Payment Under Protest

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The Local Government code provides that the province or the city has the power to impose and collect real property taxes within its territorial jurisdiction. Taxes are the lifeblood of the government since its is one of the main sources of funds for the operation of the government, implementation of its projects, and delivery of services to its constituents. Collection of taxes remains a struggle for local governments and often involves conflicts between the payer and the collector. The government needs to collect the highest possible amount from those liable while the latter try at all cost to lower as much as possible his tax liability or avoid it all together. Most of our taxes such as on real property are self-assessed, meaning it is based on the payers declaration. The assessment of the taxes to be paid is a fertile source of conflict which forces the payer to seek legal remedies to correct it. The law however, requires payment under protest before the protest is entertained. This is to ensure the payment of the tax and discourage payers to use the remedy to avoid or further delay payment.

Estate of Lim vs Manila

The case is actually very simple. A parcel of land among the properties of Lim was foreclosed by GSIS. The property was purchased by GSIS being the lone bidder. Ownership was consolidated since Lim failed to redeem the land. Lim died but GSIS allowed the Estate of Lim  to repurchase the property but the city treasurer required the Estate to pay real property tax for the years when it was under the ownership of GSIS (1977-1979). The Estate paid the tax under protest but later demanded from GSIS that it refund the taxes paid for the subject period and a demand was also sent to the city treasurer to refund the taxes paid. The estate then filed a case of collection of sum of money against the city before the trial court. The city argued that the trial court has no jurisdiction since the case should be before the local board of assessment appeals. It was dismissed by the court on that ground. The case reached the Supreme Court on pure questions of law.

Manila Must Refund

The Supreme Court ruled that the trial court has jurisdiction over the case and the estate “correctly filed the action for refund/reimbursement with the lower court as it is the courts which have jurisdiction to try cases involving the right to recover sums of money… because what is questioned is the imposition of the tax assessed and who should shoulder the burden of the tax” (Estate of Lim vs City of Manila, G.R. No. 90639 February 21, 1990). The estate could not be held to pay taxes over the real property during a period when it did not occupy or benefit from it. In fact it was GSIS which owned the property and rented it out during the specified years. It was only when the Estate subsequently repurchased it that it also repossessed it. During the specified years the land was owned and possessed by GSIS and not the Estate. “To impose the real property tax on the estate 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.” The city treasurer was ordered to refund the taxes paid.

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