EUSEBIO VILLANUEVA, ET AL., PLAINTIFFS-APPELIEES, VS. CITY OF ILOILO, DEFENDANT-APPELLANT.

Villanueva versus City of Iloilo

The Case

This is an appeal by the City of Iloilo from a decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, an ordinance imposing a municipal license tax on persons engaged in the business of operating tenement houses, and ordering the City to refund the sums collected under it. The plaintiffs are Eusebio Villanueva and Remedios Sian Villanueva, together with other owners of tenement houses in Iloilo City. The case matters because it fixes the reach of the Local Autonomy Act over local taxation, teaches how to classify a tax by its nature rather than its label, and disposes of the favorite objections of double taxation, oppression, and lack of uniformity.

Procedural History

The plaintiffs filed a complaint, and later an amended complaint, against the City of Iloilo in the Court of First Instance of Iloilo. They prayed that Ordinance 11 be declared invalid for being beyond the powers of the municipal board and unconstitutional for violating the rule of uniformity of taxation and the equal protection clause, and that the City refund the amounts collected. The trial court rendered judgment declaring the ordinance illegal on four grounds: that the Local Autonomy Act does not empower cities to impose apartment taxes; that the ordinance is oppressive and unreasonable because it carries a penal clause; that it constitutes double, even treble, taxation; and that it violates the rule of uniformity of taxation. The City appealed directly to the Supreme Court.

Facts

In 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees on tenement houses. The validity of that ordinance was challenged by the spouses Eusebio Villanueva and Remedios Sian Villanueva, owners of four tenement houses containing thirty four apartments. In City of Iloilo versus Villanueva, decided in March 1959, the Supreme Court declared Ordinance 86 ultra vires, it not appearing that the power to tax owners of tenement houses was clearly and expressly granted to the City by its charter.

On January 15, 1960, believing that with the passage of Republic Act 2264, the Local Autonomy Act, it had acquired the authority to enact such an ordinance, the municipal board enacted Ordinance 11, series of 1960. The ordinance imposed a municipal license tax on tenement houses, defined a tenement house as any building or dwelling for renting space divided into separate apartments or accessorias, and fixed rates per door per annum according to the materials of construction and the street location.

The appellees own several tenement houses in Iloilo City, each apartment having a door leading to a street and rented by a Filipino or Chinese merchant, with the first floor used as a store and the second floor as the dwelling of the store owner. Under the ordinance the City collected five thousand eight hundred twenty four pesos and thirty centavos from the spouses Villanueva, and one thousand three hundred seventeen pesos from the other appellees, for the years 1960 to 1964. Eusebio Villanueva also paid real estate taxes on his property.

Issues

• Whether or not Ordinance 11, series of 1960, is illegal because it imposes double taxation.
• Whether or not the City of Iloilo is empowered by the Local Autonomy Act to impose tenement taxes.
• Whether or not Ordinance 11 is oppressive and unreasonable because it carries a penal clause.
• Whether or not Ordinance 11 violates the rule of uniformity of taxation.

Applicable Provisions

Section 2 of the Local Autonomy Act, Republic Act 2264, provides:

Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees.

This grant is the source of the City's power to impose the tenement license tax, and the case turns on whether the tax falls within the exceptions that follow it.

Ruling

On the second issue, which the Court took up first, it held that the City is empowered. The grant of taxing authority under the Local Autonomy Act is broad and extends to almost everything excepting those matters expressly mentioned, provided the tax is for public purposes, just and uniform, and does not transgress the Constitution or a controlling statute. The tax is not a real estate tax: it is not a fixed proportion of assessed value, requires no assessors, is not payable at a designated date, and is not enforceable against the property by sale or distraint. The spirit rather than the letter of an ordinance determines its construction, and the intent is plainly to tax the operation of tenement houses, which is a distinct form of business or calling similar to the hotel or motel business. Being neither a real estate tax nor one of the excepted taxes, it falls within the general grant.

On double taxation, the Court held that the same tax may be imposed by the national government and by a local government, and that a license tax may be levied on a business although the property used in it is subject to property tax. For double taxation in the objectionable sense, the same property must be taxed twice when it should be taxed once, by the same authority, within the same jurisdiction, during the same period, and the taxes must be of the same kind or character. A real estate tax and the tenement tax are not of the same kind. At all events, there is no constitutional prohibition against double taxation in the Philippines.

On the penal clause, the Court held that a tax is not a debt in the sense of an obligation incurred by contract, so punishment for non-payment by fine or imprisonment does not offend the prohibition on imprisonment for debt. Nor is the tax a poll tax. The charter of Iloilo City empowers the municipal board to fix penalties for violations of ordinances not exceeding a fine of two hundred pesos or six months imprisonment, or both.

On uniformity, the Court held that tenement houses constitute a distinct class of property, and that taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority. That owners of other classes of buildings do not pay the tax is no argument, and neither is the fact that other cities do not impose it, for the rule does not require taxes for the same purpose to be imposed in different territorial subdivisions at the same time. So long as the burden falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, uniformity is accomplished.

Doctrine

Under the Local Autonomy Act, chartered cities may impose municipal license taxes on persons engaged in any occupation or business, and the grant is construed broadly, subject only to the express exceptions, the requirement of public purpose, and the constitutional commands of justice and uniformity. The character of a tax is determined by its nature and essence, not by isolated words in the statute; a license tax on the operation of tenement houses is a privilege tax on a business or calling, not a real estate tax. Double taxation in the objectionable sense requires the same property, same purpose, same authority, same jurisdiction, same period, and the same kind of tax; and there is no constitutional prohibition against double taxation in the Philippines. A tax is not a debt, so a penal clause for non-payment is valid. Uniformity of taxation requires only that the burden fall equally on all property of the same class within the taxing authority.

Disposition

The City of Iloilo won: the Supreme Court reversed the judgment of the trial court, declared Ordinance 11, series of 1960, valid, and set aside the order of refund.

Remember This

The one line to memorize: the character of a tax is fixed by its nature and essence, not by its label, and a tenement license tax is a valid exercise of local taxing power under the Local Autonomy Act. Examiners use this case on local autonomy and the scope of municipal taxing power, and on the classic objections of double taxation, oppression, and lack of uniformity.