The Supreme Court (SC) affirmed an earlier Makati City court ruling that condominium dues are not subject to tax.
In a 33-page decision, the SC 1st Division nullified a Bureau of Internal Revenue (BIR) circular in 2012 which would have imposed 12% value-added tax (VAT) and 32% income tax on association dues, membership, and other fees charged by condominium operators to tenants.
Revenue Memorandum Circular (RMC) No. 65-2012, which was released during the time of then-BIR chief Kim Henares, assumed that association dues and other charges are part of a condominium’s gross income. She also argued that beneficial services from these fees are subject to VAT.
The SC ruling, penned by Associate Justice Amy Lazaro Javier, pointed out that condominium operators do not engage in activities to generate income or profit.
“Clearly, RMC No. 65-2012 expanded, if not altered, the list of taxable items in the law. RMC No. 65-2012, therefore, is void. Besides, where the basic law and a rule or regulation are in conflict, the basic law prevails,” the ruling said.
Under the Condominium Act, unit owners are members or shareholders of a condominium corporation. Common areas, therefore, are jointly owned by the corporation – for the purpose of holding a title as real property.
The condominium corporation, the SC ruling said, “may only act for the benefit of the condominium owners” and not to engage in trade or business.
“To repeat, they (dues) are collected purely for the benefit of the condominium owners and are the incidental consequence of a condominium corporation’s responsibility to effectively oversee, maintain, or even improve the common areas of the condominium, as well as its governance,” the ruling said.
The High Court also said Section 21 of the 1997 Tax Reform Act does not include association dues, membership fees, and other assessment charges as part of a condominium corporation’s gross income. This same provision was carried under the Tax Reform for Acceleration and Inclusion law, which amended the old tax law.
The SC also pointed out that the BIR cannot issue circulars inconsistent with the law.
Chief Justice Diosdado Peralta and Associate Justices Benjamin Caguioa, Jose Reyes Jr, and Mario Lopez concurred with the decision.
In 2013, Makati City Regional Trial Court Branch 14 ruled in favor of First E-Bank Tower Condominium Corporation to void the BIR circular. –