Mactan-Cebu International Airport Authority vs. City of Lapu-Lapu

A government instrumentality vested with corporate powers but not organized as a stock or non-stock corporation is not a government-owned or controlled corporation (GOCC) and is exempt from local taxation under Section 133(o) of the Local Government Code; its properties devoted to public use are properties of public dominion owned by the Republic and are exempt from real property tax under Section 234(a) of the same Code, except for portions leased to taxable private entities.

MCIAA was created by Republic Act No. 6958 in 1990 to manage the Mactan International Airport and Lahug Airport, and was originally granted exemption from realty taxes under Section 14 of its charter. In 1996, the Supreme Court in Mactan-Cebu International Airport Authority v. Marcos ruled that under the Local Government Code of 1991 (RA 7160), MCIAA was a GOCC and its tax exemption was withdrawn. Subsequently, the City of Lapu-Lapu assessed MCIAA for real property taxes on its airport lands and buildings, leading to a dispute over whether the 1996 ruling or the subsequent 2006 MIAA ruling applied.

• MCIAA was created by Republic Act No. 6958 on July 31, 1990, to undertake the control, management, and supervision of the Mactan International Airport and Lahug Airport, with an original exemption from realty taxes under Section 14 of its charter.
• In 1996, the Supreme Court in Mactan-Cebu International Airport Authority v. Marcos held that under Republic Act No. 7160 (Local Government Code of 1991), MCIAA was a government-owned or controlled corporation (GOCC) and its tax exemption was withdrawn.
• In January 1997, respondent City of Lapu-Lapu issued a Statement of Real Estate Tax assessing MCIAA’s properties, including the airfield, runway, and taxiway, in the amount of P151,376,134.66.
• MCIAA paid monthly amounts under protest (initially P4 million, later increased to P6 million), totaling P275,728,313.36 as of December 2003.
• In 1998, the Department of Justice issued Opinion No. 50, stating that properties used for airport purposes are owned by the Republic of the Philippines and merely held in trust by MCIAA, and the Department of Finance issued an indorsement instructing the City Assessor to transfer the assessment of these properties to the "Exempt Roll."
• Despite these opinions, the City Treasurer issued Notices of Levy on 18 sets of properties and auctioned 27 properties on December 10, 2003, which were forfeited and purchased by the City after no bidders participated.
• MCIAA argued that the City had no valid tax ordinance authorizing the collection of the basic real property tax, the Special Education Fund (SEF), and penalty interest, while the City relied on Ordinance No. 44 (enacted in 1980, prior to the LGC) and later Ordinance No. 070-2007.

• MCIAA is a government instrumentality, not a GOCC, as expressly declared in the 2006 Manila International Airport Authority v. Court of Appeals (MIAA) case, and is therefore exempt from real estate taxes under Section 133(o) of the LGC.
• Its properties (airport terminal, airfield, runway, taxiway) are devoted to public use, are properties of public dominion owned by the Republic, and are exempt under Section 234(a) of the LGC.
• The 2006 MIAA case, decided by the Court en banc, overturned the 1996 MCIAA case decided by a Division; the latter should no longer be controlling.
• The City cannot impose real property tax, SEF, or penalty interest without appropriate ordinances, and even if Ordinance No. 44 existed, it was insufficient for the SEF and penalty interest.

• The 1996 MCIAA case remains the controlling precedent as it was decided by the Supreme Court and consistently cited; the 2006 MIAA case was not yet final when the CA decided the case and is not the "law of the case" as it involves different parties.
• MCIAA is a GOCC based on its charter (RA 6958) which grants it corporate powers, the power to acquire and dispose of property, and the power to sue and be sued, similar to the charter of the Philippine Ports Authority which was ruled a GOCC in prior cases.
• Even if MCIAA were an instrumentality, the LGC withdrew exemptions for instrumentalities unless specifically exempted under Section 234, which only exempts property owned by the Republic or its political subdivisions, not GOCCs or instrumentalities.
• The terminal building, runway, and taxiway are not properties of public dominion and are subject to tax.
• The City has valid tax ordinances (Ordinance No. 44 and No. 070-2007) authorizing the imposition of realty tax, SEF (under RA 5447 which does not require an ordinance), and penalty interest.
• Estoppel does not lie against the government; erroneous application of the law by public officers does not preclude subsequent correct application.

