G.R. No. 191761 - Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro

On January 10, 2005, the Sangguniang Panlungsod of Cagayan de Oro enacted Ordinance No. 9503-2005 imposing a tax of 10% on the annual rental income from the lease/rental of electric and/or telecommunication posts, poles, or towers by pole owners to pole users.
The City Council informed petitioner CEPALCO of the ordinance through a letter dated March 15, 2005.
The ordinance required pole owners engaged in leasing poles to secure a separate business permit. It prohibited passing on the tax to pole users. It took effect 15 days after publication for three consecutive issues.

CEPALCO challenged the ordinance’s validity by petition for declaratory relief filed on September 30, 2005, arguing that the tax was effectively an income tax prohibited under Section 133(a) of the Local Government Code (LGC).
CEPALCO further claimed exemption under its franchise granted by Republic Act No. 9284 and sought exemplary damages alleging bad faith by the City.

Valid exercise of taxing power under the Constitution and LGC.
Non-exemption of CEPALCO based on withdrawal under Section 193 of LGC.
Presumption of validity and constitutionality of the ordinance.
Bar of prescription under Section 187 LGC for failure to appeal to the Secretary of Justice.
Failure of CEPALCO to exhaust administrative remedies.
Lack of breach or violation by the City to warrant declaratory relief.

Found ordinance valid and not an income tax but a business privilege tax on leasing business.
Rejected CEPALCO’s exemption claim on R.A. 9284 as this law did not contain the “in lieu of all taxes” provision in prior franchises.
Declared CEPALCO’s petition barred for non-exhaustion of administrative remedies and prescription (failure to appeal to Secretary of Justice within 30 days).
Denied damages claim.

Affirmed lower court decision on validity of ordinance, finding it a license tax on business.
Confirmed bar of action for failure to appeal to Secretary of Justice.
Rejected exemption claim based on R.A. 9284.
Denied motions for reconsideration for lack of merit and untimeliness.

Ordinance passed in excess of delegated taxing power and is illegal.
Unnecessary insistence on exhausting administrative remedies for pure questions of law.
Disregard of recent legislation affirming its tax exemptions.

The Supreme Court required parties to also discuss compliance of ordinance’s 10% tax with taxing limits under Sections 151, 137, and 143(h) of LGC.

Whether CEPALCO’s petition is barred for failure to exhaust administrative remedies and by prescription under Section 187 of the LGC.
Whether Ordinance No. 9503-2005 imposes an income tax, which is prohibited under Section 133(a) of the LGC, or a valid business tax.
Whether CEPALCO is exempt from the tax imposed by Ordinance No. 9503-2005 under its franchise or other laws.
Whether the tax rate of 10% imposed by Ordinance No. 9503-2005 complies with the taxing limitations set by Sections 151, 137, and 143(h) of the LGC.
Validity of Ordinance No. 9503-2005 in view of constitutional and statutory restrictions on local taxing powers.