Tax Digests for Sept 12, 2011

NAPOCOR VS. CITY OF CABANATUAN FACTS: NAPOCOR, the petitioner, is a government-owed and controlled corporation tasked to undertake the development of hydroelectric generations of power and the production of electricity as well as, the transmission of electric power on a nationwide basis. NAPOCOR sells electric power to the residents of Cabanatuan City, posting a gross income of P107M in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent City of Cabanatuan assessed NAPOCOR a franchise tax amounting to P808K, representing 75% of 1% of the formers gross receipts for the preceding year. NAPOCOR refused to pay the tax assessment alleging that respondent City has no authority to impose tax on government entities, and that they are exempt from payment of all forms of taxes, charges and fees as it was a non-profit organization. Respondent City filed a collection suit demanding that NAPOCOR pay the assessed tax, plus surcharge and 2% monthly interest, alleging that petitioners exemption from local taxes has already been appealed by Sec. 193 of the LGC which basically states that tax exemption presently enjoyed by all persons are withdrawn. Trial court dismissed the case. CA reversed ISSUES: (1) Is NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a non-profit organization? (2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)? HELD: (1) NO. First, it is important to define franchise as used in the LGC. A franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, by virtue of duly approved articles of incorporation, or a charter pursuant to a special law creating the corporation. The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself. On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires.The rights under a secondary or special franchise are vested in the corporation. To stress, a franchise tax, as used in the LGC, is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. To determine whether the petitioner NAPOCOR is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in a secondary sense; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. In this case, petitioner NAPOCOR fulfills the first requisite. CA 120, creating the NAPOCOR, serves as its charter defining its composition and vesting in it powers not available to ordinary corporations. It likewise fulfills the second requisite. From its operations in the City of Cabanatuan, petitioner realized a gross income of P107M in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the franchise tax in question. The contention of petitioner that it is excluded from the coverage of franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized it as a "nonprofit" organization must necessarily fail. By virtue of its charter, petitioner NAPOCOR was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code. To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. (2) YES. Petitioner's contention that its tax exemptions under its charter subsist despite the passage of the LGC is untenable. As a rule, rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions.In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities." However, by the passage of the LGC, the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation has been removed. In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question. PLDT VS. CITY OF BACOLOD FACTS: PLDT is a holder of a legislative franchise under Act No. 3436, to render local and international telecommunications services. Subsequently, the conditions of its franchise were consolidated with RA 7082, whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be in lieu of all taxes. Meanwhile, the LGC took effect, granting cities and other local government units the power to impose local franchise tax on businesses enjoying a franchise. It likewise provided that all tax exemption privileges then enjoyed by all persons were withdrawn, necessarily including those taxes from which PLDT is exempted under the in-lieu-of-all-taxes clause in its charter. To level the playing field among telecommunication companies, Congress enacted RA 7925 (Public Telecommunications Policy Act), where Sec. 23 thereof or the most favored treatment clause provides for an equality of treatment in the telecommunications industry. Respondent City of Bacolod, made an assessment on PLDT to pay franchise tax due to it. PLDT complied therewith. However, due to a ruling issued by the DOF stating that PLDT, among other

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telecommunication companies, became exempt from local franchise tax, PDT stopped paying the local franchise and business tax to respondent City. PLDT filed a protest and asking for a refund of the local franchise tax it previously paid. Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a regulatory measure in nature. ISSUE: Whether or not respondent judge erred in ruling ordinance 6537 and violated the cardinal rule of uniformity of taxation, the principle against undue designation of legislative power, and due process and equal protection clauses of the Constitution HELD: Ordinance No. 6537 is not principally a regulatory measure. While the first part thereof requires alien to secure an employment permit, the second part required the payment of employment which is not regulatory but a revenue measure. The P50 fee is unreasonable as it is excessive an fails to consider substantial differences in situations among aliens. It is collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive. It likewise fails to lay down any criterion to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to guide or limit the mayor's action, expresses and entirely lacks standard, such is invalid. The ordinance in question violates the due process of law and equal protection rule of the Constitution. PROGRESSIVE DEVT CORP. VS. QUEZON CITY The City Council of Respondent Quezon City adopted Ordinance NO. 7997 or the Market Code of QC which provided that a (5 %) tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City is imposed as supervision fee. Petitioner, owner and operator of a public market named Farmers Market & Shopping Center" filed a petition for prohibition against respondent on ground that the supervision or license tax is in reality a tax on income which respondent may not impose. Respondent City contended that the tax imposed therein is not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular trade or business which was within the power of respondent to impose. ISSUE: Whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively, of a license fee? HELD:

