Professional Documents
Culture Documents
TRANSFER TAXATION
Transfer Taxes
2.
3.
Law applicable
Estate taxation is governed by the statute in
force at the time of the death of the decedent.
Reciprocity
2)
Transfer in contemplation of death
- A transfer with the thought of death.
a.)
b.)
c.)
d.)
e.)
f.)
g.)
Note:
The THREE (3) YEAR PRESUMPTION provides that
any transfer of a material part of his property in the
nature of a final disposition or distribution thereof made
by the decedent within three years prior to his death
without such adequate and full consideration shall,
unless shown to the contrary, be deemed to be have
been made in contemplation of death.
This provision, however, has been already deleted in
Sec. 100 (b) now sec. 85 (B) of the Tax Code by PD No.
1705.
Revocable transfer
5.)
Transfer for insufficient consideration
- A transfer that is not a bona fide sale of property for
an adequate and full consideration in money or
moneys worth. The excess of the fair market value
at the time of death over the value of the
consideration received by the decedent shall form
part of his gross estate.
Note:
In the determination of the gross estate, the nature of
the property, whether common property of the
spouses, separate or exclusive property either of the
deceased or of the surviving spouse, becomes of
vital importance.
RESIDENT DECEDENT
A. Ordinary Deductions (ELIT):
1) Funeral Expenses
- The amount deductible is equal to 5% of the gross
estate or the amount of the actual funeral expenses
whichever is lower, but in no case to exceed P200,000;
- Actual funeral expenses are those which were
actually incurred in connection with the interment or
burial of the deceased and paid for from the estate of
said deceased.
- Funeral expenses include:
a)
Costs of coffin, tombstone, mausoleum, and
burial lot;
b)
Funeral parlor fees;
c)
Mourning clothing of the surviving spouse
and the unmarried minor children;
d)
Costs of obituary notices; and
e)
Expenses during the wake.
- The following cannot be deducted under funeral
expenses:
a)
Cash advances of the surviving spouse and the
heirs;
b)
Expenses paid by the relatives and friends; and
c)
Expenses after the burial.
-
Requisites:
a) The expenses must be due to the interment, wake
and burial; hence, expenses on the death
anniversary are not included
b) The expenses must have been shouldered by the
estate and not by other people
2)
a)
b)
c)
d)
e)
f)
the
Note:
This includes all expenses necessary to settle or
preserve the estate hence, extrajudicial expenses are
included.
Expenses not essential to the proper settlement
of the estate but incurred for the individual benefit
of the heirs, legatees, or devisees are not allowed as
deductions.
- ex: expenses to be declared as administrator vs. an
oppositor is a personal expense
3)
Claims against the decedents estate
- Debts or obligations of the decedent that is enforceable
against the estate provided that the following requisites
are
met:
a) They were contracted in good faith and for an
adequate and full consideration in money or
moneys worth.
b) They must be existing against the estate.
c) They must be legally enforceable obligations of
the decedent and ought to be enforced by the
claimants.
d) They must be reasonably certain in amount; and;
e) At the time the indebtedness was incurred, the
debt instrument was duly notarized and if the
loan was contracted within three (3) years before
the death of the decedent, the administrator or
executor shall submit a statement showing the
disposition of the proceeds of the loan.
4) Claims against the insolvent persons
- Requisites for deductibility:
a) The amount of said claims has been initially
included as part of the gross estate; and
b) The incapacity of the debtors to pay their
obligations is proven and not merely alleged.
5) Unpaid mortgages indebtedness
- Requisites for deductibility:
Accommodated Loan
- Ex: X owns a house and lot worth 5M. Y obtained a 3M
loan from Z with Xs house and lot as collateral. Y paid
1M. Z died. X died.
Effect: Include in the gross estate of X the 5M as
receivable from Y (reason: right of reimbursement); and
claim as deduction the unpaid 2M.
6) Casualty Losses (TRECUSO)
- They include all losses incurred during the settlement
of the estate arising from fires, storms, shipwreck or
other casualties or from robbery, theft or
embezzlement.
- Requisites for deductibility:
a) Losses not compensated by an insurance or
otherwise;
b) Losses that were not claimed as a deduction for
income tax purposes; and
c) Losses incurred not later than the last day for
payment of the estate tax (6 months from death).
d) Include the worth of the property in the gross
estate
e) File a sworn declaration of the fact of loss within
45 days from its occurrence
7) Unpaid Taxes
- Unpaid income tax on income due or received
before death of the decedent, and real property
taxes, which have accrued prior to the death of the
decedent (real property taxes accrued at the
beginning of the year but may be paid before or at
the end of each quarter) are deductible.
