DEPARTMENT OF EDUCATION, CULTURE AND SPORTS (DECS) v. SAN DIEGO [G.R. No. 89572, December 21,1989]

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DEPARTMENT OF EDUCATION, CULTURE AND SPORTS (DECS) v. SAN DIEGO

G.R. No. 89572, December 21,1989

EN BANC, CRUZ, J.

 

Academic Freedom; National Medical Admission Test (NMAT); Police Power; Equal Protection Clause

 

The three-flunk rule is a valid exercise of police power. It is the right and responsibility of the State to insure that the medical profession is not infiltrated by incompetents to whom patients may unwarily entrust their lives and health. The three-flunk rule is intended to insulate the medical schools and the medical profession from the intrusion of those not qualified to be doctors.

  

Roberto Rey San Diego is a Zoology graduate of the University of the East who wanted to pursue medical studies. However, he had taken the NMAT for a total of three (3) times already and failed in each try. When he tried to take the NMAT the fourth time, his application was denied based on MECS Order No. 12, s. 1972, which institutionalized the three-flunk rule, or that any college graduate who has failed the NMAT for three times is no longer eligible to take it. 

San Diego filed a petition before the RTC of Valenzuela to challenge the three-flunk rule, saying that the same was a violation of his academic freedom and his right to have quality education. In his amended petition, he said the rule was violative of due process and equal protection. San Diego was allowed to take the NMAT a fourth time subject to the outcome of his petition. 

 

Whether or not the three-flunk rule is a legitimate exercise of police power.

YES. The NMAT is a constitutionally sanctioned measure intended to limit the admission to medical schools only to those who have initially proved their competence and preparation for a medical education. 

The subject of the challenged regulation is certainly within the ambit of the police power. It is the right and indeed the responsibility of the State to insure that the medical profession is not infiltrated by incompetents to whom patients may unwarily entrust their lives and health. The three-flunk rule is intended to insulate the medical schools and ultimately the medical profession from the intrusion of those not qualified to be doctors. 

 

Whether the three-flunk rule violates the constitutional guarantees of academic freedom, due process, and equal protection?

NO. A substantial distinction exists between medical students and other students who are not subjected to the NMAT and the three-flunk rule. The medical profession directly affects the very lives of the people, unlike other careers which, for this reason, do not require more vigilant regulation.  There would be unequal protection if some applicants who have passed the tests are admitted and others who have also qualified are denied entrance. In other words, what the equal protection requires is equality among equals. 

The right to quality education is not absolute. The Constitution also provides that "every citizen has the right to choose a profession or course of study, subject to fair, reasonable and equitable admission and academic requirements." The SC held that the three-flunk rule is a valid exercise of police power.  Thus, having flunked it three times, San Diego is barred from taking the NMAT again.

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Commissioner of Internal Revenue v. Philex Mining Corp., G.R. No. 230016, [November 23, 2020]

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COMMISSIONER OF INTERNAL REVENUE V. PHILEX MINING CORP.

G.R. No. 230016, [November 23, 2020]

SECOND, LOPEZ, M.V

 

Value Added Tax; VAT mandatory compliances; VAT Refund

 

While the tax law requires mandatory compliance with the keeping of subsidiary journals and the filing of monthly value-added tax (VAT) declarations, the Court will not deny the request for refund on the sole basis that the taxpayer failed to comply with these requirements when the law does not provide for its compliance by the taxpayer to be entitled for refund. The Court may not construe a statute that is free from doubt; neither can we impose conditions or limitations when none is provided for. 

 

Philex Mining Corporation, a VAT-registered taxpayer engaged in mining, sought a refund of ₱51,734,898.99 for unutilized input VAT attributed to its zero-rated sales during the second and third quarters of taxable year 2010. The Commissioner of Internal Revenue (CIR) contested the refund claim, asserting that Philex Mining failed to comply with the accounting requirements of maintaining subsidiary sales and purchase journals and filing monthly VAT declarations.

