the period when the tax accrued, even if not in actual possession of the property; the "beneficial user" or "actual possession" rule shifting liability to the possessor applies only when the registered owner is a tax-exempt entity under Section 234(a) of the Local Government Code.

The case involves the interpretation of liability for real property tax (RPT) when the registered owner is not in possession of the property during the taxable period. It clarifies the limited scope of the "beneficial user" doctrine previously established in Testate Estate of Concordia T. Lim and GSIS v. City Treasurer, restricting its application to tax-exempt owners.

• Filed in RTC: Petition for prohibition and mandamus with prayer for nullification of RPT assessments (Civil Case No. 9428), Branch 8, Pallocan West, Batangas City
• Decision of lower court: November 18, 2013 — RTC denied petition, held Herarc liable for deficiency RPT for 2007, 2008, and January-August 2009
• Motion for Reconsideration: Denied by RTC on January 7, 2014
• Elevated to SC: Petition for review on certiorari under Rule 45 (direct recourse, bypassing CTA)

• Nature of Action: Petition for prohibition and mandamus praying for: (a) declaration of nullity of RPT assessments; (b) charging private respondents for the tax; (c) issuance of tax clearances; and (d) refund of taxes paid under protest
• Subject Property: 13 parcels of land in Sta. Ana, Calatagan, Batangas (TCT Nos. T-105907 to T-105919)
• Acquisition: Herarc acquired the property via execution sale in August 2004; registered in its name since 2006
• Possession Dispute: From March 2, 2006 to August 12, 2009, the property was in actual possession of private respondents Dr. Rafael A. Manalo, Grace Oliva, and Freida Rivera Yap as assignees in an involuntary insolvency proceeding against Spouses Rosario and Saturnino Baladjay pending before Muntinlupa City RTC Br. 204
• Herarc's Entry: Herarc took full possession only on August 13, 2009 by virtue of a writ of execution issued by Makati City RTC Br. 56 based on the final and executory CA Decision in CA-G.R. SP Nos. 93818 and 93823
• Assessment: Provincial Treasurer of Batangas sent Statement of RPT Liabilities on October 9, 2012 demanding P8,093,256.89 for unpaid RPT covering 2007, 2008, and January to August 2009
• Payment Under Protest: Herarc paid the assessment under protest on November 20, 2012, then filed the petition within 30 days

• Herarc is not liable for RPT for 2007, 2008, and January-August 2009 because it was not in actual possession during the covered period
• Cites Testate Estate of Concordia T. Lim v. City of Manila and GSIS v. City Treasurer: unpaid tax is chargeable against the taxable person who had actual or beneficial use and possession, regardless of whether he is the owner
• Private respondents (Manalo, et al.) should be charged the RPT as they had actual/beneficial use and possession during the taxable period

• The Concordia Lim and GSIS doctrines apply only when the registered owner is tax-exempt; since Herarc is a taxable juridical person, the exception does not apply
• Unpaid taxes attach to the land, and the owner (if not exempt) must answer for them
• Cites City of Pasig v. Republic: owner is responsible if beneficial user fails to pay

• Procedural Issues: Whether direct filing of a Rule 45 petition with the SC to review an RTC decision in a local tax case is proper
• Substantive Issues: Whether a registered owner who is not tax-exempt is liable for RPT for periods when it was not in actual possession of the property

• Procedural: No. Direct filing with the SC is improper. Under Section 7(a)(3) of RA 9282, the CTA has exclusive appellate jurisdiction over decisions of the RTC in local tax cases (including RPT disputes). The hierarchy of courts must be observed: RTC → CTA Division → CTA En Banc → SC. Failure to appeal to the CTA renders the assessment final, executory, and demandable.
• Substantive: Yes. The registered owner who is not tax-exempt is personally liable. The "beneficial user" rule (where the possessor pays) applies only when the registered owner is tax-exempt under Section 234(a) of the LGC (e.g., Republic, its agencies). Since Herarc is a taxable entity, it is personally liable for RPT as the owner at the time the tax accrued. The tax attaches to the property, and ownership creates the liability.

