In a pivotal decision, the Supreme Court affirmed the power of local government units (LGUs) to levy real property taxes on electric cooperatives, even those under rehabilitation programs. This ruling underscores that the mandate to support national electrification does not exempt these cooperatives from local tax obligations. This means electric cooperatives are not immune from real property taxes imposed by LGUs, thereby balancing local fiscal autonomy with national electrification goals.

Electric Cooperative vs. Local Government: A Clash Over Taxing Powers in Lanao del Norte

The case of Lanao del Norte Electric Cooperative, Inc. (LANECO) vs. the Provincial Government of Lanao del Norte (PGLN) revolves around the intersection of local taxing powers and national electrification policies. LANECO, operating under a franchise to distribute electricity, found itself facing demands for unpaid real property taxes from PGLN. LANECO contested these assessments, arguing that Section 60 of the Electric Power Industry Reform Act of 2001 (EPIRA) and Executive Order No. 119, which aim to rehabilitate and modernize electric cooperatives, should shield it from such local taxes. Central to the dispute was whether PGLN could administratively levy LANECO’s properties to satisfy unpaid taxes, or if it should pursue judicial action, considering LANECO’s ongoing rehabilitation program. This legal battle highlights the tension between local governance and the implementation of national programs.

The factual backdrop reveals that LANECO had contracted loans from the National Electrification Administration (NEA) to finance its operations, secured by real estate mortgages. Upon the enactment of EPIRA, the Power Sector Assets and Liabilities Management (PSALM) assumed LANECO’s loan balance to NEA. Subsequently, PGLN, exercising its powers under the Local Government Code of 1991 (LGC), demanded payment of real property taxes from LANECO for several municipalities. LANECO, however, questioned the validity of these tax assessments, particularly because it could not obtain a copy of the Provincial Revenue Code, which it needed to verify the assessments and pass the costs to consumers through the Energy Regulatory Commission (ERC). This failure to provide necessary documentation added to the contention.

LANECO initially filed a Petition for Declaratory Relief, which was later dismissed. Despite this, PGLN continued to demand payment, leading LANECO to file the present petition, arguing that PGLN’s administrative action violated Section 60 of EPIRA and Executive Order No. 119. The cooperative contended that the proper recourse for PGLN was to file a collection case, given the restrictions on disposing of assets during rehabilitation. This argument was premised on the idea that the national policy of electrification should supersede local tax collection efforts. The case then escalated to the Supreme Court, which had to address critical procedural and substantive issues.

One of the initial hurdles was whether LANECO had engaged in forum shopping by filing multiple cases raising similar issues. The Supreme Court found that LANECO had indeed committed forum shopping. The Court emphasized that forum shopping occurs when a litigant repetitively avails of several judicial remedies in different courts, simultaneously or successively, based on the same facts and issues, to increase the chances of a favorable decision. The Court stated:

Forum shopping is the act of a litigant who repetitively availed of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues, either pending in or already resolved adversely by some other court, to increase his chances of obtaining a favorable decision if not in one court, then in another.

In this instance, LANECO’s actions reflected a pattern of seeking multiple legal avenues to achieve the same outcome, which is prohibited. The Supreme Court also noted LANECO’s violation of the principle of hierarchy of courts, which requires that cases be filed in the appropriate lower courts before reaching the higher ones. While the Supreme Court, the Court of Appeals, and the Regional Trial Courts may have concurrent jurisdiction to issue certain writs, this does not grant petitioners the freedom to choose their court forum without valid reasons. The Supreme Court clarified:

Strict observance of the policy of judicial hierarchy demands that where the issuance of the extraordinary writs is also within the competence of the CA or the RTC, the special action for the obtainment of such writ must be presented to either court.

The Supreme Court, addressing the substantive issues, tackled LANECO’s argument that Section 60 of EPIRA prohibits LGUs from levying real property taxes. LANECO contended that this provision, along with its Implementing Rules and Regulations (IRR) and Executive Order No. 119, restricts the disposition of assets during rehabilitation. However, the Court rejected this interpretation, stating that these provisions primarily aim to limit voluntary transfers of assets by electric cooperatives, not to restrict the tax collection powers of LGUs. The Supreme Court held:

Contrary to LANECO’s stand, the provisions of law cited do not prohibit local government units from resorting to the administrative remedy of levy on real property. Nothing in the aforecited provisions withdrew the remedy of tax collection by administrative action from the LGUs.

