When Can You Claim a Tax Refund? Key Takeaways from the Tigerway Facilities Case

G.R. No. 247331, February 26, 2024

Imagine your business suddenly facing a hefty tax bill due to a questionable assessment. Do you have to pay up, or can you fight back and potentially reclaim your funds? This is precisely the scenario addressed in the Supreme Court’s decision in Hon. Lourdes R. Jose v. Tigerway Facilities and Resources, Inc., shedding light on the critical distinctions between protesting a tax assessment and claiming a tax refund under the Local Government Code (LGC). The case clarifies the specific circumstances under which a taxpayer can seek a refund of erroneously or illegally collected local taxes, emphasizing the importance of a valid tax assessment and adherence to procedural requirements.

Understanding the Legal Landscape: Tax Assessment and Refund in the Philippines

Philippine local government taxation is governed primarily by the Local Government Code (LGC). Two key provisions, Sections 195 and 196, outline the procedures for contesting tax assessments and claiming tax refunds, respectively. Knowing the difference is crucial for businesses and individuals dealing with local taxes.

Section 195 deals with protesting an assessment. It applies when a local treasurer believes that the correct taxes, fees, or charges haven’t been paid. The treasurer then issues a notice of assessment, detailing the deficiency, surcharges, interests, and penalties. The taxpayer has 60 days from receiving the notice to file a written protest. The treasurer must decide on the protest within 60 days. If the protest is denied, the taxpayer has 30 days to appeal to a court.

Section 196, on the other hand, covers claims for refunds or tax credits. It applies when a taxpayer believes they’ve erroneously or illegally paid a tax, fee, or charge. It mandates filing a written claim for refund with the local treasurer before taking court action. The legal action must be initiated within two years from the date of payment or from when the taxpayer is entitled to a refund. This section is critical for taxpayers seeking to recover funds they believe were wrongly collected.

A critical element highlighted in this case is the requirement for a valid tax assessment. As the Supreme Court emphasized, a valid assessment must contain the factual and legal basis for the tax. Without this, the assessment is deemed void, and the remedies under Section 196 become applicable. To illustrate, consider the exact wording of Section 195 of the LGC:

Section 195. Protest of Assessment. — When the local treasurer or his duly authorized representative finds that correct taxes, fees or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and penalties.

A crucial element often overlooked is the difference between questioning the *amount* of the tax versus the *legality* of the tax itself. Imagine a scenario where a business owner disagrees with the floor area used to compute their business tax. If the assessment notice is clear about the *method* of calculating floor area but the business owner believes the measurement is wrong, they must follow the protest procedures of Section 195. However, if the city attempts to impose a tax not authorized by law, the business owner can claim a refund under Section 196, provided they do so within the prescribed two-year period.

The Tigerway Case: A Battle Over Deficiency Assessments

Tigerway Facilities and Resources, Inc. found itself in a dispute with the City of Caloocan over local business taxes. The company initially paid an assessed amount for its mayor’s permit renewal in 2005. However, the Caloocan City Business Permit and Licensing Office (BPLO) later issued a Final Demand for deficiency business taxes, fees, and charges amounting to PHP 1,220,720.00, based on alleged misrepresentations regarding the nature of Tigerway’s business, employee count, and business area size after an ocular inspection.

The BPLO issued further notices and orders of payment, eventually reducing the claimed amount to PHP 500,000.00, which Tigerway paid. Feeling that the additional assessments lacked factual and legal basis, Tigerway filed a written claim for refund with the City Treasurer, arguing that its actual tax liability was significantly lower. When this claim was unheeded, Tigerway filed a Complaint for Refund with the Regional Trial Court (RTC) under Section 196 of the LGC.

The City Treasurer countered that Tigerway had lost its right to contest the assessment by failing to protest it within 60 days of receiving the Order of Payment, as required by Section 195. The RTC sided with Tigerway, ordering a refund. The City Treasurer appealed to the Court of Tax Appeals (CTA), which also ruled in favor of Tigerway, highlighting discrepancies in the inspection slips and the lack of factual and legal basis for the assessment.

