Pay Under Protest Before Contesting Real Property Tax Assessments

The Supreme Court has clarified that a taxpayer who wishes to contest a real property tax assessment—even on the ground of tax exemption—must first pay the tax under protest. This requirement is mandatory and applies regardless of whether the taxpayer claims full or partial exemption from the tax.

In Camp John Hay Development Corporation v. Central Board of Assessment Appeals (G.R. No. 169234, October 2, 2013), the Court ruled that a claim for tax exemption does not question the authority of the local assessor to assess real property. Instead, it questions the correctness of the assessment, which requires strict compliance with the payment-under-protest rule under the Local Government Code of 1991.

The Facts of the Case

The City Assessor of Baguio City issued thirty-six assessment notices against buildings owned by Camp John Hay Development Corporation and land leased from the Bases Conversion Development Authority, all located within the John Hay Special Economic Zone. The petitioner questioned the assessments by letter, claiming exemption from real property tax under Republic Act No. 7227, the Bases Conversion and Development Act of 1992.

When the petitioner appealed to the Local Board of Assessment Appeals, the board required it to first pay the assessed real property taxes under protest before the appeal could proceed. The petitioner refused, arguing that as a tax-exempt entity, it was not a and the written protest must be filed within thirty days from payment. The tax paid under protest is held in trust by the treasurer, and if the protest succeeds, the amount is refunded or applied as tax credit.

Section 231 reinforces this rule by stating that an appeal on an assessment of real property shall in no case suspend the collection of the corresponding realty taxes. The taxpayer may secure a refund or adjustment later depending on the outcome of the appeal, but the tax must be paid first.

Exemption Does Not Excuse Payment

The petitioner argued that Section 252 does not apply to tax-exempt entities. The Supreme Court rejected this argument. Under Section 206 of the Local Government Code, any person claiming tax exemption for real property must file sufficient documentary evidence with the assessor within thirty days from the declaration of the property. If the evidence is not submitted, the property is listed as taxable in the assessment roll.

In this case, the petitioner admitted ownership of the buildings but presented no evidence that the properties had been dropped from the assessment roll. The Court noted that taxation is the rule and exemption is the exception. Tax exemptions are strictly construed against the claimant, and doubts are resolved in favor of the taxing authority.

The Court further explained that a claim for exemption is essentially a question of the correctness of the assessment—a question of fact that must first be resolved by the Local Board of Assessment Appeals. The petitioner could not skip this administrative remedy by simply asserting its exemption.

The Doctrine of Operative Fact

The petitioner also invoked the doctrine of operative fact, arguing that it should not be liable for taxes on properties that were later declared exempt. The Court found this argument unavailing. The doctrine applies only to acts that have already produced legal effects before being declared invalid, but it does not excuse a taxpayer from complying with mandatory procedural requirements.

Since the petitioner had not paid the assessed taxes under protest, its appeal was procedurally defective. The Court affirmed the remand of the case to the Local Board of Assessment Appeals, subject to full payment of the realty taxes in cash or bond.

Practical Takeaways

• Pay first, protest later. To contest a real property tax assessment, the taxpayer must pay the tax under protest before filing a protest or appeal. This is a condition precedent to the exercise of jurisdiction by the assessment appeals boards.
• Exemption claims do not bypass the rule. A claim for tax exemption, whether full or partial, does not excuse the taxpayer from the payment-under-protest requirement. The claim must be proven before the Local Board of Assessment Appeals.
• File the protest promptly. The written protest must be filed within thirty days from payment of the tax, and the appeal to the Local Board must be filed within sixty days from receipt of the notice of assessment.
• Prepare documentary evidence. Under Section 206 of the Local Government Code, a claimant for exemption must file supporting documents with the assessor within thirty days from the declaration of the property. Failure to do so results in the property being listed as taxable.
• Consider a surety bond. The rules allow an appeal to proceed if the taxpayer posts a surety bond covering the assessed taxes, subject to conditions set by the Local Board of Assessment Appeals.

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