 

Whether Philex Mining is entitled to a refund of unutilized input VAT despite its alleged non-compliance with subsidiary journal-keeping and monthly VAT declaration filing requirements. 

YES. The Court ruled in favor of Philex Mining, holding that the absence of subsidiary sales and purchase journals and monthly VAT declarations is not sufficient to deny the refund. The Court emphasized that the Tax Code does not explicitly require compliance with these specific accounting requirements as a condition for a refund. It clarified that strict construction is required for tax exemptions, but tax statutes should be construed strictly against the taxing authority and liberally in favor of the taxpayer. 

In this case, Philex Mining's refund claim was granted, stating that the taxpayer had sufficiently proven its entitlement to the refund. The absence of subsidiary sales journal, subsidiary purchase journal, and monthly VAT declarations is not sufficient to deprive Philex Mining of its right to a refund. The Court maintained that Philex Mining adequately demonstrated its entitlement to the refund by providing the necessary documents such as official receipts, quarterly VAT returns, and import entry declarations. In all, Philex Mining's failure to maintain subsidiary sales and purchase journals or to file the monthly VAT declarations should not result in the outright denial of its claim for refund or credit of unutilized input VAT attributable to its zero-rated sales.

 

 

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Commissioner of Internal Revenue v. Commission on Elections, G.R. Nos. 244155 & 247508, [May 11, 2021]

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Commissioner of Internal Revenue v. Commission on Elections

 G.R. Nos. 244155 & 247508, [May 11, 2021]

EN BANC, LOPEZ, M.V

 

Withholding taxes from the purchase of COMELEC of the Electronic Voting Machines; Deficiency Tax Assessment; Liability of withholding agent

 

One may be exempt from the obligation to pay income tax but may still be liable for withholding the tax on income payments made to taxable entities. The first is based on personal tax liability, while the second is premised on its duty as a withholding agent to withhold the taxes paid to the payee.

  

The Commission on Elections (COMELEC) entered into a contract with Smartmatic Sahi Technology, Inc. and Avante International Technology, Inc. for the lease of electronic voting machines for the August 2008 elections. COMELEC did not withhold Expanded Withholding Tax (EWT) on payments to the suppliers, believing it was exempt under Section 126 of Republic Act No. 8436. Following a BIR investigation, COMELEC received deficiency EWT assessments, leading to a dispute. The COMELEC contends trial it is exempt from all taxes, direct or indirect, personal or impersonal, relative to the conduct of automated elections as authorized by law. The CTA Division partly granted COMELEC's petition but found it not liable for deficiency interest. The CIR appealed, arguing COMELEC's liability. The CTA En Banc affirmed the Division's decision. COMELEC filed a petition with the Supreme Court, disputing its tax liability and procedural matters related to the case.

 

 

[PROCEDURAL] Whether or not the CTA has exclusive appellate jurisdiction to decide the dispute between the COMELEC and the BIR on the deficiency tax assessment.

YES. The CTA has exclusive appellate jurisdiction to decide the dispute between the COMELEC and the BIR on the deficiency tax assessment; PD No. 242 does not apply. PD No. 242 is not the law applicable for the settlement or adjudication of disputes, claims, and controversies between a constitutional office, like the COMELEC, and a government office, agency, or bureau, such as the BIR. Accordingly, the COMELEC, being a constitutional office independent from the three branches of the government, is not required to go through the procedure prescribed in PD No. 242 and EO No. 292; instead exclusive appellate jurisdiction of the CTA shall apply. Since the issue here is the disputed assessment for deficiency basic EWT for the year 2008 against the COMELEC, arising from its failure to withhold the tax on income payments made to Smartmatic and Avante under the lease contracts, the CTA has the exclusive appellate jurisdiction to take cognizance of the COMELEC's petition.

  

 

[PROCEDURAL] Whether or not the COMELEC properly filed its petition for review with the CTA En Banc without first filing a motion for reconsideration of the CTA Division's Amended Decision.