The Court emphasized that adopting LANECO’s position would mean reading more into EPIRA than it actually provides, which contravenes basic statutory construction principles. The Court also addressed the argument that the levy impaired government contracts between NEA and PSALM. The Supreme Court cited Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local Government, and the Secretary, Department of Finance, clarifying that:

To constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties.

The Court underscored that local government taxes constitute a superior lien over the property, as stipulated in Section 257 of the LGC. This means that the PGLN had the right to make LANECO’s properties answerable for delinquent real property taxes, irrespective of any mortgages or liens. As a result, the Supreme Court found no grave abuse of discretion by the PGLN in resorting to administrative levy. The authority of LGUs to collect taxes is crucial for their fiscal autonomy and ability to provide local services.

In summary, the Supreme Court dismissed the petition, reinforcing the principle that local government units have the authority to levy real property taxes on electric cooperatives, even during rehabilitation periods, and that national electrification policies do not supersede local taxing powers. This decision provides clarity on the relationship between national and local governance in the context of taxation and the management of electric cooperatives.

FAQs

What was the key issue in this case?	The key issue was whether the Provincial Government of Lanao del Norte (PGLN) could levy the properties of Lanao del Norte Electric Cooperative, Inc. (LANECO) to satisfy unpaid real property taxes, considering LANECO’s ongoing rehabilitation program. The case hinged on interpreting the Electric Power Industry Reform Act of 2001 (EPIRA) and its impact on local taxing powers.
What is forum shopping, and why was it relevant in this case?	Forum shopping is the practice of filing multiple cases in different courts based on the same facts and issues to increase the chances of a favorable outcome. It was relevant here because LANECO had filed several similar cases in different courts, which the Supreme Court found to be a violation of procedural rules.
What did the Supreme Court rule regarding the hierarchy of courts?	The Supreme Court emphasized the importance of adhering to the hierarchy of courts, stating that cases should be filed in the appropriate lower courts (like the Regional Trial Court) before being elevated to higher courts. This principle prevents overburdening higher courts with cases that could be resolved at a lower level.
Does the EPIRA prevent local governments from collecting real property taxes from electric cooperatives?	No, the Supreme Court clarified that the EPIRA does not prevent local government units (LGUs) from using administrative remedies like levy on real property to collect unpaid taxes from electric cooperatives. The EPIRA provisions primarily limit the voluntary transfer of assets by the cooperatives, not the LGUs’ tax collection powers.
What is the significance of Section 257 of the Local Government Code?	Section 257 of the Local Government Code establishes that local government taxes constitute a superior lien on the property. This means that the PGLN’s right to collect real property taxes from LANECO took precedence over any other liens or encumbrances on the properties, ensuring the local government’s ability to collect necessary revenue.
What was LANECO’s main argument against the tax levy?	LANECO argued that Section 60 of the EPIRA and Executive Order No. 119 prohibited the local government from levying its properties because it was under a rehabilitation and modernization program. They claimed that administrative action through levy violated these provisions and that PGLN should have instead filed a collection case.
How did the Supreme Court address the issue of impairing government contracts?	The Supreme Court cited previous jurisprudence to clarify that the constitutional prohibition on impairing contracts applies to changes affecting the rights of the parties to the contract, not non-parties. Therefore, the local government’s tax levy did not impair the contracts between NEA and PSALM.
What is the practical implication of this ruling for electric cooperatives?	The ruling means that electric cooperatives are not exempt from real property taxes imposed by local government units, even if they are under rehabilitation programs. This underscores the importance of electric cooperatives complying with local tax obligations to avoid administrative levies on their properties.

This case clarifies the extent to which local governments can exercise their taxing powers over entities involved in national programs. It balances the need for local fiscal autonomy with the objectives of national electrification, ensuring that local governments can collect necessary revenues while supporting the broader goal of providing electricity to rural areas.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Lanao del Norte Electric Cooperative, Inc. vs. Provincial Government of Lanao del Norte, G.R. No. 185420, August 29, 2017