The Court of Tax Appeals has ordered the Taguig City government to refund the P5.7 million taxes erroneously or illegal collected from Serendra Condominium Corp., the association of unit owners of several high-end condos built by Ayala in Bonifacio Global City.
The refund consists of the local business tax (P2.334 million), business plate/sticker fee (P150) and environmental impact fee or EIF (P3.36 million) collected from Serendra in 2013 during the term of former Taguig Mayor Lani Cayetano. Before 2013, Serendra paid token amounts to Taguig: between P50,000 and P70,000 a year from 2009 to 2012.
The 10 September 2020 CTA decision, penned by Associate Justice Juanito Castaneda Jr. and concurred by Associate Justice Jean Marie Bacorro-Villena, modified the decision of the Taguig Regional Trial Court in March 2019 which was appealed by both Taguig and Serendra.
In its ruling, the CTA ruled that condominium associations were exempted from local business taxes based on the case of Yamane v. BA Lepanto Condominium.
“The Supreme Court held that by their nature, condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. The Supreme Court declared that condominium corporations are not engaged in business when they collect assessments or dues from unit owners,” the CTA said.
The SC said the association dues were “collected purely for the benefit of the condominium owners and are the incidental consequence of a condominium corporation’s responsibility to effectively oversee, maintain, or even improve the common areas of the condominium as well as its governance.”
Taguig had argued that dues and fees received by Serendra from its members and tenants constituted income payments or compensation for the services furnished to them. The court found Taguig’s arguments “ill-founded and unmeritorious.”
Taguig noted that Serendra earned income from renting out its facilities and function rooms/social halls and collecting fees for the use of its swimming pool and other amenities. But the CTA disagreed. “While the revenue was denominated as ‘other membership dues’, the notes on the AFS showed that the same was derived from income-generating or profit-oriented activities, as stated. Thus, such amounts actually represent payments received by (Serendra) from a regular or habitual business activity,” the CTA said.
“The surpluses in the association dues could be savings initiative from the operations like utility usage which is controllable expense, or negotiated contract amount from service providers or projects… The surplus is not returned to the members, and neither is it distributed to members as dividends. Rather, it is being reserved for future major projects for maintaining the common area of the property,” the CTA added Serendra noted that its associate dues varied from year to year – P243.4 million in 2013, P282.3 million in 2014 and P336.1 million in 2015.
It said surpluses in the association dues could be savings initiative from the operations like utility usage or negotiated contract amount from service providers or projects. The surpluses are retained as member’s equity and not returned to the members or distributed as dividends. The surplus dues are reserved for future major projects for maintaining the common area of the property.
The CTA also said Serendra should not pay business plate or sticker fee not because condominium corporations were exempted, but because they wre not engaged in trade or business.
The CTA also overturned the RTC decision ordering Serendra to pay the EIF. The CTA said the EIF was only “imposable on entities engaged in business’ as stated in the Taguig ordinance.
The CTA however, rejected Serendra’s insistence that Taguig pay legal interest (six percent per year), attorney’s fees, litigation expenses and costs of suit on top of the refund.
“This Court is of the view that (Serendra) cannot be awarded with legal interest because the taxes and fees were not shown to have been arbitrarily collected. Basic is the rule that interest may be awarded only when the collection of tax sought to be refunded was attended with arbitrariness,” the CTA said.