By Anna Isabella C. Galvez

In its recent Decision in Provincial Government of Cavite and the Provincial Treasurer of Cavite v. CQM Management, Inc. (CQM),[1] the Supreme Court ruled that a person who was neither the owner of the property nor the beneficial user thereof during the period covered by the assessment, should not be held liable for deficiency real property taxes (RPT).

The Supreme Court affirmed the ruling of the Court of Appeals and opined that CQM cannot be held liable for the RPT due on its Maxon and Ultimate properties for the years 2000-2013 (Maxon property) and 1997-2013 (Ultimate property) since it became the owner thereof only in 2014. Said the Court:

“To impose the real property taxes on respondent, which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust.”

As a background, the subject properties, previously owned by Maxon Systems Philippines, Inc. (Maxon) and Ultimate Electronic Components, Inc. (Ultimate), are located at the PEZA, Rosario, Cavite. These were mortgaged to Philippine Investment One (SPV-AMC) Inc. (PI One). For failure of Maxon and Ultimate to pay their obligations to PI One, the latter foreclosed the real estate mortgages on both properties. Auction sales were conducted. The Maxon property was sold to PI One as the highest bidder, while the Ultimate property was sold to CQM. Subsequently, PI One sold all of its rights over the Maxon property to CQM.

The problem arose when CQM tried to consolidate its tax declarations over the properties after the lapse of the redemption periods. The Provincial Treasurer of Cavite said that Maxon and Ultimate have unpaid real property taxes for the years 2000-2013 and 1997-2013, respectively. Thus, CQM could not obtain the necessary tax clearance on the Maxon and Ultimate properties. Thereafter, the Provincial Treasurer issued a tax assessment and a warrant of levy against Maxon and Ultimate after having declared the properties as delinquent. It also set the properties for auction. This did not push through after the timely application for a preliminary writ of injunction by CQM.

The Supreme Court ruled that CQM cannot be held liable for the RPT due prior to becoming the owner or beneficial user of the properties. And even after becoming the owner of the properties, CQM, as a PEZA-registered entity, is still exempt from any local or national taxes (RPT included), save for a 5% tax on its gross income, as provided under Section 24 of Republic Act No. 7916 (PEZA law), as amended. It was not shown that CQM is a developer subject to RPT under the PEZA law. The Supreme Court said that there is nothing in the PEZA law which requires prior concurrence from the LGU before the exemption can be availed of.

Lastly, the collection of some of the unpaid taxes already prescribed because of the lapse of the 5-year period to collect under Section 270 of the Local Government Code.

[1] G.R. No. 248033 dated July 15, 2020

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