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2014 Notes on Local Taxes for Jurists Bar Review Center by Atty.

Eric Recalde
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JURISTS BAR REVIEW CENTER
Local Taxes
By:
Eric R. Recalde
(The Philippine Local Tax and Tariff and Customs Laws)

Local Taxes
Source of authority
Principles, guidelines and limitations
Fundamental principles
Common limitations
Allocation of taxes among LGUs
Procedure for enactment of a revenue ordinance

Source of Authority
Constitution

SECTION 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.



2014 Notes on Local Taxes for Jurists Bar Review Center by Atty. Eric Recalde
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Local Government Code

SECTION 132. Local Taxing Authority. - The power to impose a
tax, fee, or charge or to generate revenue under this Code shall
be exercised by the sanggunian of the local government unit
concerned through an appropriate ordinance.


Fundamental Principles
SECTION 130. Fundamental Principles. - The following
fundamental principles shall govern the exercise of the taxing
and other revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government
unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on
the taxpayer's ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or
confiscatory;
(4) not be contrary to law, public policy, national
economic policy, or in the restraint of
trade;

(c) The collection of local taxes, fees, charges and other
impositions shall in no case be let to
any private person;

2014 Notes on Local Taxes for Jurists Bar Review Center by Atty. Eric Recalde
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(d) The revenue collected pursuant to the provisions of
this Code shall inure solely to the
benefit of, and be subject to the disposition by, the
local government unit levying the tax,
fee, charge or other imposition unless otherwise
specifically provided herein; and,

(e) Each local government unit shall, as far as practicable,
evolve a progressive system of taxation.

Common limitations
Common limitations
Common limitations
Common limitations
Common limitations

Cases to Note

First Philippine Industrial Corporation v. CA, et.al. (1998)
an operator of oil pipelines is a common carrier
Petron Corporation v. Tiangco, et.al. (2008)
while taxes on petroleum products are also considered as excise taxes under Section
148 of the NIRC, they are given special treatment under the Local Government Code

Province of Bulacan, et.al. v. CA, et.al (1998)
an LGU cannot impose tax on quarry resources extracted from private lands
pursuant to Section 186
Batangas Power Corporation v. Batangas City (2004)
the 6-year tax holiday should commence not on the date of actual commercial
operations but on the date of BOI registration
Palma Development Corporation v. Municipality of Malangas, Zamboanga Del Sur
(2003)
While the LGU has the authority to levy fees on vehicles using its roads, it has no
authority to levy fees on goods that are being transported by vehicles
Land Transportation Office v. City of Butuan (2000)
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the delegated powers to LGUs under Section 458 of the Local Government Code
pertained to the franchising and regulatory powers exercised by the Land
Transportation Franchising and Regulatory Board. They did not include LTOs
functions relative to the registration of, and issuance of licenses to drive, motor
vehicles.
National Power Corporation vs Provincial Government of Bataan, et.al. (2014)
By virtue of the EPIRA, the NPC has ceased to operate a franchise in Bataan that has
been subject to the tax in issue; a local franchise tax is imposed on the privilege of
operating a franchise, not a tax on the ownership of transmissions facilities
The Province cannot levy on the transmission facilities to satisfy the tax assessment
against the NPC since, per Section 8 of the EPIRA, the same have ceased to be
owned by the NPC and now owned by Transco; the tax is solely collectible from
PSALM corporation

Allocation of Taxes Among LGUs

Provinces/Cities (LGC, Secs. 135-141, 151)
Tax on transfer of real property ownership
Tax on business of printing and publication
Franchise tax
Tax on the extraction of sand, gravel and other quarry
resources
Professional tax
Amusement tax
Fixed tax on delivery trucks/vans

Allocation of Taxes Among LGUs

Municipalities/Cities (LGC, Secs. 143, 147, 148, 149, 151)
Business tax
License fees and charges
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Fees for the sealing and licensing of weights and measures
Rentals, fees or charges on the grant of fishery privileges in the
municipal waters
Community tax
Barangays (LGC, Sec. 152)
Taxes on stores or retailers
Service fees or charges
Fees for issuance of barangay clearances

