ANGELES UNIVERSITY FOUNDATION VS CITY OF ANGELES, JULIET

Case Name G. QUINSAAT, in her capacity as Treasurer of Angeles City and ENGR.
DONATO N. DIZON, in his capacity as Acting Angeles City Building
Official
Topic Tax Exemption (non-stock, non-profit education foundation)
Case No. | Date G.R. No. 189999 | June 27, 2012
Ponente VILLARAMA, JR., J
In distinguishing tax and regulation as a form of police power, the
determining factor is the purpose of the implemented measure. If the
purpose is primarily to raise revenue, then it will be deemed a tax even
Doctrine though the measure results in some form of regulation. On the other hand, if
the purpose is primarily to regulate, then it is deemed a regulation and an
exercise of the police power of the state, even though incidentally, revenue
is generated.
Link https://lawphil.net/judjuris/juri2012/jun2012/gr_189999_2012.html

RELEVANT FACTS:

Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25,
1962 and was converted into a non-stock, non-profit education foundation under the provisions of
Republic Act (R.A.) No. 60554 on December 4, 1975.

In August 2005, petitioner filed with the Office of the City Building Official an application for a building
permit for the construction of an 11-storey building of the Angeles University Foundation Medical
Center in Angeles Pampanga, and said office issued a Building Permit Fee Assessment in the
amount of P126,839.20. An Order of Payment was also issued by the City Planning and Development
Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as Locational
Clearance Fee.

Petitioner claimed that it is exempt from the payment of the building permit and locational clearance
fees, citing legal opinions rendered by the Department of Justice (DOJ). Petitioner also reminded the
respondents that they have previously issued building permits acknowledging such exemption from
payment of building permit fees on the construction of petitioner’s 4-storey AUF Information
Technology Center building and the AUF Professional Schools building. Respondent City Treasurer
referred the matter to the Bureau of Local Government Finance (BLGF) of the Department of
Finance, which in turn endorsed the query to the DOJ, the DOJ declared that the petitioner is exempt
from the payment of building permit fees. However, BLGF reiterated the aforesaid opinion of the DOJ
stating further that "xxx the Department of Finance, thru this Bureau, has no authority to review the
resolution or the decision of the DOJ."

Hence, petitioner again reiterated its request to reverse the disputed assessments and invoking the
DOJ legal opinions which have been affirmed by Secretary Gonzalez but to no avail. Petitioner then
appealed the matter to City Mayor Carmelo F. Lazatin but no written response was received by
petitioner.
Consequently, petitioner paid under protest and was issued of the Building Permit. On June 9, 2006,
petitioner formally requested the respondents to refund the fees it paid under protest but was denied
by the City Treasurer.

Petitioner filed a claim at the trial court for refund plus interest rate of 12% per annum, award for
attorney’s fee and litigation expenses.

Respondents contented that petitioner is not exempted from Building Permit Fees because its
structures are not among those mentioned in Sec. 209 of the National Building Code as exempted
from the building permit fee and since the disputed assessments are regulatory in nature, they are not
taxes from which petitioner is exempt. As to the real property taxes imposed on petitioner’s property
located in Marisol Village, respondents pointed out that said premises will be used as a school
dormitory which cannot be considered as a use exclusively for educational activities.

While Petitioners contended that subject building permit are being collected based on Art. 244 of the
IRR, which impositions are really taxes considering that they are provided under the chapter on
"Local Government Taxation" in reference to the "revenue raising power" of local government units
(LGUs). Petitioner pointed out that the Local Government Code of 1991 provides in Sec. 193 that
non-stock and non-profit educational institutions like petitioner retained the tax exemptions or
incentives which have been granted to them. Under Sec. 8 of R.A. No. 6055 and applicable
jurisprudence and DOJ rulings, petitioner is clearly exempt from the payment of building permit fees.

RTC Ruling: In favor of Petitioner.

CA Ruling: Reversed the RTC ruling. Motion for reconsideration was denied by the CA.

