Tax Articles

Applicability of “Payment Under Protest” Rule

Atty. Rodel C. Unciano

The requirement of payment under protest has become almost always an issue in protesting local tax assessments.

This requirement is laid down under Section 252 of the Local Government Code (LGC) of 1991. It provides that no protest shall be entertained unless the taxpayer first pays the tax, where the words “paid under protest” shall be annotated on the tax receipts. The protest in writing must be filed within thirty (30) days from payment of the tax.

Apparently, the provision on payment of tax under protest as provided in Section 252 of the LGC applies only on cases involving Real Property Tax (RPT) assessments. There is no similar provision in the LGC as regards protesting of local business tax assessments. Thus, the rule on payment under protest should not apply on local business tax assessments. However, some local tax ordinances impose the same requirement on protesting local business tax assessments. Thus, the controversy has arisen as to whether prior payment under protest is a mandatory requirement in protesting local business tax assessments.

In resolving the applicability of the requirement of payment under protest on local business tax assessments, a survey of decisions would show that even the courts are not in unison. In one case involving assessments made by the City Treasurer of Davao, whose tax ordinance contains a provision requiring the payment of assessment under protest as a requirement for filing a protest, the Court of Tax Appeals (CTA) agreed that the assessment has to be paid under protest, since until the provision in the ordinance is declared void, the city treasurer has to follow it. In another case though involving the applicability of the same provision, the CTA has said that the payment under protest is not required since the local government code under which the local tax ordinance is based does not require it. That requirement is only for real property tax assessments but not for local business taxes.

As to the applicability of the requirement of payment under protest in protesting RPT assessments, it has been ruled that the provision applies only when the issue involved is purely factual in nature such as when the issues are the reasonableness and correctness of the assessments. However, when the issue involved is a pure question of law, the requirement of payment under protest does not apply.

If the issue involved is factual, the taxpayer must pay the RPT assessed under protest. If the protest is denied or not acted upon within sixty (60) days from filing of the protest, the taxpayer may file an appeal with the Local Board of Assessment Appeals (LBAA) which has one hundred twenty (120) days from date of receipt of the appeal to render a decision. On the other hand, if the issue is a pure question of law, the requirement of payment under protest does not apply and the taxpayer may appeal directly to the regular courts (CTA EB 1930). When the issue is both factual and legal in nature, it is the LBAA, not the regular courts, which has jurisdiction over the case (CTA AC No. 202). Hence, payment under protest is likewise a requirement in protesting the assessment.

In a recent case (CTA AC No. 202), the taxpayer was assessed for RPT. In defense against the assessments, the taxpayer argued that it is a government instrumentality exempt from paying RPT under Presidential Decree No. 4, as amended. The taxpayer did not pay the tax under protest. The CTA ruled that the taxpayer’s claim for exemption from payment of RPT is factual being in the nature of questioning the reasonableness or correctness of the assessment. Thus, it should have first complied with the requirement of payment under protest under the rules on exhaustion of administrative remedies. In another case (CTA EB No. 1392), the taxpayer likewise questioned the correctness of the assessment claiming as defense exemption from real property tax allegedly provided under its franchise. The taxpayer did not likewise pay the tax under protest. The CTA dismissed the case due to the taxpayer’s failure to first pay under protest the questioned assessment.

In GR No. 117577, the taxpayer questioned the authority and power of the assessor in imposing the assessment and of the treasurer in collecting the tax. In this case, the Supreme Court ruled that the issues are not questions merely of amounts of the increase in the tax but attacks on the very validity of the increase. In this case, the Supreme Court ruled that payment under protest is not necessary since the issues involved are not factual.

Thus, in protesting RPT assessments and in determining the necessity of paying the assessment under protest, it is significant to evaluate what issue is being questioned. When the issues are factual, payment under protest is a requirement. However, when a pure question of law is involved, payment under protest is not necessary and the taxpayer may appeal directly to the regular courts.