Common Revenue-Raising powers (LGC, Secs. 153-155)
Service fees and charges
Public utility charges
Toll fees or charges
Community Tax(LGC, Secs. 156-159)

Residual Taxing Power of LGUs

Constitutional limitations
Common limitations
Fundamental principles
Prior public hearing requirement (LGC, Sec. 186)
Publication requirement
Authority to adjust rates of tax ordinances (once every 5
years; maximum of 10% limit)

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Cases to Note

National Power Corporation v. City of Cabanatuan (2003); National Power
Corporation v. Province of Isabela (2006)
GOCCs exercising their respective franchises are subject to local franchise tax
City Government of San Pablo, Laguna, et.al., v. Reyes, et.al. (1999); Manila Electric
Company v. Province of Laguna, et.al., (1999)
the in lieu of all taxes clause in legislative franchises granted prior to the effectivity
of the Local Government Code has been impliedly repealed by Section 137 in
conjunction with Section 193 of the Local Government Code
Philippine Long Distance Telephone Company, Inc. v. City of Davao, et.al.
(2001)(2003); Philippine Long Distance Telephone Company v. City of Bacolod
(2005); Philippine Long Distance Telephone Company v. Province of Laguna (2005);
Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan
(2007); Digital Telecommunications Philippines, Inc., (Digitel) v. City Government of
Batangas, et al, (2008); SMART v. City of Davao, (2008)(2009); City of Iloilo v. Smart
Communications, Inc., 2009)
The equality clause under Section 23 of the Public Telecoms Act pertains merely to
an exemption from regulatory or reporting requirements and not to an exemption
from the grantee's tax liability
The in lieu of all taxes clause in a legislative franchise must provide a categorical
and encompassing grant of tax exemption from both national and local taxes. Any
uncertainty as to the coverage of such in lieu of all taxes must be construed strictly
against the franchise holder which claims the exemption.

Cases to Note

Radio Communications of the Philippines, Inc.(RCPI) v. Provincial Assessor of
South Cotabato, et. al., (2005); Quezon City and The City Treasurer of Quezon City, v.
ABS-CBN Broadcasting Corporation (2008)
the existing legislative policy is clearly against the revival of the "in lieu of all taxes"
clause in franchises of telecommunications companies
Lepanto Consolidated Mining Co. v. Ambanloc (2010)
the issue on whether Lepanto was liable for the tax imposed by the Province of
Benguet on the sand and gravel that it had extracted from within the area of its
mining claim and used exclusively in its mining operations should be determined
based on the LGUs implementing revenue code
Section 138 is simply the general law that delegated to provinces the power to
impose taxes on the extraction of quarry resources
Philippine Basketball Association v. CA, et.al., (2000)
professional basketball games are not within the scope of "other places of
amusement under Section 140
Pelizloy Realty Corporation vs. The Province of Benguet (2013)
Resorts, swimming pools, bath houses, hot springs and tourist spots do not belong
to the same category or class as theaters, cinemas, concert halls, circuses, and
boxing stadia. They cannot be considered as among the other places of
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amusement contemplated by Section 140 of the LGC and which may properly be
subject to amusement taxes.