-
a.
b.
- Rationale:
The deduction operates to ease the harshness of
successive taxation of the same property within a
relatively short period of time.
Requisites for deductibility:
1. The present decedent must have acquired the
property by inheritance or by donation.
2. The property must have been acquired within five
(5) years prior to the death of the present decedent
3. The property must have formed part of the gross
estate of the prior decedent if acquired by inheritance, or
the taxable gift of the donor if acquired by donation.
4. The estate tax or the donors tax, as the case may be,
must have been paid on the previous transfer.
5. The property must be identified as the one received
from the prior decedent or from the donor, as the case
may be.
6. The estate of the prior decedent must not have
previously availed of the vanishing deduction on the
subject property.
Procedure in computing vanishing deductions:
1. Value taken of property previously taxed
Less:Mortgage paid by the present decedent on
property previously mortgaged by prior decedent /
donor, if any (Ist deduction)
- Requisites to be deductible:
a. The family home must be the actual residential home
of the decedent and his family at the time of his
Conjugal
20 M lot
_______
20 M
Deductions
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1.
2.
3.
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Primarily Liable : Executor or administrator before delivery to any beneficiary of his distributive
shares. After due payment, the executor or
administrator shall be discharged from personal
liability.
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ESTATE TAX
Tax on the privilege to
transmit property upon
ones death
Tax rates are higher (5
to20)
Tax
exemption
is
P200,000.00
Notice
of
death
is
required
Extension of payment is
not provided
Extension of payment
may be granted by the
Commissioner of Internal
Revenue
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Stranger
1.) one who is not a :
(a) brother/sister (whole or half blood), spouse,
ancestor and lineal descendant
(b) relative by consanguinity in the collateral line
within the fourth degree of relationship
2.) donations made between individuals and business
organizations are considered donations to
strangers
3.) donations made between business organizations
are considered donations made to strangers
(RR 2-2003)
Note:
Only donations made to non-stock, non-profit
educational institutions are exempt from gift taxes as
although Article 14 of the Constitution states that
proprietary educational institutions may be given the
same privileges subject to a guideline; as a guideline, the
NIRC does not provide for such exemption to them.
2. Gifts made by a Non-Resident Alien
a.) Gifts made to or for the use of the National
Government or any entity created by of its
agencies which is not conducted for profit, or to
any political subdivision of the said government.
b.) Gifts in favor of educational, charitable, religious,
cultural or social welfare corporation, institution,
foundations trust or philanthropic organization,
research organization or institution; Provided, that
no more than 30% of said gifts shall be used by
such donee for administration purposes.
Note: doesnt include accredited NGO
Note:
1. Intangible personal property in the gross gift of a
NON-RESIDENT ALIEN donor shall be taxable in the
Philippines, if the PRINCIPLE OF RECIPROCITY is not
cognizable.
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D.
TAX
TREATMENT
OF
PROPERTIES
TRANSFERRED FOR LESS THAN FULL /
ADEQUATE CONSIDERATION
General Rule: The amount by which the FMV of the
property exceeded the value of the consideration shall
be deemed a gift
Exception: real properties classified as capital assets (not
used in business) as there were already subjected to
Capital Gains Tax
E.
TAX
TREATMENT
OF
POLITICAL
CONTRIBUTIONS
- any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes shall be governed by the Election Code; hence,
this is not subject to gift tax (report to COMELEC?)
F. TAX CREDIT FOR DONORS TAXES PAID TO A
FOREIGN COUNTRY
1. Donor was a Filipino citizen or resident alien, at the
time of foreign donation
2. Donors taxes of any character and description are
imposed and paid by the authority of a foreign
country.
Limitations:
H. VALUATION
- the gift tax is based on the fair market value of the gift
at the time it was given
I. LAW APPLICABLE
G. NET GIFT
- the total amount of gifts less the allowable deductions
and specific exemptions.
- the total net gifts made during the SAME calendar year
is used as basis for computing the donors tax
Formula:
Note:
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17
250,000
_______
250,000
* 30%
75,000
Note: Do not deduct the first 100,000 in case of doneerelatives as this is incorporated already in the table
under Section 99.
General Rule: H and W are considered separate and
distinct taxpayers for purposes of donors tax.
Exception: What was donated is a conjugal property and
only H signed. There is only one donor, without
prejudice to the right of W to question the validity of
the donation without her consent.