YES. The Amended Decision is a mere clarification, a correction at best, of the amount due from the COMELEC. In the instant case, the Amended Decision of the CTA Division is not a "new" decision, but a reiteration of the Decision dated August 2, 2016. It was not based on a re-evaluation or re-examination of documentary exhibits presented by the parties. The CTA Division, without any modification, repeated in toto its discussion and ruling in the original decision. Accordingly, we hold that the COMELEC properly brought an appeal to the CTA En Banc without first seeking to reconsider the Amended Decision of the CTA Division.

  

 

[SUBSTANTIVE] Whether or not the COMELEC is exempt from the obligation to withhold EWT.

NO. The withholding tax is not an internal revenue or local tax, but a mode of collecting income tax in advance. Therefore, unless the income recipient is exempt from income tax, the payor is generally required to deduct, and withhold EWT on income payments made. Here, the lease contract payments to Smartmatic and Avante are not exempt from the requirement of withholding under Section 2.57.5 of Revenue Regulations. Smartmatic and Avante also do not enjoy exemption from payment of income tax under any provision of law. On the other hand, the COMELEC's exemption from taxes and import duties on the lease of election voting machines is distinct from its liability as a withholding agent for the government. One may be exempt from the obligation to pay income tax but may still be liable for withholding the tax on income payments made to taxable entities. The first is based on personal tax liability, while the second is premised on its duty as a withholding agent to withhold the taxes paid to the payee. Therefore, the COMELEC is not exempt from the obligation to withhold EWT for the lease of electronic voting machines.

  

 

[SUBSTANTIVE] Whether the COMELEC is liable for the deficiency basic EWT on the income payments made to Smartmatic and Avante for the lease contracts.

YES.  Tax Code makes the agent personally liable for the tax not withheld, or not accounted for and remitted, and applicable penalties. The COMELEC admitted that it did not withhold EWT on the payments made to Smartmatic and Avante for the lease contracts. It failed to perform its duty as a withholding agent required to deduct, withhold and remit the tax to the government. Consequently, the COMELEC becomes personally liable for deficiency tax equivalent to the amount not withheld. Therefore, Commission on Elections is ORDERED TO PAY the amount of P30,645,542.62, representing the deficiency basic expanded withholding tax for the taxable year 2008 but  COMELEC is not liable for any deficiency interest.

 

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Chevron Holdings, Inc. v. Commissioner of Internal Revenue, G.R. No. 215159, [July 5, 2022]

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CHEVRON HOLDINGS, INC. V. COMMISSIONER OF INTERNAL REVENUE

 G.R. No. 215159, [July 5, 2022]

EN BANC, LOPEZ, M.V

 

Value Added tax; Input Tax on Zero-rates Sales; Substantiation of Unutilized Input VAT not required for VAT Refund on Zero-rated Sales; 

There is nothing in the law and rules that mandate the taxpayer to deduct the input tax attributable to zero-rated sales from the output tax from regular twelve percent (12%) VAT-able sales first and only the "excess" may be refunded or issued a tax credit certificate. The crediting of input taxes, including input tax attributable to zero-rated sales, from the output tax should be discretionary to the taxpayer. The taxpayers are entitled to segregate and refund the full amount of input VAT that is attributable to their zero-rated sales.

  

Chevron Holdings for the taxable year 2006, rendered services to both foreign and Philippine affiliates, with zero-rated and 12% VAT sales, respectively. The company incurred input taxes, a portion of which was attributable to zero-rated sales. Due to substantial input taxes carried forward from previous quarters, these credits were not offset against output taxes. Seeking a refund, Chevron Holdings filed a claim in 2008 for unutilized input VAT related to services provided to foreign affiliates. The Commissioner of Internal Revenue (CIR) did not act on the claim, leading to Chevron's petition. 

The CTA En Banc ruled that the input tax carry-over of P56,564,096.7726 reported in the Quarterly VAT Return for the first quarter cannot be validly applied against the output tax for the year 2006 because Chevron Holdings failed to present VAT invoices or receipts to prove its existence. After comparing the reported output taxes from the substantiated input taxes, the CTA En Banc observed that there was no excess input VAT that may be the subject of a claim for refund or tax credit for the second, third, and fourth quarters of 2006, thus, only P15,085.24 shall be refundable according to CTA. 