The case journeyed through the CTA Third Division and eventually reached the CTA En Banc, which affirmed the lower court’s decision. The CTA En Banc emphasized that the notices of deficiency did not contain any factual or legal basis for the assessment beyond the assertion of ocular inspections. The Court quoted:

“[T]he notices of assessment were void for failing to specify the factual and legal basis of the assessment.”

The Supreme Court, in its final ruling, affirmed the CTA’s decision, emphasizing the crucial requirement of a valid assessment notice containing the factual and legal basis for the tax. The Court also noted that:

“[T]axpayers must be informed of the nature of the deficiency tax, fee, or charge, as well as the amount of deficiency, surcharge, interest, and penalty, failure of the taxing authority to sufficiently inform the taxpayer of the facts and law used as bases for the assessment will render the assessment void.”

Here’s a breakdown of the key procedural steps:

• BPLO issues a Final Demand for deficiency business taxes.
• Tigerway pays the reduced amount under the Order of Payment.
• Tigerway files a written claim for refund with the City Treasurer.
• Tigerway files a Complaint for Refund with the RTC under Section 196 of the LGC.
• The City Treasurer contends that Tigerway failed to protest the assessment within 60 days.
• The Supreme Court rules in favor of Tigerway, highlighting the invalidity of the assessment notices.

Practical Implications for Businesses and Taxpayers

The Tigerway case has significant practical implications for businesses and individuals facing local tax assessments. It underscores the importance of a valid tax assessment notice that clearly states the factual and legal basis for the tax. Without this, the assessment can be challenged, and taxpayers may be entitled to a refund.

This ruling provides taxpayers with a stronger basis to challenge assessments lacking transparency and legal support. It also serves as a reminder for local government units (LGUs) to ensure their assessments comply with due process requirements.

Key Lessons:

• Scrutinize Assessment Notices: Carefully examine assessment notices for a clear explanation of the factual and legal basis for the tax.
• Document Everything: Maintain detailed records of all tax payments and related communications with LGUs.
• Know Your Rights: Understand the difference between protesting an assessment (Section 195) and claiming a refund (Section 196) under the LGC.
• Act Promptly: Adhere to the prescribed timelines for filing protests and claims for refund.

Hypothetical Example: A small restaurant receives an assessment for increased business tax due to an alleged increase in seating capacity. However, the assessment notice only states, “Increased seating capacity observed during inspection.” The restaurant owner can argue that the notice is invalid because it lacks a specific factual basis (e.g., date of inspection, number of seats observed) and a clear legal basis (reference to the relevant tax ordinance provision). The restaurant can then pursue a refund under Section 196.

Frequently Asked Questions (FAQs)

Q: What is a tax assessment?

A: A tax assessment is a notice from the local treasurer stating that the correct taxes, fees, or charges have not been paid. It should include the nature of the tax, the amount of deficiency, surcharges, interests, and penalties.

Q: What is the difference between Section 195 and Section 196 of the LGC?

A: Section 195 deals with protesting a tax assessment, while Section 196 deals with claiming a refund of taxes that were erroneously or illegally collected.

Q: What should I do if I receive a tax assessment that I believe is incorrect?

A: First, carefully examine the assessment notice to understand the basis for the tax. If you disagree with the assessment, file a written protest with the local treasurer within 60 days of receiving the notice.

Q: How long do I have to file a claim for refund of local taxes?

A: You must file a written claim for refund with the local treasurer and initiate legal action within two years from the date of payment or from the date you become entitled to a refund.

Q: What happens if the assessment notice does not contain the factual and legal basis for the tax?

A: The assessment may be deemed invalid, and you may be able to claim a refund under Section 196 of the LGC, even if you did not file a protest within 60 days.

Q: Is it possible to get interest on a tax refund?

A: Interest on tax refunds is only permissible when authorized by law or in instances where the tax collection was attended by arbitrariness.

ASG Law specializes in local government taxation and tax refunds. Contact us or email hello@asglawpartners.com to schedule a consultation.