ISSUE: W/N Petitioner is exempted from paying Building Permit fees.

RULING: NO.

R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to
non-stock, non-profit educational foundations. Section 8 of said law provides:

SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties,
assessments, and other charges imposed by the Government on all income derived from or
property, real or personal, used exclusively for the educational activities of the Foundation.

Then Presidential Decree (P.D.) No. 1096 was issued adopting the National Building Code of the
Philippines. The said Code requires every person, firm or corporation, including any agency or
instrumentality of the government to obtain a building permit for any construction, alteration or
repair of any building or structure. Building permit fees refers to the basic permit fee and other
charges imposed under the National Building Code. Exempted from the payment of building permit
fees are: (1) public buildings and (2) traditional indigenous family dwellings.21 Not being expressly
included in the enumeration of structures to which the building permit fees do not apply, petitioner’s
claim for exemption rests solely on its interpretation of the term "other charges imposed by the
National Government" in the tax exemption clause of R.A. No. 6055.

A "charge" is broadly defined as the "price of, or rate for, something," while the word "fee" pertains
to a "charge fixed by law for services of public officers or for use of a privilege under control of
government." As used in the Local Government Code of 1991 (R.A. No. 7160), charges refers to
pecuniary liability, as rents or fees against persons or property, while fee means a charge fixed by
law or ordinance for the regulation or inspection of a business or activity.

Note that the "other charges" mentioned in Sec. 8 of R.A. No. 6055 is qualified by the words
"imposed by the Government on all x x x property used exclusively for the educational activities of
the foundation." Building permit fees are not impositions on property but on the activity subject of
government regulation. While it may be argued that the fees relate to particular properties, i.e.,
buildings and structures, they are actually imposed on certain activities the owner may conduct
either to build such structures or to repair, alter, renovate or demolish the same.

That a building permit fee is a regulatory imposition is highlighted by the fact that in processing an
application for a building permit, the Building Official shall see to it that the applicant satisfies and
conforms with approved standard requirements on zoning and land use, lines and grades,
structural design, sanitary and sewerage, environmental health, electrical and mechanical safety
as well as with other rules and regulations implementing the National Building Code.

Since building permit fees are not charges on property, they are not impositions from which
petitioner is exempt.

As to petitioner’s argument that the building permit fees collected by respondents are in reality
taxes because the primary purpose is to raise revenues for the local government unit, the same
does not hold water.

A charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may
be held to be a tax rather than an exercise of the police power, however, petitioner failed to
demonstrate that the bases of assessment were arbitrarily determined or unrelated to the activity
being regulated. Neither has petitioner adduced evidence to show that the rates of building permit
fees imposed and collected by the respondents were unreasonable or in excess of the cost of
regulation and inspection.

"The conservative and pivotal distinction between these two (2) powers (power to tax and police
power) rests in the purpose for which the charge is made. If generation of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary
purpose, the fact that revenue is incidentally raised does not make the imposition a tax." (Gerochi
v. Department of Energy). Concededly, in the case of building permit fees imposed by the National
Government under the National Building Code, revenue is incidentally generated for the benefit of
local government units.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a
charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY
used for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of
others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively." The words "dominant use" or "principal use" cannot
be substituted for the words "used exclusively" without doing violence to the Constitutions and the
law. Solely is synonymous with exclusively.

What is meant by actual, direct and exclusive use of the property for charitable purposes is the
direct and immediate and actual application of the property itself to the purposes for which the
charitable institution is organized. It is not the use of the income from the real property that is
determinative of whether the property is used for tax-exempt purposes.

The respondents correctly assessed the land for real property taxes for the taxable period during
which the land is not being devoted solely to petitioner’s educational activities.

RULING

WHEREFORE, the petition is DENIED. The Decision dated July 28, 2009 and Resolution dated
October 12, 2009 of the Court of Appeals in CA-G.R. CV No. 90591 are AFFIRMED.

NOTES