CITY OF IRIGA v. CAMSUR III ELECTIVE COOP., INC. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v.
MARCOS
FACTS: Respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO), an electric
cooperative organized under P.D. 269 and registered with the National Electrification
Administration (NEA), is engaged in the business of electric power distribution to various
end-users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao,
Buhi, Bula and Balatan of the Province of Camarines Sur. Petitioner City of Iriga assessed
CASURECO deficiency franchise tax and RPT covering the periods 1998 to 2003 and 1995 to
2003,respectively. CASURECO refused to pay and argued that as an electric cooperative
provisionally registered with the Cooperative Development Authority (CDA), it is exempt
from the payment of local taxes.
ISSUE: Is CASURECO liable for franchise tax?
RULING: Yes. CASURECO is liable for franchise tax. PD No. 269, which took effect on
August 6, 1973, granted exemption from the payment of all national and local taxes and fees
to electric cooperatives registered with NEA. RA No. 6939, enacted on March 10, 1990,
created and authorized the CDA to register cooperatives, while RA No. 6938, enacted on the
same day, provides that electric cooperatives registered with NEA under PD No. 269 which
opt not to register with the CDA shall not be entitled to the benefits and privileges under the
law. On January 1, 1992, the LGC took effect and withdrew tax exemptions or incentives
previously enjoyed by all persons, natural and judicial, including GOCCs, except for certain
entities, such as cooperatives duly registered under RA No. 6938.The provisional registration
of CASURECO with the CDA, which granted it exemption from payment of local taxes, was
only until May4, 1992. Thereafter, CASURECO was no longer exempt from the payment of
local taxes, including the franchise tax. A franchise tax is “a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state.” It is not levied
simply for existing as a corporation upon its property or on its income, but on its exercise of
the rights or privileges granted to it by the government. To be liable for local franchise tax: 1)
one must have a “franchise” in the sense of a secondary or special franchise; and 2) it must
exercise its rights or privileges under this franchise within the territory of the pertinent LGU.
Both requisites being present, CASURECO is liable to pay franchise tax. Being in the nature
of an excise tax, the situs of taxation is the place where the privilege is exercised. Hence,
CASURECO is liable for franchise tax on all its gross receipts from Iriga City and the
Rinconada area where it operates, regardless of the place where its services or products are
delivered.
FACTS: Mactan Cebu International Airport Authority was created to manage the Mactan
International Airport and the Lahug Airport. Since the time of its creation, petitioner MCIAA
enjoyed the privilege of exemption from payment of realty taxes. In Section 14 of its Charter
provides that “the Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities.” In 1994,
however, the Office of the Treasurer of the City of Cebu demanded payment for realty taxes
on several parcels of land belonging to petitioner. Petitioner objected to such demand, citing
Sec. 14. It asserted that it is an instrumentality of the government which performs
governmental functions, citing Sec. 133 of the Local Government Code which puts limitations
on the taxing powers of local government units. Sec. 133, LGC provides that the exercise of
the taxing powers of provinces, cities, municipalities and barangays shall not extend to the
levy of... taxes, fees or charges of any kind on the National government, its agencies and
instrumentalities and local government units. The Respondent City refused to cancel and set
aside the realty tax account, insisting that the MCIAA is a GOCC whose tax exemption
privilege has been withdrawn by virtue of Sections 193 and 234 of the LGC. MCIAA insisted
that while it is indeed a GOCC, it nonetheless stands on the same footing as an agency or
instrumentality of the national government by the very nature of its powers and functions. The
City however maintained that MCIAA is not an instrumentality of the government but merely
a GOCC performing proprietary functions, and hence, the exemptions granted to it were
deemed withdrawn by virtue of Secs. 193 and 234 of the LGC. Petitioner concludes that there
is a distinction in the LGC between a GOCC performing gov't functions as against one
performing merely proprietary ones, and it is clear from Secs. 133 and 234, LGC that the
legislature meant to exclude instrumentalities of the national government from the taxing
powers of LGUs.
ISSUE: Whether petitioner is exempted from payment of taxes or not
RULING: No. Taxation is the rule and exemption is the exception. Thus, the exemption may
be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where
the exemption was granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the non-impairment clause of
the Constitution. The general rule, as laid down in Section 133 of the LGC is that the taxing
powers of LGUs cannot extend to the levy of, inter alia, “taxes, fees and charges of any kind
on the National Government, its agencies, and instrumentalities, and LGUs.” However,
pursuant to Section 232, provinces, cities and municipalities in the Metro Manila Area MAY
impose real property taxes except on inter alia, real property owned by the Republic of the
Philippines or any of its political subdivisions except when the beneficial use thereof has been
granted for consideration or otherwise, to a taxable person (Sec. 234a).
As to tax exemptions/incentives granted to or presently enjoyed by natural or juridical persons,
including GOCCs: GENERAL RULE: Tax exemptions or incentives are withdrawn upon the
effectivity of the LGC, EXCEPTION: Those granted to local water districts, cooperatives duly
registered under RA 6938, non-stock and non-profit hospitals and educ. institutions, and
unless otherwise provided in the LGC. This latter proviso could refer to Section 234
enumerating the properties exempt from real property tax. The last paragraph of Section 234
further qualifies the retention of the exemption insofar as real property taxes are concerned by
limiting the retention only to those enumerated therein; all others not included in the
enumeration therefore lost the privilege upon the effectivity of the LGC. Even as to real
property owned by the Rep. Of the Philippines or any of its political subdivisions covered by
item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use
of such property has been granted to a taxable person for consideration or otherwise. Since the
last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons,
including GOCCs, except as provided in the said section, and the petitioner is, undoubtedly, a
government-owned corporation, it necessarily follows that its exemption from such tax
granted it by its charter has been withdrawn.