ISSUE: Whether or not Sec 23 of Rep. Act No. 7925, also called the mostfavored-treatment clause, operates to exempt petitioner PLDT from the payment of franchise tax imposed by the respondent City of Bacolod? HELD: NO. Sec 23 does not operate to exempt PLDT from the payment of franchise tax imposed upon it by the City of Bacolod since it does not appear that Congress intended such to operate as a blanket tax exemption. Sec 23 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. Tax exemptions are highly disfavored and are interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Thus, tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. In the case at bar, the term exemption in Sec 23 of RA 7925 does not mean tax exemption, rather exemption from certain regulations and requirements imposed by the National Telecommunications Commission (NTC).

VILLEGAS VS. HIU CHIONG TSAI

Ordinance No. 6537 was passed by the Municipal board of Manila signed by Petitioner Mayor Villegas. Section 1 thereof prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. Respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void on ground that it was discriminatory and violative of the rule of uniformity in taxation; that it violates the fundamental principle on illegal delegation of legislative powers as it fails to prescribe any standard to guide and/or limit the action of the Mayor; and it is arbitrary, oppressive and unreasonable. The TC issued the writ of preliminary injunction and declared the said Ordinance null and void.

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Pursuant to Sec 12, Art II of RA 537, the Revised Charter of QC grants the QC City Council not only to regulate and fix the license fee, but also to tax. Moreover, RA 2264 of the Local Autonomy Act confers upon local governments broad taxing authority extending to almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public purposes, just and uniform," does not transgress any constitutional provision and is not repugnant to a controlling statute. Both the Local Autonomy Act and the Charter of respondent clearly show that respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned public market. The term "tax" frequently applies to all kinds of exactions of monies which include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes. However, to be more specific, license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350 by respondent's local legislative body authorizing petitioner to establish and operate a market with a permit to sell foodstuffs. The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City." The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to and inviting the patronage of the general public, even though privately owned, petitioner's operation thereof required a license issued by the respondent City, the issuance of which was done principally in the exercise of the respondent's police power. Thus, the imposition of (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax, but rather a license tax or fee for the regulation of the business in which the petitioner is engaged. Local governments are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates. Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel the Court to characterize the imposition as a revenue measure exclusively. MOBIL PHIL. VS. CITY TREASURER OF MAKATI FACTS: Mobil Phil is a corporation engaged in the manufacturing and sale of petroleum products. The City Treasurer of Makati is in charge of the implementation of the Citys revenue code and collection of local taxes. Mobil filed an application with the City treasurer for retirement of its business in Makati City as it moved its principal place of business to Pasig along with a declaration of its gross sales receipts. The respondent issued Mobil a billing slip with an assessment of taxes to be paid. Mobil paid under protest. City treasurer issued an OR and approved the application for retirement. Thereafter, Mobil filed a claim for refund. The City treasurer denied the claim. The relevant law provision of the Revenue code provides that a person or entity doing business shall be subject to business tax. The tax shall be fixed by the quarter. The initial tax for the quarter in which a business starts to operate shall be two and one-half percent (2%) of one percent (1%) of its capital investment. Thereafter, the tax shall be computed based on the gross sales or receipts of the preceding quarter. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross sales or receipts for the preceding calendar year. That tax shall accrue on the first day of January of each year and payment shall be made within the first 20 days of January or of each subsequent quarter as the case may be. Respondent argues since the business tax accrues only on the first day of January and becomes payable within the first 20 days thereof or of each subsequent quarter, the payments made by Mobil in the year 1998 are therefore payments for the business tax for 1997 which accrued in January of 1998 and became payable within the first 20 days of January or of each subsequent quarter. Thus, upon retirement in August 1998, the taxes for said year which should accrue in January 1999 became immediately payable before the application for retirement can be approved. Hence, the assessment does not constitute double taxation. On the other hand, Mobil contented that the 1997 gross sales/revenue is merely the basis for the amount of business taxes due for the privilege of carrying on a business in the year when the tax was paid. ISSUE: Whether the assessment constitutes double taxation? (alternatively, are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998?) HELD: YES. Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a business in the year the tax was paid. It is paid at the beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business.

