Atty. Julius Gregory Delgado

“FRITZ BRYN ANTHONY DELOS SANTOS VS. COMMISSIONER OF INTERNAL REVENUE”,

G.R. No. 222548 (JUNE 22, 2022): CONDOMINIUM DUES NOT SUBJECT TO VAT

This is a Petition filed by Fritz Bryn Anthony Delos Santos against the Commissioner of Internal Revenue questioning the Revised Memorandum Circular No. 65 which imposes Value-Added Tax on condominium dues collected by condominium associations. On April 29, 2013, petitioner Delos Santos became a resident of Makati City where he lived at his father’s condominium unit in Unit 12H, Classica Tower 2. Petitioner pays condominium association dues to Classica Tower Condominium Association, Inc. (“Classica”). 

Because of the said Revised Memorandum Circular No. 65 issued by then Commissioner of Internal Revenue, Kim S. Jacinto-Henares, which charges VAT on condominium dues, Classica informed its unit owners and tenants on November 26, 2015 that it will no longer shoulder the VAT on association dues starting on January 3, 2016. On January 4, 2016, Classica sent Delos Santos a billing statement for his association dues that included VAT. He then paid the association dues on January 21, 2016. Subsequently, petitioner Delos Santos filed a Petition for Certiorari before the Supreme Court. Petitioner Delos Santos alleges that he has legal standing to challenge the Circular’s constitutionality. He claims that his payment of VAT for his association dues to Classica resulted in his direct injury. The Circular’s direct adverse monetary effect satisfies the actual case or controversy requirement of judicial review. Petitioner also assails the Circular’s constitutionality for violating substantive due process because there is no legal or judicial basis for its issuance. 

The Supreme Court refused to rule on the matter and declared the case as moot already but reiterated the earlier ruling of the Court’s First Division on January 15, 2020, G.R. Nos. 215801 and 2189243-1 (Commissioner of Internal Revenue vs. First E-Bank Tower Condominium Corporation) wherein the Supreme Court also struck down Revised Memorandum Circular No. 65. The Court held that the Commissioner of Internal Revenue gravely abused its discretion in issuing the said Circular and for declaring that association dues, membership fees, and other assessments or charges are subject of income tax, VAT, and withholding tax. The Supreme Court reiterated its ruling in Yamane vs. BA Lepanto Condominium Corporation., G.R. No. 154993 (October 25, 2005), that a condominium corporation is not engaged in trade or business and that association dues are not intended for profit but for the maintenance of the condominium project. 

“For when a condominium corporation manages, maintains, and preserves the common areas in the building, it does so only for the benefit of the condominium owners. It cannot be said to be engaged in trade or business, thus, the collection of association clues, membership fees, and other assessments/charges is not a result of the regular conduct or pursuit of a commercial or an economic activity, or any transactions incidental thereto. 

Neither can it be said that a condominium corporation is rendering services to the unit owners for a fee, remuneration or consideration. Association dues, membership fees, and other assessments/charges form part of a pool from which a condominium corporation must draw funds in order to bear the costs for maintenance, repair, improvement, reconstruction expenses and other administrative expenses. 

Indisputably, the nature and purpose of a condominium corporation negates the carte blanche application of our value-added tax provisions on its transactions and activities.”

Finally, the Supreme Court held that the subject Circular unduly expanded and modified several provisions of the National Internal Revenue Code (“NIRC”). Section 32 of the NIRC does not include these charges in its enumeration of sources of gross income. Also, Section 105 to 108 of the NIRC imposes VAT on transactions involving sale, barter, or exchange of goods, rendition of services, and use or lease of properties. Condominium dues, membership fees, and other charges also do not rise from these transactions.