PROBLEMS
1. Donations made by X
January 300,000 to his brother
April 400,000 to his sister
August 500,000 to his mother
Compute donors tax:
a) For January donation
= 300,000 * (percentage in the 2 to 15% table) = tax
b) For April Donation
= (300,000 + 400,000) * (2 to 15% table) = tax
c) For August Donation
= (300,000 + 400,000 + 700,000) * (2 to 15% table)
= tax less tax paid for January and April
2. X wants to give Y 200,000, will there be tax savings to
X if he will donate one time the amount of 200,000 or
should he split by donating 100,000 on December 2007
and 100,000 on January 2008?
- It depends if X and Y are relative or not.
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Destination Principle
- Goods are destined to be consumed in the
Philippines
2.
Cross-border principle
- Goods going out of the Philippines shall not
be subjected to tax since these goods are not
destined to be consumed in the Phils.
A.
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a.
a. Composition Functions
- The Bureau of Internal Revenue shall
have a chief to be known as
Commissioner of Internal Revenue,
hereinafter
referred
to
as
the
Commissioner and four (4) assistant
chiefs to be known as Deputy
Commissioners. (Sec. 3, NIRC)
b. Powers and Duties
i. In general
-
b.
What
is
verification rule?
third-party
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Amendment of Returns
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g.
Power
to
prescribe
procedural/documentary requirements
the BIR has the power to prescribe the
manner of filing of a returns
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b.
b. power to abate
The BIR may abate or cancel tax liability
when:
For
other
cases,
a
minimum
compromise rate equivalent to forty
percent (40%) of the basic tax assessed.
a.
b.
a.
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Authority
to
Abate
and
Compromise Tax Liabilities (see
Sec.6 {f}{2}, 204 in relation to Rev.
Regs.30-2002 as amended by RR
No.8-2004)
2006
c. Kinds of Assessment
d. Statute of Limitation on Assessment of Internal
Revenue Taxes (Sections 203, 222, NIRC)
General rule (sec203)
Internal revenue taxes shall be assessed within
three years after the last day prescribed for the
filing of the return, and no proceeding in court
without assessment for the collection of sluch
taxes shall begun after the expiration of such
period.
Exceptions (sec.222)
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2.
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Compromise
B. After Payment
1. Refund (Section 229, NIRC)
The Legal Principle of quasi-contracts or solutio
indebiti (see Art. 2142 & 2154 of the Civil Code). The
Government is within the scope of the principle of solutio
indebiti. (CIR vs. Firemans Fund Insurance Co.)
a.
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i.
Is the taxpayer entitled to claim interest on the
refunded tax?
General Rule: The Government cannot be required to
pay interest on taxes refunded to the taxpayer, unless:
1. The Commissioner acted with patent arbitrariness
Arbitrariness presupposes inexcusable or obstinate
disregard of legal provisions. (CIR vs. Victorias Milling
Corp., Inc. L-19607, Nov. 29, 1966.)
2. In case of Income Tax withheld on the wages of
employees
Any excess of the taxes withheld over the tax due from
the taxpayer shall be returned or credited within 3
months from the fifteenth (15th) day of April. Refund or
credit after such time earn interest at the rate of 6% per
annum, starting after the lapse of the 3-month period to
the date the refund or credit is made (Sec 79 (c) (2) 1997
NIRC
b.
Other Remedies
1.
231)
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CASES:
REPUBLIC V. HIZON, DEC. 13, 1999
Revenue Adm. Order No. 10-95
specifically authorizes the Litigation and
Prosecution section of the Legal
Division of regional district offices to
institute the necessary civil and criminal
actions for tax collection. As the
complaint filed in this case was signed
by the BIRs Chief of Legal Division for
Region 4 and verified by the Regional
Director,
there
was,
therefore,
compliance with the law.
Sec. 7 of NIRC, authorizes the BIR
Commissioner to delegate the powers
vested in him under the pertinent
provision of the Code to any
subordinate official with the rank
equivalent to a division chief or higher.
CIR V. JAVIER, JULY 31, 1991
There was no actual intentional fraud in
filing the return. Private respondents
notation on the tax return was at most
an error or mistake of fact or law not
constituting fraud,
an invitation for
investigation and private respondent
had literally laid his cards on the table.
PNOC V. CA, APRIL 26, 2005
C. OVERVIEW OF REMEDIES (SECTION 205)
1. Tax Lien (Sec 219, NIRC)
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Compromise
CIR may compromise both civil and
criminal liability of the taxpayer.
