Appraisal and Assessment

Appraisal and Assessment in Real Property Taxation

Appraisal and assessment are the valuation stages that convert real property into a taxable base for local real property tax. Appraisal determines the fair market value of the property. Assessment applies the proper assessment level to that fair market value to produce the assessed value, which is the tax base to which the local tax rate is applied.

The process is administrative but it directly affects tax liability. The assessor identifies the property, records it, classifies it according to actual use, appraises it at fair market value, applies the assessment level fixed by ordinance within statutory limits, and issues the tax declaration and assessment notice when required. The treasurer collects the tax; the assessor does not collect, compromise, or enforce payment.

Real property tax is an ad valorem tax because the liability depends on value. A valid assessment must therefore rest on a lawful valuation standard, proper classification, the correct assessment level, and observance of notice and remedy requirements.

Basic Concepts

Property Subject to Listing and Appraisal

All real property, whether taxable or exempt, must be declared, listed, and appraised. The reason is practical: exemption is a conclusion about liability, while listing and appraisal preserve the local assessment roll and allow the assessor to determine whether the claimed exemption is proper.

Real property for this purpose includes land, buildings, machinery, and other improvements. Machinery may be treated as real property for local tax purposes even if it is not permanently attached, when it is actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity carried on in the property.

A tax declaration is not a title to land. It is an assessment record and may be evidence of a claim of ownership or possession, but it does not adjudicate ownership, cure defects in title, or defeat a registered title. The assessor records property for taxation; courts determine ownership when ownership is actually in issue.

Declaration by Owners and Administrators

Persons owning or administering real property must file a sworn declaration stating the true value of the property. The periodic declaration gives the assessor updated information on ownership, possession, area, improvements, use, and valuation data.

Newly acquired real property and newly constructed improvements must be declared within the period required by law after acquisition, completion, or occupancy, as the case may be. The duty applies to natural persons, juridical persons, administrators, and persons who control or possess property in a representative capacity.

If the owner or administrator fails or refuses to declare the property, the assessor may declare it in the name of the defaulting owner, administrator, occupant, possessor, or unknown owner. Failure to declare does not defeat taxability; it may instead expose the property to back assessment and back taxes.

A person claiming exemption must present sufficient documentary proof to the assessor. Exemption is not presumed, and the claimant bears the burden of showing that the property falls within the exempt class and is used in the exempt manner. Until exemption is established, the assessor may list and assess the property as taxable.

Schedule of Fair Market Values

Fair market values are implemented through a schedule prepared by the assessor and enacted by the proper sanggunian before a general revision of real property assessments. The schedule translates market data into standardized values for classes and subclasses of property within the local territory.

For provinces, cities, and municipalities within Metropolitan Manila, the appropriate assessor prepares the schedule for the local jurisdiction, and the appropriate sanggunian enacts it by ordinance. The assessor cannot unilaterally impose a new schedule of market values without the required legislative approval.

The schedule promotes uniformity by preventing purely individual valuation choices. Properties that are similarly situated and similarly used should be appraised by comparable standards, while genuine differences in location, use, physical condition, productivity, accessibility, and market behavior may justify different values.

Land valuation commonly considers location, area, actual use, shape, frontage, accessibility, neighborhood development, zoning influence, productivity, sales of comparable properties, and other factors affecting market value. Zoning or planned use may be relevant, but actual use remains controlling for classification.

Buildings and other improvements are commonly valued by considering construction cost, materials, type of structure, floor area, age, condition, depreciation, income potential, and market evidence. The assessor should distinguish ordinary repairs from additions or improvements that increase taxable value.

Machinery is valued with reference to acquisition cost, replacement or reproduction cost, installation-related costs, depreciation, remaining economic life, and actual condition. Imported machinery may include costs necessary to bring and install the machinery at its present site, while used machinery is appraised after appropriate depreciation.

Classification According to Actual Use

Real property is classified, valued, and assessed according to actual use, regardless of where it is located, who owns it, or who uses it. Actual use means the purpose for which the property is principally or predominantly utilized by the person in possession.

The principal classes are residential, agricultural, commercial, industrial, mineral, timberland, and special. Local ordinances may create subclasses for valuation and assessment, but the subclasses must remain consistent with the statutory classes and with the rule that actual use controls.

Residential property is property principally devoted to habitation. Agricultural property is principally devoted to planting, raising crops, livestock, poultry, fisheries, or similar agricultural production. Commercial property is principally devoted to trade, services, business, or profit-oriented transactions. Industrial property is principally devoted to manufacturing, processing, fabrication, or production.

Mineral land is property from which minerals are extracted or intended for extraction under the applicable mining regime. Timberland is property principally classified and used for forest or timber purposes. The tax classification for local assessment must be distinguished from land classification, land registration, zoning, and agrarian classifications, although those may supply factual context.

The special class covers property actually, directly, and exclusively used for hospitals, cultural purposes, or scientific purposes, and property owned and used by local water districts and by government-owned or controlled corporations rendering essential public services in the supply and distribution of water or in the generation and transmission of electric power. Special classification generally gives a preferential assessment level; it is not the same as total exemption.

If a property has separable portions devoted to different actual uses, each portion may be separately classified and assessed when the facts permit. If the uses are not practically separable, classification follows the principal or predominant use.

Ownership, Exemption, and Beneficial Use

Ownership does not by itself determine classification. A privately owned property used for a public-facing business is assessed according to its commercial or industrial use, not according to the owner's personal character. A government-owned property may become taxable when its beneficial use is granted, for consideration or otherwise, to a taxable person.

