San Juan University is a non-stock, non-profit educational institution. It owns a piece of land in Caloocan City on which its three 2-storey school buildings stood. Two of the buildings are devoted to classrooms, laboratories, a canteen, a bookstore and administrative offices. The third building is reserved as dormitory for student athletes who are granted scholarships for a given academic year.
In 2017, San Juan University earned income from tuition fees and from leasing a portion of its premises to various concessionaires of food, books, and school supplies.
(a) Can the City Treasurer of Caloocan City collect real property taxes on the land and building of San Juan University? Explain your answer. (5%)
(b) Is the income earned by San Juan University for the year 2017 subject to income tax? Explain your answer. (5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** (a) The City Treasurer can collect real property tax **only on the leased portion**. (b) No, the income earned is **not subject to income tax**. **Legal Basis:** Under **Article XIV, Section 4(3)** of the 1987
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Quick check
Under Article XIV, Section 4(3) of the Constitution, what determines the income tax exemption of a non-stock, non-profit educational institution?
Article XIV, Section 4(3) exempts all revenues of non-stock, non-profit educational institutions provided they are used actually, directly, and exclusively for educational purposes.
How is real property tax applied to a portion of a non-profit school building leased to commercial food concessionaires?
Real property tax exemption depends on actual physical use, making only the commercially leased portion taxable.
What is the tax status of rental income earned by a non-stock, non-profit university from commercial bookstore concessionaires?
Rental income earned by a non-stock, non-profit school is exempt from income tax if used for educational purposes.
Are student athlete scholarship dormitories owned by a non-stock university exempt from real property tax?
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How does real property tax exemption differ from income tax exemption for non-stock, non-profit educational institutions?
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Learn more about these topics
1. Real Property Exemption
Under Article VI, Section 28(3) of the 1987 Constitution, charitable institutions, churches, parsonages, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes are exempt from real property taxation. For real property tax exemption, the law focuses on the actual use of the physical property. Real property devoted to classrooms, laboratories, administrative offices, and scholarship athlete dormitories is exempt. However, any portion leased to commercial concessionaires loses its exclusive educational character and becomes subject to real property tax based on actual commercial use.
2. Constitutional Income Immunity
Under Article XIV, Section 4(3) of the 1987 Constitution, all revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes are exempt from taxes and duties. Unlike the real property tax exemption that depends on physical property usage, the income tax exemption depends on the ultimate disposition or utilization of the revenues. As held in CIR versus De La Salle University, income generated by a non-stock, non-profit school—including rental income from commercial concessionaires—remains completely exempt from income tax provided it is re-invested or used for educational purposes.
3. Commercial Lease Dualism
Leasing school premises to commercial food, book, and supply concessionaires produces distinct tax consequences under Philippine law. For real property taxation, the leased physical space is taxable because it is actually used for commercial purposes by third-party lessees. Conversely, for income taxation, the rental income collected by the non-stock, non-profit educational institution remains tax-exempt, provided the proceeds are actually, directly, and exclusively used to finance educational operations, facilities, or student scholarships. This dual treatment highlights the distinction between property use and revenue disposition.