Local government units (LGUs) enjoy the constitutional mandate to levy taxes, fees, and charges subject to the limitations set by the Philippine Congress. (Section 5, Article 10, 1987 Constitution). Any dispute regarding the decisions of LGUs with respect to the imposition of local taxes may be brought to the Regional Trial Courts (RTCs).
The Court of Tax Appeals (CTA), on the other hand, is empowered to review decisions over local tax cases pronounced by the RTCs, pursuant to its power embodied in Section 7(a)(3) of Republic Act (RA) 1125, as amended by RA 9282.
In numerous decisions, the CTA has defined "local tax cases" as disputes involving the LGUs' imposition of taxes, fees, or charges on a taxpayer's property or business, including protests of assessments, claims for tax refunds or credits, and questions on the validity of tax ordinances. It also deals with cases arising from local business tax (LBT) and real property tax (RPT) assessments.
However, not all exactions by LGUs give rise to local tax cases that are appealable to the CTA. In the recent case of DOLE Philippines Inc.–Stanfilco Division v. The Sangguniang Panlunsod of the City of Davao (CTA AC 285, Oct. 2, 2024) (the "DOLE case"), the CTA Second Division said a matter is to be regarded a local tax case only if the levy involved is, in fact, a tax and not a fee. If the matter involves the levy of a fee, the CTA has no jurisdiction to review the RTC's decision.
Accordingly, the need to distinguish whether or not the levy is a tax or a fee is crucial in determining the CTA's jurisdiction. Such determination has implications in the appeal process from the RTC decision, which either proceeds to the CTA, a court of special jurisdiction taking cognizance only of cases clearly within its jurisdiction (i.e., local tax cases), or the Court of Appeals (CA), to which RTC decisions are generally appealable.
How are taxes different from fees?
Taxes are "the enforced proportional contribution from persons and property ... for the support of government and all public needs." (Republic v. Philippine Rabbit Bus Lines Inc., GR L-26862, March 30, 1970). They emanate from the State's inherent power to tax and are essential to the government's overall mandate.
Meanwhile, fees are distinctly defined under Section 131(l) of the Local Government Code (LGC) as "a charge fixed by law or ordinance for the regulation or inspection of a business or activity."
Primary Purpose Test
Under the Primary Purpose Test, if the exaction is revenue-generating, or if revenue is at least one of the real and substantial purposes, the exaction is rightfully classified as a tax. Otherwise, if the purpose is regulatory, the exaction is deemed to be a fee, even though it incidentally raises revenue.
In the DOLE case, the CTA held that while often subsumed under the broader term "charges" indicating pecuniary liabilities, fees imposed by LGUs serve a specific regulatory function. It is associated with the State's police power, recognizing that in promoting the public welfare, certain activities must be regulated, inspected, or supervised.
In this case, the Sangguniang Panlungsod of Davao City assessed the petitioner, DOLE Philippines, for Environmental Tax levied under Article 17 of its Watershed Code. The petitioner protested the assessment, which was denied by Davao City's Office of the City Treasurer.
Aggrieved, the petitioner then filed an appeal with the RTC of Davao City. After both its appeal and motion for reconsideration had been denied, the taxpayer elevated the matter to the CTA. In dismissing the case, the CTA Second Division applied the Primary Purpose test and held that it lacks jurisdiction over the case since the charge assessed is not a tax but a fee.
In so ruling, the CTA held that the exaction is primarily a regulatory act based on Article 17 of the Watershed Code, which expressly states that the fee is mainly for "watershed protection, conservation, and management."
In SM Prime Holdings Inc. v. Barangay 350, Zone 35, District III, City of Manila (CTA AC 278, Sept. 20, 2024), the CTA also held that a charge is presumed as a tax when no inspection is provided, nor standard, qualification, or hindrance set under a "guarding eye" comes with it. The case instructs that the nomenclature given by the law is not conclusive of the charge's nature.
In sum, the delineation and distinction between taxes and fees is critical in establishing the CTA's jurisdiction over appeals on local tax cases. This reinforces the need for LGUs to clearly determine and specify the purpose of their exactions, as misclassification could impact taxpayers' recourse in contesting local assessments.
Source: Manila Times
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