• Procedural Issues:
  • Whether the Court of Appeals erred in refusing to apply the 2006 MIAA case on the ground that it had not attained finality and was not the "law of the case."
• Substantive Issues:
  • Whether MCIAA is a government instrumentality or a GOCC.
  • Whether MCIAA’s properties (airport terminal, airfield, runway, taxiway) are exempt from real property tax as properties of public dominion.
  • Whether the City of Lapu-Lapu had the authority to impose and collect real property tax, SEF, and penalty interest without specific ordinances.

• Procedural: The Supreme Court held that the Court of Appeals erred in refusing to apply the 2006 MIAA case. The 2006 MIAA case, decided by the Court en banc, had already reached finality on November 3, 2006, and effectively reversed the 1996 MCIAA case decided by a Division. The "law of the case" doctrine does not prevent the Supreme Court from overturning its own precedents in different cases, especially when the subsequent case involves similarly situated parties (airport authorities) and provides a more coherent interpretation of the law.
• Substantive:
  • MCIAA is a government instrumentality, not a GOCC. Under Section 2(13) of the Administrative Code of 1987, a GOCC must be organized as a stock or non-stock corporation. MCIAA has capital but it is not divided into shares, and it has no stockholders or members, thus failing the definition of a GOCC.
  • As a government instrumentality, MCIAA is exempt from local taxation under Section 133(o) of the LGC, which prohibits local governments from taxing national government instrumentalities.
  • The airport lands and buildings are properties of public dominion under Article 420 of the Civil Code, intended for public use, owned by the Republic, and therefore exempt from real property tax under Section 234(a) of the LGC.
  • Only portions of the properties leased to private entities are subject to real property tax.
  • The auction sale and certificates of sale of the delinquent properties are declared null and void as properties of public dominion cannot be sold at public auction.

• Government Instrumentality vs. GOCC — A government instrumentality vested with corporate powers does not become a GOCC unless organized as a stock or non-stock corporation (with shares/members). This distinction determines tax liability under the LGC.
• Properties of Public Dominion — Properties devoted to public use, such as airports, runways, and taxiways, are properties of public dominion owned by the State. They are outside the commerce of man and exempt from execution, foreclosure, and real property tax.
• Strict Construction Against Taxation of National Government — The power of local governments to tax national government instrumentalities is construed strictly against local governments; any doubt is resolved against taxation.
• Law of the Case Doctrine — Determinations of law in prior appeals govern subsequent stages of the same case but do not prevent the Supreme Court from overturning its own precedents in different cases or when the prior ruling is reconsidered.

• "Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation."
• "The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines."
• "There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another."
• "When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments."

• Manila International Airport Authority v. Court of Appeals (2006) — Controlling precedent that reversed the 1996 MCIAA case; held that MIAA is a government instrumentality, not a GOCC, and its airport properties are exempt from real property tax.
• Mactan-Cebu International Airport Authority v. Marcos (1996) — Prior ruling declaring MCIAA a GOCC subject to real property tax; overturned by the application of the 2006 MIAA case.
• Philippine Fisheries Development Authority v. Court of Appeals (2007) — Applied the MIAA doctrine to another government instrumentality.
• Curata v. Philippine Ports Authority (2009) — Applied the MIAA doctrine to the Philippine Ports Authority.
• Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila (2009) — Applied the MIAA doctrine to GSIS.

• Section 2(10) and (13) of the Introductory Provisions, Administrative Code of 1987 — Definitions of "instrumentality" and "government-owned or controlled corporation."
• Section 133(o) of Republic Act No. 7160 (Local Government Code) — Prohibition on local governments from taxing national government instrumentalities.
• Section 234(a) of Republic Act No. 7160 — Exemption from real property tax for real property owned by the Republic of the Philippines.
• Article 420 of the Civil Code — Definition of properties of public dominion.
• Section 14 of Republic Act No. 6958 — Original tax exemption provision in MCIAA's charter.