 

Whether the request for refund of unutilized input VAT from zero-rated requires that the taxpayer have 'excess' input VAT from the output VAT of the quarter of claim.

NO.  The SC En Banc held that it would not deny the request for refund of unutilized input VAT from zero-rated sales on the ground that the taxpayer does not have 'excess' input VAT from the output VAT of the quarter of claim since the law does not require it. There is nothing in the law and rules that mandate the taxpayer to deduct the input tax attributable to zero-rated sales from the output tax from regular twelve percent (12%) VAT-able sales first and only the "excess" may be refunded or issued a tax credit certificate. The crediting of input taxes, including input tax attributable to zero-rated sales, from the output tax should be discretionary to the taxpayer as it is the taxpayer who is more interested in reducing its output tax payable. Also, to require entities engaged in zero-rated transactions to charge their input tax from zero-rated sales against their output VAT from regular twelve percent (12%) VAT-able sales would defeat the very object of the tax measure, which is to generate more income for the government.

  

Whether or not the Substantiation of Unutilized Input VAT is required for the entitlement to a refund of unused or unutilized input VAT from zero-rated sales. 

NO. The taxpayer is not required to substantiate its excess input tax carried over from the previous quarter as it is not a requirement for entitlement to a refund of unused or unutilized input VAT from zero-rated sales. The SC En Banc held that the CTA erred in requiring the taxpayer to substantiate its excess input tax carried over from the previous quarter before it may be utilized. The Tax Code merely requires that the input tax claimed for refund "has not been applied against the output tax." Taxpayers can now fully claim the input VAT of the current quarter that is attributable to its zero-rated sales. It need not subtract its current output VAT from the current input VAT before it may refund what remains. The unutilized input vat of the prior quarters may now be utilized to pay for the current quarter’s output tax without the need for substantiation.

 

 

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National Power Corp. v. Province of Pampanga, G.R. No. 230648 (Resolution), [October 6, 2021])

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NATIONAL POWER CORPORATION V. PROVINCE OF PAMPANGA

 G.R. No. 230648 (Resolution), [October 6, 2021])

FIRST, LOPEZ, M.V

 

Local Taxation; Tax Assessment need not state provision of

Ordinance; Nullity of the Assessment Letter 

The tax assessment which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests, and penalties. 

 

The case involves the National Power Corporation (NPC), a government-owned corporation, receiving an Assessment Letter from the Provincial Treasurer of the Province of Pampanga, demanding payment of local franchise tax. NPC, relying on the Electric Power Industry Reform Act (EPIRA Law), argued that it was no longer subject to franchise tax as its power generation was not considered a public utility operation requiring a franchise. The notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment.

NPC appealed to the Regional Trial Court (RTC) after the Provincial Treasurer failed to act on the protest, for failure of the assessment to state the exact legal basis for the tax. The RTC ruled in favor of the Province of Pampanga, stating that NPC, despite EPIRA Law modifications, remained liable for franchise tax due to its power generation and supply activities. The Court of Tax Appeals (CTA) upheld this decision but remanded the case to the RTC for further proceedings due to insufficient details in the Assessment Letter. NPC properly filed to petition for review on certiorari under Rule 45 with the Supreme Court to question the CTA’s decision.

 

 

Whether NPC properly filed to petition for review on certiorari with the Supreme Court to assail the decision of the CTA.

YES. Under RA No. 9282,25 approved on March 30, 2004, the CTA was elevated to the same level and equal rank as the Court of Appeals. Upon its effectivity on April 23, 2004,26 decisions or rulings of the CTA En Banc are now appealable to the Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court. Furthermore, Section 1, Rule 16, of the Revised Rules of the Court of Tax Appeals28 (RRCTA) provides that a party adversely affected by a decision or ruling of the CTA En Banc may appeal by filing with the Supreme Court a verified petition for review under Rule 45 of the Rules of Court. Accordingly NPC properly filed to petition for review on certiorari with this Court.

