Philippine Franchise TAX Local Governments Power TO TAX Businesses Despite Prior Exemptions

The Supreme Court's 1999 decision in Figuerres v. Court of Appeals (G.R. No. 119172) clarifies the scope of local governments' power to tax real property under the Local Government Code of 1991 (R.A. No. 7160). The case affirms that municipalities and cities have broad authority to revise property assessments and impose taxes, provided they follow the procedural requirements of the Code. It also underscores the importance of exhausting administrative remedies before going to court.

The Case: A Property Owner Challenges New Assessments

Belen Figuerres owned a residential lot in Mandaluyong. In 1993, she received a notice of assessment based on three ordinances enacted by the Sangguniang Bayan: Ordinance No. 119 (schedule of fair market values), Ordinance No. 125 (assessment levels), and Ordinance No. 135 (implementing the increases in stages). Figuerres filed a prohibition suit before the Court of Appeals, arguing that the ordinances were invalid because they were enacted without public hearings, without proper publication or posting, and without complying with Department of Finance regulations.

The Court of Appeals dismissed the petition, and the Supreme Court affirmed.

The Issue: What Procedures Must Local Governments Follow?

Figuerres raised four main arguments: (1) she should not be required to exhaust administrative remedies; (2) the ordinances were invalid for lack of public hearings; (3) the ordinances should have been published in the Official Gazette; and (4) the local government failed to comply with Department of Finance regulations.

The Ruling: Local Governments Have Wide Taxing Power, But Must Follow the Code

The Supreme Court ruled against Figuerres on all points, while clarifying the applicable rules.

Exhaustion of administrative remedies is required. Under R.A. No. 7160, Section 187, a taxpayer who questions the legality or constitutionality of a tax ordinance may appeal to the Secretary of Justice within 30 days from effectivity. Section 226 allows an appeal to the Local Board of Assessment Appeals within 60 days from notice of assessment. Section 252 requires payment under protest before questioning the amount of tax. The Court held that although cases raising purely legal questions are exempt from the exhaustion rule, Figuerres' case involved factual issues (whether hearings were held, whether posting occurred) that required proof. Her action was therefore premature.

Public hearings are required, but a presumption of validity applies. The Court agreed that R.A. No. 7160, Section 186 prohibits enacting a tax ordinance without prior public hearing. However, Figuerres presented no evidence that hearings were not held. Citing the presumption of validity in favor of ordinances, the Court held that local officials are presumed to have complied with the law absent proof to the contrary. The burden of proving lack of hearing falls on the party asserting it.

Publication requirements depend on the type of ordinance. The Court distinguished between two requirements. Under Section 212, the schedule of fair market values must be published in a newspaper of general circulation or posted in conspicuous public places. Under Section 188, tax ordinances themselves must be published in full for three consecutive days in a newspaper of local circulation within ten days of approval, or posted if no newspaper exists. For ordinances with penal sanctions, Section 511(a) requires posting for at least three consecutive weeks. The Court found that Figuerres failed to rebut the presumption that these requirements were met.

Practical Takeaways

• Local governments have broad power to revise property assessments and impose real property taxes under the Local Government Code, subject only to the procedural requirements of the Code itself.
• Taxpayers must exhaust administrative remedies before going to court. This means appealing to the Secretary of Justice (for legality or constitutionality questions), the Local Board of Assessment Appeals (for assessment disputes), or paying under protest (for excessive tax amounts).
• Public hearings are mandatory before enacting tax ordinances, but a taxpayer who claims none were held bears the burden of proving it. Courts will presume the local government complied with the law.
• Publication and posting rules vary. Schedules of fair market values, tax ordinances, and ordinances with penal sanctions each have distinct publication requirements under Sections 212, 188, and 511(a) of R.A. No. 7160.
• Department of Finance regulations are directory, not mandatory. Failure to strictly follow them does not automatically invalidate an ordinance, especially where the local government claims compliance and the taxpayer presents no contrary evidence.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.