• Tax Follows the Property (Unpaid Tax Attaches to Land) — The general rule in real estate taxation is that unpaid taxes attach to the property itself. The personal liability for tax delinquency generally falls on whoever is the owner of the real property at the time the tax accrues, as a necessary consequence of ownership.
• Beneficial User/Actual Possession Exception — Where the tax liability is imposed on the beneficial use of real property (such as when tax-exempt government property is leased to private persons), the personal liability shifts to the person who has such beneficial or actual use at the time of accrual.
• Requisites for application: (1) Registered owner must be tax-exempt (e.g., national government, agencies, instrumentalities under Section 133(o) and 234(a) LGC); (2) Beneficial use has been granted to a taxable person; (3) The taxable beneficial user has actual use and possession.
• Definitions:
  • Beneficial use — use and possession of the property
  • Actual use — purpose for which the property is principally or predominantly utilized by the person in possession (Section 199(b) LGC)
  • Exhaustion of Judicial Remedies in Tax Cases — Under RA 9282, the CTA has exclusive appellate jurisdiction over RTC decisions in local tax cases. The right to appeal is statutory; failure to comply with the prescribed procedure (RTC to CTA) renders the judgment final and executory.

• "As a general rule, real properties are subject to the RPT since the LGC has withdrawn exemptions from real property taxes of all persons, whether natural or juridical."
• "The personal liability for the tax delinquency is generally on whoever is the owner of the real property at the time the tax accrues. This is a necessary consequence that proceeds from the fact of ownership."
• "Nonetheless, where the tax liability is imposed on the beneficial use of the real property, such as those owned but leased to private persons or entities by the government, 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."
• "It is in this context that our ruling in Testate Estate of Concordia T. Lim should be understood... the taxpayer that was being assessed with the unpaid RPT was neither the registered owner nor the possessor of the subject property when the tax became due and demandable. In contrast, petitioner herein, an entity that is not tax exempt under the law, is the registered owner of the real property."

• Testate Estate of Concordia T. Lim v. City of Manila — Distinguished. The SC clarified that this case applied the beneficial user doctrine where the taxpayer assessed was neither the registered owner nor the possessor when tax became due. The doctrine is limited to tax-exempt owners.
• Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila — Distinguished. Similar to Concordia Lim, this involved tax-exempt entities (GSIS) and clarified that when tax-exempt property is leased to taxable persons, the latter are liable.
• City of Pasig v. Republic of the Philippines — Cited by RTC and distinguished by SC. Held that when tax-exempt government property is leased to taxable entities, only the leased portions are subject to RPT, and the taxable lessee is liable.
• National Power Corp. v. Municipal Government of Navotas — Cited for the procedural rule that RTC decisions in local tax cases are appealable to the CTA under RA 9282.
• City of Lapu-Lapu v. Philippine Economic Zone Authority — Cited for the rule that the LGC withdrew all previous exemptions unless specifically provided in the charter enacted after LGC effectivity.

• Section 7(a)(3) of RA 9282 — Grants the CTA exclusive appellate jurisdiction over decisions, orders, or resolutions of the RTC in local tax cases originally decided by them in the exercise of their original or appellate jurisdiction.
• Section 133(o) of RA 7160 (LGC) — Common limitation on taxing powers: LGUs cannot levy taxes on the National Government, its agencies and instrumentalities, and local government units.
• Section 234 of RA 7160 (LGC) — Enumerates exemptions from RPT, including real property owned by the Republic or its political subdivisions (except when beneficial use granted to taxable person), charitable institutions, churches, etc. Also contains the general withdrawal of exemptions clause ("Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons... are hereby withdrawn").
• Section 199(b) of RA 7160 (LGC) — Defines "actual use" as the purpose for which the property is principally or predominantly utilized by the person in possession.