  

Whether the defense of nullity of assessment was waived as it was raised only upon filing of motion for reconsideration.

NO. The issue of nullity of the Assessment Letter is not deemed waived even if raised only in NPC's motion for reconsideration of the CTA En Banc's Decision The CTA has ample authority to determine compliance by the taxing authority of the due process requirements under the tax laws even though not expressly raised as an issue in the petition filed before them. Indeed, the validity or invalidity of the Assessment Letter is integral to the issue of NPC's liability for local franchise tax under the Provincial Tax Code of 1992 of Pampanga. If the assessment is void, NPC is not liable for the franchise tax.

 

Whether the Assessment Letter's lack of specific details, including the amount of franchise tax, surcharges, interest, and the period covered, violates NPC's right to due process, rendering the assessment null and void.

YES. The Supreme Court ruled in favor of NPC, holding that the Assessment Letter's deficiencies deprived NPC of its right to due process. The Court emphasized that taxpayers must be adequately informed of the basis, amount, and period covered by the assessment to enable them to prepare an intelligent protest or appeal. Verily, taxpayers must be informed of the nature of the deficiency tax, fee, or charge, as well as the amount of deficiency, surcharge, interest, and penalty. Failure of the taxing authority to sufficiently inform the taxpayer of the facts and law used as bases for the assessment will render the assessment void. The Province of Pampanga failed to observe the due process requirements in issuing a deficiency local tax assessment; hence, the assessment is void.

 

 

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MRM Asset Holdings 2 Inc. vs. Standard Chartered Bank, G.R. No. 202761 (Resolution), [February 10, 2021]

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MRM ASSET HOLDINGS 2 INC. VS. STANDARD CHARTERED BANK

 G.R. No. 202761 (Resolution), [February 10, 2021]

SECOND, LOPEZ, M.V

 

RTC as rehabilitation court; Judicial Review; Mootness; Moot and Academic Issue

 

A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value or use. The Court will refrain from delving into the merits of the case when legal relief was no longer necessary. Hence, Courts generally decline jurisdiction over such case or dismiss it on the ground of mootness. 

The case involves a complex financial arrangement between Standard Chartered Bank (SCB) and Lehman Brothers Holdings, Inc. (LBHI), leading to loans for Philippine Investment Two (PI Two). Due to LBHI's bankruptcy in the U.S., PI Two underwent rehabilitation. LBHI's bankruptcy triggered rehabilitation proceedings in the Philippines, where SCB intervened. Disputes arose, including SCB's alleged concealment of collaterals and a disagreement over SCB's representation in the Management Committee (ManCom). The Rehabilitation Court issued orders, including one directing SCB to surrender collaterals. The Court of Appeals (CA) later nullified these orders, leading to the current appeal. In CA level, SCB's was excluded from its list of creditor and rehabilitation proceedings are terminated. Despite these events, MRM persisted in seeking the surrender of pledged collaterals.

 

The main issues are whether the CA erred in nullifying the order for SCB to surrender collaterals and in reinstating SCB's membership in the ManCom.

NO. The Supreme Court dismissed the petition as moot and academic. The dissolution of the ManCom, SCB's exclusion as a creditor in the Rehabilitation Plan, and the termination of rehabilitation proceedings rendered the issues moot. The surrender of collaterals was also deemed moot due to a prior CA decision recognizing the sale or transfer of collaterals to another entity. The court declined to pass upon the merits, given the absence of legal relief necessity. The decision emphasized that exceptional circumstances or constitutional issues necessitate addressing moot cases, which were not present in this instance.