Cases to Note

Philippine Petroleum Corporation v. Municipality of Pililia (1991)
A business tax is distinct from a tax on the article itself
Ericsson Telecommunications, Inc. v. City of Pasig (2007)
gross receipts, as used in the Local Government Code, included money or its equivalent
actually or constructively received in consideration of services rendered or articles sold,
exchanged or leased, whether actual or constructive
The imposition of local business tax based on Ericsson's gross revenue would inevitably
result in double taxation, inasmuch as its revenue or income for a taxable year would
definitely include its gross receipts already reported during the previous year and for which
local business tax has already been paid
Yamane v. BA Lepanto Condominium Corporation (2005)
condominium corporations are generally exempt from local business taxation, unless the
unit owners of a condominium would band together to engage in activities for profit under
the shelter of the condominium corporation
City of Manila vs. Coca-Cola Bottlers Philippines, Inc. (2009)
There is double taxation if the taxpayer is subjected to the taxes pursuant to different provisions of
an ordinance, i.e., where one provision is levied pursuant to Section 143 (a) and another provision is
levied pursuant to Section 143(h) of the Local Government Code.
Mobil Philippines, Inc. v. City Treasurer of Makati, Mobil Philippines, Inc. v. City
Treasurer of Makati (2005)
When the taxpayer retires or terminates its business within the LGU and the tax already paid
based on the previous years gross sales or receipts be less than the tax due for the current
year based on the taxpayers gross sales or receipts as of the date of the retirement or
termination from business, the difference in the amount of the tax shall be paid before the
business is considered officially retired or terminated
If the amount paid is more than the amount computed based on the taxpayers actual gross
sales for prior year, the taxpayer upon its retirement is not liable for additional taxes

Cases to Note
Angeles University Foundation vs. City of Angeles (2012)
The tax exemption under Sec. 8 of R.A. No. 6055 (an act that grants tax exemptions to
educational foundations) does not cover the exemption from regulatory fees, such as
building permit and related fees imposed pursuant to the National Building Code

City of Manila vs. Coca-Cola Bottlers Philippines, Inc. (2009); Swedish Match Philippines, Inc
vs. City Treasurer of Manila (2013)
There is double taxation if the taxpayer is subjected to the taxes pursuant to different
provisions of an ordinance, i.e., where one provision is levied pursuant to Section 143 (a)
and another provision is levied pursuant to Section 143(h) of the Local Government Code.

Smart Communications, Inc. vs Municipality of Malvar, Batangas (2014)
The fees imposed under Ordinance No. 18 are not taxes since its purpose is to regulate the
enumerated activities particularly related to the construction and maintenance of various
structures; while the fees may contribute to the revenues of the LGU, this effect is merely
incidental
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The regulation of the installation and maintenance of such physical structures is an exercise
of the police power of the Municipality and does not encroach on NTCs regulatory powers


Cases to Note
Shell Company of the Philippines, Ltd. v. Municipality of Sipocot (1959)
the LGU which has jurisdiction over the place where the contract was perfected could not
impose the corresponding tax if its consummation (i.e., delivery of its object and payment)
took place at some other locality
Philippine Match Co., Ltd. v. City of Cebu (1978)
An LGU may tax the sale of the article if: (a) the sale was booked and paid in the branch
located in such LGU; and (b) the sale was delivered to the customers carrier likewise in the
same LGU. It is immaterial if the carrier later delivered the article to the customer outside of
such LGU since delivery to the carrier is delivery to the buyer.
Note: Article 243(b)(1) & (2) of the IRR provide that the business tax due shall accrue and be paid
to the city or municipality where the sale or transaction is recorded. Such recording, in turn, should
be done:
in the branch or sales outlet where the sale or transaction is made (i.e., consummated)
in cases where there is no branch or sales outlet, in the principal office
Iloilo Bottlers, Inc. v. City of Iloilo (1988)
When the company distributes its softdrinks by means of a fleet of delivery trucks which go
directly to customers in different places, sales transactions with customers are entered into
and sales are perfected and consummated by the route salesmen. Truck sales are made
independently of transactions in the main office. The company shall be considered engaged
in the separate business of selling and distributing softdrinks independently of its business of
bottling them.
Article 243(d) of the IRR now provides the following rules with regard to the sales made by
route trucks, vans or vehicles:
For route sales made in a locality where a manufacturer, etc. has a branch or sales
office or warehouse, the sales are recorded in the branch, sales office or warehouse
and the tax due thereon is paid to the LGU where such branch, sales office or
warehouse is located;
For route sales made in a locality where a manufacturer, etc has no branch, sales
office or warehouse the sales are recorded in the branch, sales office or warehouse
from where the route trucks withdraw their products for sale, and the tax due on such
sales is paid to the LGU where such branch, sales office or warehouse is located;