REQUISITES:
1. The taxpayer have a tax liability
2. There must be an offer by the
taxpayer of an amount to be paid by
the taxpayer
3. There must be an acceptance by the
Commissioner or the taxpayer as
the case may be of the offer in the
settlement of the original claim
Grounds for compromise
1. A reasonable doubt as to the validity of
the claim against the taxpayer exists; or
2. The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax
Delinquent accounts
Cases under administrative protest
Cases disputed before the courts
Cases for collection already filed in courts
Criminal violations except those already filed,
and those involving fraud.
1.
2.
Limitations:
1. Minimum compromise rate:
a. 10% of the basic tax assessed in case of
financial incapacity.
b. 40% of basic tax assessed other cases.
2. Subject to approval of the Evaluation Board
a. When basic tax involved exceeds
P1,000,000.00 or
b. Where settlement offered is less than the
prescribed minimum rates.
Delegation of Power to Compromise
General Rule: The power to compromise or abate shall
not be delegated by the commissioner.
Exception:
The Regional Evaluation Board may
compromise the assessment issued by the regional
offices involving basic taxes of P 500,000.00 or less.
Remedy in case of failure to comply:
The CIR may either:
a. Enforce the compromise, or
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Where to be sold:
a. Public sale: provided, there is notice
given not less than 20 days.
b. Private sale: provided, it is with the
approval of the Secretary of Finance.
Right of Redemption:
a. Personal entitled taxpayer or anyone
for him
b. Time to redeem within one (1) year
from forfeiture
c. Amount to be paid full amount of the
taxes and penalties, plus interest and
cost of the sale
d. To whom paid Commissioner or the
Revenue Collection Officer
e. Effect of failure to redeem forfeiture
shall become absolute.
NOTE:
The Register of Deeds is duty bound to transfer
the title of property forfeited to the government
with out necessity of an order from a competent
court.
7. Suspension of Business Operations
8. Enforcement of Administrative Fines
D. ADMINISTRATIVE REMEDIES IN DETAIL
(SECS. 206-217, NIRC)
A. DISTRAINT - Seizure by the government of
personal property, tangible or intangible, to enforce the
payment of faces, to be followed by its public sale, if the
taxes are not voluntarily paid.
KINDS
a. Actual There is taking of possession of personal
property out of the taxpayer into that of the government.
In case of intangible property, taxpayer is also diverted
of the power of control over the property.
b. Constructive The owner is merely prohibited from
disposing of his personal property.
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Amount Involved
In
excess
of
P1,000,000.00
P1,000,000.00 or
less
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NOTE:
1. It is the duty of the Register of Deeds concerned
upon registration of the declaration of forfeiture,
to transfer the title to the property with out of an
order from a competent court
2. The remedy of distraint or levy may be repeated
if necessary until the full amount, including all
expenses, is collected.
C. GARNISHMENT
Bank Accounts garnishment
1. Serve warrant upon taxpayer and president, manager,
treasurer or responsible officer of the bank.
2. Bank shall turn over to CIR so much of the bank
accounts as may be sufficient.
2.
3.
When:
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BIR
NOTE:
When should it commence: The five (5) year
prescriptive period shall begin to run from the
a. If known, day of the commission of the
violation.
b. If not known, from the time of discovery and
the institution of judicial proceeding for its
investigation and punishment.
When is it interrupted:
a. When a proceeding is instituted against the
guilty person
b. When the offender is absent from the
Philippines.
When should it run again:
When the
proceeding is dismissed for reason not
constituting jeopardy.
Where to file
1) Court of Tax Appeals- on criminal offenses arising
from violations of the NIRC or TCC and other laws
administered by the BIR and the BOC, where the
principal amount of taxes and fees, exclusive of charges
and penalties claimed is P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on criminal offenses arising
from violations of the NIRC or TCC and
other laws administered by the BIR and the BOC, where
the principal amount of taxes and fess
exclusive of charges and penalties claimed is less than
P1,000,000.00 or where there is no specified amount
claimed (Sec 7[b], RA 9282)
CASES:
REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval of
filing of civil and criminal actions)
Revenue Adm. Order No. 10-95 specifically
authorizes the Litigation and Prosecution
section of the Legal Division of regional district
offices to institute the necessary civil and
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constituting fraud,
an invitation for
investigation and private respondent
had literally laid his cards on the table.
2. INTEREST- This is an increment on any
unpaid amount of tax assessed at the rate of 20% per
annum or such higher rate as may be prescribed
by the regulations from the date prescribed for
payment until the amount is fully paid.
