Unit owners may be separately assessed for condominium fees to account for the expenses for their maintenance and other services benefiting the common areas of their building, pursuant to Republic Act No. 4726, otherwise known as the Condominium Act.
Unpaid assessments, which comprise the owners’ fractional interest in these common areas, shall constitute a lien upon the concerned units once the condominium’s management causes notices of assessment to be registered with the Register of Deeds of the city or province where the condominium is located.
This lien shall be superior to all other liens subsequently registered, except real property liens or as otherwise provided in the condominium’s declaration of restrictions.
Whether a condominium corporation’s collections for these fees are subject to income and value-added taxes (VAT) has been addressed by the Supreme Court in Bureau of Internal Revenue v. First E-Bank Tower Condominium Corp.
In this case, respondent First E-Bank Tower Condominium Corp. (FEBTCC) filed before the Regional Trial Court (RTC) the instant petition for declaratory relief, seeking to declare as invalid the Bureau of Internal Revenue’s (BIR) Revenue Memorandum Circular (RMC) No. 65-2012.
Under this RMC, association dues, membership fees, and other assessments or charges collected by condominium corporations shall form part of their gross income subject to income tax since they furnish their members with benefits, advantages, and privileges in return for such payments.
These collections are likewise subject to VAT since they constitute compensation for services rendered by these corporations in the course of their trade or business. This rule purportedly applies even when the corporation is non-stock and non-profit, such that it receives payments on a reimbursement-of-cost basis.
In its petition, FEBTCC alleged that RMC No. 65-2012 was burdensome since it effectively imposed taxes on the unit owners’ money exclusively used for the maintenance and preservation of their condominium building and its premises.
Meanwhile, the BIR argued that the instant petition should be dismissed since the Secretary of Finance, and not the RTC, had primary jurisdiction over the issue raised.
In its ruling, the RTC held that FEBTCC correctly resorted to filing a petition for declaratory relief. It further held that RMC No. 65-2012 was invalid because it supposedly expanded the law, created an additional tax burden on condominium corporations, and was issued without the requisite notice and hearing.
Meanwhile, the Court of Appeals dismissed the appeals filed by both parties since the Court of Tax Appeals has exclusive jurisdiction over the subject matter of the case.
The Supreme Court reversed and set aside the Court of Appeals’ findings and affirmed those made by the RTC. It held at the outset that while FEBTCC’s petition improperly seeks declaratory relief, it may still be treated as one for prohibition since it has far-reaching implications and raises issues that must be resolved for the public good.
To be sure, the taxability of contributions by unit owners solely intended for the maintenance of the common areas of their condominium buildings is imbued with public interest.
Moreover, the Supreme Court declared RMC No. 65-2012 to be invalid since the said dues and other charges collected by condominium corporations are not subject to income tax and VAT. In collecting these amounts, these corporations do not intend to obtain profit, but seek to effectively oversee, maintain, or improve the common areas, as well as their governance.
Profits realized from the “appreciative living values” of units caused by upkeep of the building’s common areas accrue to their owners, and not the corporations.
Meanwhile, these collections are not subject to VAT since in making these collections, condominium corporations merely manage and preserve the common areas for the benefit of the unit owners. They do not do so in the regular conduct or pursuit of a commercial or an economic activity.
These collections do not likewise constitute compensation for services provided to the unit owners since the collected fees and charges comprise a pool from which the corporations must draw funds to bear the costs for maintenance, repair, improvement, reconstruction expenses, and other administrative expenses.