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Metropolitan Waterworks and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955, [January 13, 2021]

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Metropolitan Waterworks and Sewerage System v. Central Board of Assessment Appeals, G.R. No. 215955, [January 13, 2021]

SECOND, LOPEZ, M.V 

Local Taxation; Real Property Taxation; Remedies of Taxpayer in Local Tax Disputes (RPT); Exhaustion of Administrative Remedies

 

The tax-exempt status of a government instrumentality is not lost when it grants the beneficial use of its real property to a taxable person; only the exemption of the real property ceases in such case. Indeed, it is a fundamental principle in real property taxation that the assessment of real property shall be based on its actual use. The Court has consistently ruled that while the liability for taxes generally rests on the owner of the real property, personal liability for real property taxes may also expressly rest on the entity with the beneficial use of the real property at the time the tax accrues.

 

The case involves MWSS (Metropolitan Waterworks and Sewerage System) disputing the imposition of real property taxes by Pasay City for the taxable year 2008. Established by RA No. 6234 in 1971, MWSS was granted authority over waterworks and sewerage systems in Metro Manila, Rizal, and part of Cavite. In 1997, under RA No. 8041, MWSS entered a concessionaire agreement with Maynilad to service the West Zone, including Pasay City. Pasay City demanded P166,629.36 in real property taxes, prompting MWSS to protest, claiming exemption as a government instrumentality under the Local Government Code (LGC). The LBAA ruled against MWSS, asserting it is a government-owned corporation (GOCC) and subject to taxation. Despite acknowledging MWSS as a government instrumentality, the CBAA upheld the tax, arguing that MWSS's tax exemption under RA No. 6234 had been withdrawn by Section 234 of the LGC. The CA dismissed MWSS's appeal for failure to exhaust administrative remedies. Hence this petition. 

 

Whether it is correct to dismiss the appeal for failure to exhaust administrative remedies.

NO. The CA erred in dismissing MWSS's appeal solely on the ground of the alleged non-exhaustion of administrative remedies under the LGC. Administrative remedies are inapplicable when the issue presented is a pure question of law. A careful reading of MWSS's arguments and allegations reveals that it is assailing the authority of the city assessor and treasurer to assess and collect real property taxes against it. The issue of whether a local government is authorized to assess and collect real property taxes from a government entity is a pure question of law, which is beyond the LBAA and CBAA's jurisdiction. The protest contemplated under Section 252 of the LGC is required when there is question as to the reasonableness or correctness of the amount assessed, while an appeal to the LBAA under Section 226 is fruitful only where questions of fact are involved. When the very authority and power of the assessor to impose the assessment, and of the treasurer to collect real property taxes are in question, the proper recourse is a judicial action. Thus, despite the alleged non-exhaustion of administrative remedies, the Court gives due course to this petition on the ground that the controversy only involves a question of law.

 

Whether the City of Pasay is authorized to assess and collect real property taxes from MWSS.

NO. MWSS is a government instrumentality with corporate powers, not liable to the local government of Pasay City for real property taxes. The tax exemption that its properties carry, however, ceases when their beneficial use has been extended to a taxable person. The liability to pay real property taxes on government-owned properties, the beneficial or actual use of which was granted to a taxable entity, devolves on the taxable beneficial user. Beneficial use means actual use or possession of the property. Actual use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.

The respondents have not alleged that the beneficial use of any of MWSS’s properties was extended to a taxable person. In the absence of any allegation to the contrary, MWSS’s properties in Quezon City are not subject to the levy of real property taxes. Although there was an allegation that the beneficial use of MWSS's properties in Pasay were given to Maynilad by virtue of a concession agreement, this however, was not proved and was merely based on a sweeping conclusion that when MWSS entered into a concession agreement, all its properties were effectively turned over to the concessionaires for their operations. At any rate, the tax-exempt status of a government instrumentality is not lost when it grants the beneficial use of its real property to a taxable person; only the exemption of the real property ceases in such case.

Indeed, it is a fundamental principle in real property taxation that the assessment of real property shall be based on its actual use. The Court has consistently ruled that while the liability for taxes generally rests on the owner of the real property, personal liability for real property taxes may also expressly rest on the entity with the beneficial use of the real property at the time the tax accrues.

 

 

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