Classes of interest
1.
2.
3.
Deficiency interest
Delinquency interest
Interest on extended payment
Deficiency interest
b.
Delegated Power
i. City of San Pablo Laguna vs. Reyes,
March 25, 1999
The power to tax is primarily vested in
Congress. However, in our jurisdiction,
it may be exercised by local legislative
bodies, no longer merely by virtue of a
valid delegation as before, but pursuant
to direct authority conferred by Section
5, Article X of the Constitution. The
important legal effect of Section 5 is that
henceforth, in interpreting statutory
provisions on municipal fiscal powers,
doubts will have to resolved in favor of
municipal corporations.
ii. Meralco vs. Province of Laguna, May 5,
1999
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3.
2.
xxx
xxx
xxx
4.
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5.
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3.
Municipalities
i. Business permit
ii. Community Taxes
iii. May levy taxes, fees, and charges not
otherwise levied by provinces (Sec. 142)
Seizure
b.
c.
Publication
e.
Procedure of sale
f.
Disposition of proceeds
a.
ADMINISTRATIVE
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assessment by administrative or
judicial action
c.
OTHER PROVISIONS
Accrual of the tax (Sec. 166, LGC)
a.
ADMINISTRATIVE
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b. JUDICIAL
Governing Law
Historical Background:
1.
Commonwealth Act No. 470 Old
Assessment Law
- since 1920
2. Real Property Tax Code (Presidential Decree
No. 464, as amended)
- June 1, 1974
3. Local Government Code (Republic Act No.
7160)
- January 1, 1992
- The changes however were only on the
tax rate ceilings and assessment
levels.
The Local Government Code covers the
administration, appraisal, assessment, levy
and
collection of Real Property Tax, i.e. tax on land and
building and other
structures and improvements
on it, including machineries. (Subject to the definition
given by Art. 415 of the New Civil Code)
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otherwise
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improving, utilizing, or
Note:
Incidental
exemptions
promulgated prior to 1987 Constitution
meant, primarily used for the purposes
even if not solely.
CASES:
1.
In MIAA v. Paranaque, July 20,
2006, the Court declared the Airport
Lands and Buildings of the Manila
International Airport Authority exempt
from the real estate tax imposed by the
City of Paraaque. The Court declared
void all the real estate tax assessments
issued by the City of Paraaque on the
Airport Lands and Buildings of the
MIAA, except for the portions that the
MIAA has leased to private parties. The
Court based its ruling under Section
2(10) and (13) of the Introductory
Provisions of the Administrative Code,
which governs the legal relation and
status of government units, agencies
and
offices
within
the
entire
government machinery, under which
MIAA is a government instrumentality
and not a government-owned or
controlled corporation. Under Section
133(o) of the Local Government Code,
MIAA as a government instrumentality
is not a taxable person because it is not
subject to "[t]axes, fees or charges of any
kind" by local governments. The only
exception is when MIAA leases its real
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Values.
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Assessment
Assessed Value
Level
Pxxx
LGC)
a.
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Assessment
- the act or process of determining the value of a
property, or proportion thereof subject to tax, including
the discovery, listing, classification, and appraisal of
properties.
Appraisal
- the act or process of determining the value of property
as of a specific date for a specific purpose.
For Land
1. Assessor of the province/city or municipality may
summon the owners of the properties to be affected and
may take depositions concerning the property, its
ownership amount, nature and value. (sec. 213,LGC)
2. Assessor prepares a schedule of FMV for different
classes of properties.
3. Sanggunian enacts an ordinance.
4. The schedule of FMV is published in a newspaper of
general circulation in the province city or municipality
concerned or in the absence thereof shall be posted in
the provincial capitol city or municipal hall places
therein (Sec. 212, LGC)
1.
Procedure
1. take the schedule of FMV (Fair Market Value)
2. Assessed value = FMV x Assessment level
3. Real Property Tax = Assessed value x Allowable Real
Property Tax rate
4.Enactment of a Real Property Tax Ordinance
2.
3.
4.
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infrastructure
project
financed
by
government whereby real property owners
benefit from it
not more than 60% of actual cost of
project
not less than five but not more than ten
years
thru an ordinance
a. nature of project
b. extent of project
c. cost spent
d. metes and bounds
Procedure:
a.hearing and modification of prepared schedule
b.publication
c.adoption of the schedule
d.adoption of real property ordinance with
assessment levels
2. Special levies:
a. Special Education Fund (SEF)
- 1% additional real estate tax to finance the SEF
(Sec.236) within MM area only
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