Case Summary (G.R. No. 166102)
Petitioner and Respondents
Petitioner: Manila Electric Company (MERALCO)
Respondents: City Assessor and City Treasurer of Lucena City
Key Dates
• 1922–2003: MERALCO franchises in Lucena City (Municipal Resolutions 1922, 1957, 1972; NEA certificate 1993; RA 9209 in 2003)
• February 20, 1989: Notice of Tax Declaration No. 019-6500 assessing transformers, poles, lines, insulators, meters (1985 onwards)
• July 5, 1989 & April 10, 1991: LBAA and CBAA rulings exempting facilities under franchise
• October 16–20, 1997: New assessments for 1990–97 leading to Tax Declarations Nos. 019-6500 and 019-7394
• June 17, 1998 & May 3, 2001: LBAA and CBAA decisions applying the Local Government Code (RA 7160) to withdraw exemptions from 1992
• May 13 & November 18, 2004: Court of Appeals decision and denial of reconsideration affirming CBAA
• August 5, 2015: Supreme Court Decision under Rule 45
Applicable Law
1987 Constitution; Republic Act No. 7160 (Local Government Code of 1991); Sections 193, 221–225, 231–234, 252; Section 534(f) (repealing inconsistent laws); Civil Code Article 415; past tax statutes (Commonwealth Act 470, PD 1383).
Factual Background
Under successive Lucena City franchises, MERALCO’s poles, wires, insulators, transformers, and electric meters were expressly exempt from real property tax in exchange for a 5% gross-earnings tax. In 1989, the City Assessor assessed these facilities as capital investments subject to real property tax. MERALCO appealed and obtained exemption rulings from the LBAA and CBAA based on its franchise and the 1964 MERALCO case.
Procedural History
Six years after the CBAA’s 1991 final ruling, Lucena City issued new assessments for 1990–97 and MERALCO posted a surety bond instead of paying under protest. The LBAA (1998) held that RA 7160 repealed its franchise exemptions and dismissed MERALCO’s appeal. The CBAA (2001) applied the Local Government Code’s broadened definition of “machinery,” withdrew MERALCO’s exemptions effective January 1, 1992, and required assessments retroactive to 1992. The Court of Appeals (2004) affirmed, rejecting due process and non-impairment arguments.
Issues Presented
- Whether MERALCO’s electrical facilities remain exempt from real property tax under RA 7160 and the Constitution’s non-impairment clause.
- Whether the facilities qualify as “machinery” and are thus taxable real property under RA 7160.
- Whether the 1997 assessments complied with due process and statutory appraisal/assessment requirements.
- Proper retroactive effectivity, penalties, and interest.
Exemption under the Local Government Code
Section 193 of RA 7160 withdrew all local tax exemptions except those expressly retained in Section 234. MERALCO, a private utility, does not fall within the narrow exemptions for government-owned power generators or other specified entities. Post-1992 franchises (1993 NEA certificate; RA 9209) make no real-property tax exemptions. Exemptions, being strictly construed, expired on January 1, 1992.
Definition of “Machinery” and Tax Liability
Under Sections 232 and 199(o) of RA 7160, “machinery” includes mobile or non-attached equipment “actually, directly, and exclusively used” for a particular business. MERALCO’s poles, lines, insulators, transformers, and meters—integral to electricity distribution—fall squarely within this definition and are taxable real property despite prior Civil Code or 1964 precedents, which are overridden by this special law.
Due Process and Appraisal/Assessment Defic
Case Syllabus (G.R. No. 166102)
Parties
- Petitioner: Manila Electric Company (MERALCO), a private corporation operating as a public utility engaged in electric distribution under successive municipal and national franchises since 1922.
- Respondents: City Assessor and City Treasurer of Lucena City, local government officers responsible for real property assessment and tax collection.
Factual Background
- MERALCO’s electric facilities in Lucena City—transformers, electric posts (poles), transmission lines, insulators, and electric meters—were listed under Tax Declaration Nos. 019-6500 (issued 1989) and 019-7394 (issued 1997).
- The facilities were initially valued at a market value of ₱81,811,000 and assessed value of ₱65,448,800, subject to real property tax as of 1985.
- MERALCO contested the assessment before the Local Board of Assessment Appeals (LBAA) in 1989, claiming only substation facilities comprised its capital investment and asserting franchise-based tax exemption.
Franchise Grants and Exemptions
- Municipal Council of Lucena resolutions in 1922 and 1957, and City Board resolution in 1972, granted MERALCO franchises that:
• Imposed a 5% quarterly gross earnings tax in lieu of all taxes on poles, wires, insulators, transformers, and related accessories.
• Expressly exempted those components from real property tax under paragraph 13 of the 1972 resolution. - Subsequent franchises: National Electrification Commission certificate (1993) and Republic Act No. 9209 (2003), neither of which granted tax exemptions.
Tax Declaration and Initial Assessment (1989–1991)
- LBAA-89-2 (1989): Found MERALCO’s franchise tax in lieu of property tax valid, held poles and appurtenances were exempt and “personal property” per 1964 MERALCO case. Ordered MERALCO to pay franchise tax retroactive to 1957.
- CBAA Case No. 248 (1991): Affirmed LBAA decision; MERALCO did not appeal further, rendering the ruling final and executory.
Notice of Assessment and Delinquency (1997)
- October 16, 1997 letter from City Treasurer demanded payment of real property tax delinquency on “machineries” for 1990–1997 totalling ₱17,925,117.34, with attached Notice of Assessment (Oct. 20, 1997), Property Record Form, and tax declarations.
- MERALCO appealed both declarations be