Exemption depends on both the nature of the owner or property and the required use. Property owned by the Republic or its political subdivisions is generally exempt, but the exemption does not protect property whose beneficial use has been granted to a taxable private person. Property of charitable, religious, or educational institutions must satisfy the requirement of actual, direct, and exclusive use for the exempt purpose.

Actual, direct, and exclusive use is a use requirement, not a mere ownership label. Incidental or reasonably necessary uses may be compatible with the principal exempt use, but independent commercial use of a substantial portion may justify assessment of that portion.

Assessment Levels and Assessed Value

The assessment level is fixed by local ordinance, subject to maximum levels set by law. The local government may prescribe lower levels, but it cannot exceed statutory ceilings or apply unequal levels to similarly situated property within the same class without a valid basis.

The basic formula is: fair market value multiplied by assessment level equals assessed value. The assessed value is then multiplied by the applicable real property tax rate to compute the basic real property tax. Other local real property levies, such as the additional levy for the Special Education Fund or an idle land tax where validly imposed, are likewise based on assessed value.

Land, buildings, machinery, and special classes may have different assessment levels. The same parcel may therefore produce different assessed values for land, improvements, and machinery even when they belong to the same owner and are located in the same property.

The assessor applies the assessment level fixed by ordinance; the assessor does not invent the level for each taxpayer. If the fair market value is correct but the wrong assessment level is applied, the assessed value and resulting tax are still erroneous.

General Revision and Reassessment

A general revision of real property assessments is the periodic updating of property classifications and valuations within the local jurisdiction. It is designed to align the assessment roll with current market values, new improvements, changed uses, depreciation, and local development.

The Local Government Code contemplates a general revision at regular three-year intervals after the initial revision under the Code. A general revision does not create a new kind of tax; it updates the tax base under the existing real property tax system.

Assessments or reassessments made after the first day of January generally take effect on the first day of January of the succeeding year. Reassessments caused by partial or total destruction, major change in actual use, great and sudden inflation or deflation of real property values, gross illegality of the assessment when made, or another abnormal cause may take effect at the beginning of the quarter following reassessment.

Reassessment may increase or decrease assessed value. Destruction, demolition, obsolescence, or a lawful change to a lower-valued use may justify a downward reassessment. Construction, expansion, installation of taxable machinery, or conversion to a higher-valued use may justify an upward reassessment.

Notice of New or Revised Assessment

When real property is assessed for the first time, or when an existing assessment is increased or decreased, the assessor must give written notice to the owner or to the person having legal interest in the property. Notice is the event that enables the taxpayer to question the assessor's action within the administrative period.

Notice must identify the assessment action sufficiently for the taxpayer to understand the property affected, the valuation or classification imposed, and the basis for the new or revised assessed value. A tax declaration or assessment record that materially changes liability should not become final against the taxpayer without the required notice.

Publication of a schedule or passage of an ordinance does not perform the same function as individual notice of the assessment of a particular property. The schedule supplies valuation standards; the assessment applies those standards to a specific property.

Back Assessment and Escaped Property

Property that escaped assessment may be assessed for back taxes for the period during which it would have been liable, subject to the statutory limit on retroactive assessment. Back assessment prevents a taxpayer from benefiting from failure to declare taxable property.

Back taxes are based on taxability during the escaped period. They may arise from undeclared land, omitted improvements, unreported machinery, erroneous exemption, or a substantial change in use that was not brought to the assessor's attention.

Back assessment should be distinguished from an ordinary increase caused by a general revision. Back assessment reaches past periods in which property should have been taxed; general revision ordinarily affects future liability based on updated values and classifications.

Administrative Remedies from Assessment Action

An owner or person having legal interest in the property who is dissatisfied with the action of the assessor may appeal to the Local Board of Assessment Appeals within the period counted from receipt of the written notice of assessment. The appeal is the ordinary remedy for contesting classification, valuation, assessment level, taxability as reflected in the assessment, or denial of a claimed exemption by the assessor.

The Local Board of Assessment Appeals reviews the assessor's action; it does not function as a regular court of title or as the collecting treasurer. Its concern is whether the property was lawfully listed, classified, appraised, and assessed under real property tax law.

A further administrative appeal lies to the Central Board of Assessment Appeals, and judicial review may follow under the applicable rules on review of administrative tax decisions. Administrative remedies are especially important because appraisal and assessment involve factual valuation and technical classification matters entrusted first to local assessment authorities.

Payment under protest is associated with contesting a real property tax payment or collection after tax has been assessed and paid. By contrast, a direct appeal from the assessor's action addresses the assessment itself. The proper remedy depends on whether the taxpayer is attacking the assessment action or seeking recovery or cancellation of a tax collected on the basis of that assessment.

An assessment that is not timely questioned may become final for administrative purposes. Finality promotes stability in local revenues, but it does not validate an assessment issued without jurisdiction, without the required notice, or in violation of a controlling legal exemption.

Controlling Principles

• Appraisal fixes fair market value; assessment fixes taxable value.
• All real property must be declared and listed, even if exemption is claimed.
• Classification follows actual use, not ownership, location, zoning label, or intended future use.
• The schedule of fair market values requires local legislative enactment before it may support a general revision.
• The assessor applies assessment levels fixed by ordinance within statutory ceilings.
• Special classification gives preferential assessment treatment and is distinct from exemption.
• Written notice is essential when property is newly assessed or an assessment is changed.
• Escaped property may be subjected to back assessment within the limits allowed by law.
• Assessment disputes generally begin before the Local Board of Assessment Appeals, while payment or collection disputes may require payment under protest.