Remedies
Payment of Taxes
On or before January 20 or first 20 days of each quarter
2% interest/month (maximum of 36 months)
5/10-year prescriptive period (LGC, Sec. 194)
For questioning validity of revenue ordinance (LGC, Sec. 187)
30/120/30-day period
For questioning assessment (LGC, Sec. 195)
60/60/30-day period
For refund (Section 196)
Pay under protest within 60 days, then appeal within 2-year period(LGC, Secs. 195, 196); or
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File administrative and judicial claim within 2-year period (LGC, Sec. 196)
Reckoning date of the 2-year period: from the date of payment of the tax, or from the date the
taxpayer becomes entitled to the refund or credit, whichever comes earlier


Cases to Note
Palma Development Corporation v. Municipality of Malangas, Zamboanga Del Sur (2003)
The levy of a service fee imposed on vehicles using municipal roads leading to the wharf is
valid. Any other form of imposition on goods passing through the territorial jurisdiction of the
municipality is prohibited by Section 133(e)
Drilon v. Lim, et.al. (1994)
Under Section 187, the Secretary of Justice is only permitted to ascertain the
constitutionality or legality of the tax measure. He has no right to declare that, in his opinion,
the revenue measure is unjust, excessive, oppressive or confiscatory.
J ardine Davies Insurance Brokers, Inc. v. Aliposa (2003)
A taxpayers failure to appeal to the Secretary of Justice within 30 days from the effectivity
of a revenue ordinance bars the subsequent protest and/or claim for refund on the ground of
its invalidity. Such failure is fatal to the taxpayers claim, even if other taxpayers have
questioned the same ordinance with the Secretary of Justice. As long as the revenue
ordinance has not been declared to be invalid with finality, the taxpayer who did not earlier
question the same before the Secretary of Justice may not assail it in a subsequent protest
and/or claim for refund
Reyes v. CA (1999)
Section 187 is given for compliance as a prerequisite before seeking redress in a competent
court. The statutory periods are set to prevent delays as well as enhance the orderly and
speedy discharge of judicial functions.
Estanislao v. Costales (1991)
Compliance with the 120-day period is directory. Even if the Secretary of Finance failed to
review or act on the questioned revenue ordinance within the prescribed period, it would not
follow that an otherwise invalid revenue ordinance may be validated. The law did not
suggest that the Secretary of Finance could no longer act by suspending and/or revoking an
invalid revenue ordinance even after the lapse of the prescribed period.

Cases to Note

Yamane v. BA Lepanto Condominium Corporation (2005)
the review taken by the RTC over the denial of the protest by the local treasurer would fall
within that court's original jurisdiction. In short, the review is the initial judicial cognizance of
the matter.
the Local Government Code does not expressly confer appellate jurisdiction on the part of
regional trial courts from the denial of a tax protest by a local treasurer. Unlike in the case of
the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial
Courts over rulings made by non-judicial entities
Valley Trading Co, Inc., v CFI of Isabela, et.al (1989)
the absence of prohibition in the Local Government Code to enjoin the collection of local
taxes could not negate the procedural rules and requirements under Rule 58. The issuance
of a writ of preliminary injunction was addressed to the sound discretion of the court,
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conditioned on the existence of a clear and positive right of the movant which should be
protected

Angeles City v. Angeles City Electric Corporation (2010)
A writ of injunction may be granted if the taxpayer may show that it has a clear and
unmistakable legal right over the properties to be levied and that it would sustain serious
damage if these properties, which were vital to its operations, would be sold at public
auction
The City Government of Quezon City, et.al., v. Bayan Telecommunications, Inc. (2006)
if the payment of the tax would cripple the business operation of the taxpayer, the writ of
injunction may be issued (assuming the other requirements for the writs issuance are
present).