Sections 195 (Protest of Assessment) and 196 (Claim for Refund of Tax Credit) of the Local Government Code (LGC) provide avenues for obtaining refunds of local taxes.

Section 195 states that within 60 days from receipt of the notice of assessment, the taxpayer may file a written protest against the notice of assessment. If the taxpayer paid under protest, a refund becomes necessary should the protest prove meritorious. Section 196, on the other hand, grants the taxpayer two years to file both administrative and judicial claims for refund.

Jurisprudence has established that when a notice of assessment is issued, the taxpayer cannot choose to pay the assessment and subsequently seek a refund at any time within the two-year period suggested by Section 196. If pursuing a refund, the taxpayer must first administratively question the validity or correctness of the notice of assessment within 60 days from receipt. Otherwise, the notice of assessment becomes final and executory.

Does the same rule apply when the assessment is invalid? The Supreme Court addressed this question in Jose v. Tigerway Facilities and Resources Inc.

In this case, during its application for a business permit, the taxpayer was assessed for deficiency local and business taxes, which it promptly paid. However, the taxpayer was later assessed again for deficiency in local and business taxes based on findings from an alleged ocular inspection of its premises. This ultimately led to an Order of Payment issued on 29 December 2005, demanding payment of deficiency business taxes. The taxpayer settled the payment on the same date.

On 27 December 2007, the taxpayer filed a written claim for refund or credit with the City Treasurer, arguing that the additional assessment lacked factual and legal basis. The following day, the taxpayer initiated a judicial claim for refund under Section 196 of the LGC. The claim was opposed on grounds of being filed out of time, as the taxpayer failed to protest the Order of Payment dated 29 December 2005 within 60 days of receipt.

The lower courts ruled the assessment invalid for failing to state its factual and legal basis. The Supreme Court upheld these rulings in favor of the taxpayer. It held that when seeking a refund under Section 195 of the LGC, the assessment notice from the local treasurer must contain the factual and legal basis for the assessment. Without these, there would be no valid tax assessment to contest. Consequently, the provisions of Section 196 of the LGC would apply. Since the taxpayer filed both its administrative and judicial claims for refund within two years from payment of the additional assessment, the claims were filed within the prescribed period.

The Supreme Court further emphasized that assessments lacking factual and legal basis violate taxpayers’ right to due process and are therefore null and void, with no force or effect.

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