In 2015, Kerwin bought a three-story house and lot in Kidapawan, North Cotabato. The property has a floor area of 600 sq.m. and is located inside a gated subdivision. Kerwin initially declared the property as residential for real property tax purposes.
In 2016, Kerwin started using the property in his business of manufacturing garments for export. The entire ground floor is now occupied by state-of-the-art sewing machines and other equipment, while the second floor is used as offices. The third floor is retained by Kerwin as his family’s residence. Kerwin’s neighbors became suspicious of the activities going on inside the house, and they decided to report it to the Kidapawan City Hall. Upon inspection, the local government discovered that the property was being utilized for commercial use. Immediately, the Kidapawan Assessor reclassified the property as commercial with an assessment level of 50% effective January 2017, and assessed Kerwin back taxes and interest. Kerwin claims that only 2/3 of the building was used for commercial purposes since the third floor remained as family residence. He argues that the property should have been classified as partly commercial and partly residential.
(a) Is the Kidapawan assessor correct in assessing back taxes and interest? (2.5%)
(b) Is Kerwin correct that only 2/3 of the property should be considered commercial? (2.5%)
(c) If Kerwin wants to file an administrative protest against the assessment, is he required to pay the assessment taxes first? With whom shall the protest be filed and within what period? (2.5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** (a) No, assessing back taxes is incorrect. (b) Yes, Kerwin is correct. (c) Yes, payment under protest is mandatory. **Legal Basis:** Under **Section 221** of the LGC, reassessments from changed use take effect in the
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Quick check
Under Section 217 of the Local Government Code, on what basis is real property classified and assessed for real property tax purposes?
Section 217 of the Local Government Code dictates that real property is classified and assessed based on its actual use.
When does a real property reassessment resulting from a change in actual use take effect under Section 221 of the Local Government Code?
Under Section 221 of the Local Government Code, reassessments from changed actual use take effect in the next quarter.
What is a mandatory statutory prerequisite under Section 252 of the Local Government Code before filing an administrative protest against a real property tax assessment?
Payment under protest is a mandatory condition precedent before an administrative protest against a real property tax assessment can be filed.
With whom and within what period must an administrative protest against a real property tax assessment be filed after payment under protest?
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How should a three-story building be assessed for real property tax if two floors are used for commercial garment manufacturing and one floor is used as a family residence?
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Learn more about these topics
1. Actual Use Principle
Under Section 217 of the Local Government Code, real property shall be classified, valued, and assessed for taxation purposes on the basis of its actual use, regardless of where located, whoever owns it, and whoever uses it. Actual use refers to the purpose for which the property is principally or predominantly utilized. When a single multi-story building is utilized for multiple distinct purposes, such as commercial manufacturing on lower floors and residential living on the top floor, the assessment levels and tax rates must be applied proportionally based on the actual physical area allocated to each distinct use.
2. Prospective Property Reassessment
Under Section 221 of the Local Government Code, any reassessment of real property prompted by a major change in actual use takes effect at the beginning of the quarter next following the date the reassessment was made. Local assessors are not authorized to retroactively reclassify real property or impose back taxes and delinquency penalties when the prior assessment was made in good faith based on the owner's initial declaration. Consequently, a reclassification based on newly discovered commercial operations applies prospectively to future tax quarters, rendering retroactive tax assessments and interest void.
3. Payment Under Protest
Under Section 252 of the Local Government Code, payment of the assessed real property tax under protest is a mandatory statutory condition precedent before any administrative protest against an assessment can be entertained by the local treasurer. The taxpayer must pay the full amount of tax assessed under protest at the time of payment or within thirty days thereafter. The protest must be filed in writing within thirty days from payment with the local treasurer, who has sixty days to decide the protest before the taxpayer may appeal to the Local Board of Assessment Appeals.