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Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a persons income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one taxable year. It is due on or before the 15th day of the 4th month following the close of the taxpayers taxable year and is generally regarded as an excise tax, levied upon the right of a person or entity to receive income or profits. In this case, Respondent is wrong when it said that the payments made by petitioner in 1998 are payments for business tax incurred in 1997 which only accrued in January 1998. Likewise, it erred when in making petitionerliable for business taxes based on its gross income/revenue for January to August 1998. Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the previous years figures. A newly-started business is already liable for business taxes at the start of the quarter when it commences operations. In computing the amount of tax due for the first quarter of operations, the business capital investment is used as the basis. For the subsequent quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. In the following year(s), the business is then taxed based on the gross sales or receipts of the previous year. The business taxes paid in the year 1998 is for the privilege of engaging in business for the same year, and not for having engaged in business for 1997. Also, if found that the retirement or termination of the business is legitimate, [a]nd the tax due therefrom be less than the tax due for the current year based on the gross sales or receipts, the difference in the amount of the tax shall be paid before the business is considered officially retired or terminated. Here, for the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer as business taxes for the year 1998. The amount of tax as computed based on petitioners gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on petitioners actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998. MACTAN CEBU VS. MARCOS, 261 SCRA 667 FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City. Since the time of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner. MCIAA objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units. Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that took effect on January 1, 1992. ISSUE: Whether the MCIAA is exempt from realty taxes? HELD: NO. Since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. A claim of exemption from tax payment must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. The power to tax is primarily vested in the 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. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution. The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation.The LGC expressly repealed the exemption RA 6958, thereby withdrawing the exemption on realty tax given to the petitioner. NOTE: A distinction should also be made between the phrases National Government and Republic of the Philippines, as they are not interchangeable.Republic of the Philippines is broader and synonymous with Government of the Republic of the Philippines defined as the corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made affective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government. These autonomous regions, provincial, city,

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municipal or barangay subdivisions are the political subdivisions. On the other handNational Government refers to the entire machinery of the central government, as distinguished from the different forms of local governments. The National Government then is composed of the three great departments: the executive, the legislative and the judicial. An agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein. An instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations. PLDT VS. CITY OF DAVAO GR 143867, Aug. 22, 2001 FACTS: PLDT applied for a Mayors Permit to operate its Davao Metro Exchange. Respondent City withheld action on the application pending payment by PLDT of the local franchise tax for 1999. PLDT protested the assessment and requested a refund for the franchise tax it paid for the year 1997 and first to third quarters of 1998. PLDT contends that it was exempt from the payment of franchise tax relying on the opinion of the Bureau of Local Government Finance (BLGF) which provides that PLDT shall only be liable to pay the franchise tax on its gross receipts realized from 1992 up to March 15, 1995, the period which PLDT was not yet enjoying the most favored clause proviso of RA 7925 which brought back the tax exemption of the in lieu of all taxes proviso of RA 7082, PLDTs franchise. The City treasurer denied the protest and claim for tax refund and cited the opinion of the City Legal officer and the Ordinance which provides that notwithstanding any exemption granted by any law or other special law, there is hereby imposed a tax on businesses enjoying a franchise, at a rate of Seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income or receipts realized within the territorial jurisdiction of Davao City. The trial court ruled that the LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them. The trial court likewise denied petitioners claim for exemption under R.A. No. 7925 for the following reasons: (1) it is clear from the wording of 193 of the Local Government Code that Congress did not intend to exempt any franchise holder from the payment of local franchise and business taxes and (2) the opinion of the Executive Director of the Bureau of Local Government Finance to the contrary is not binding on respondents. ISSUE: (1) Whether PLDT is exempted from local franchise tax? (2) Whether the opinions of the BLGF are binding? (1) NO. The grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. The question, therefore, is whether, after the withdrawal of its exemption by virtue of 137 of the LGC, PLDT has again become entitled to exemption from local franchise tax. To begin with, tax exemptions are highly disfavored. The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Here, PLDT justifies its claim of tax exemption by citing R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines. PLDT claims that Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their legislative franchises per opinion of the Bureau of Local Government Finance. It argues that because Smart and Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it. There is nothing in the language of RA 7925 nor in the proceedings of both the House of Representatives and the Senate in enacting the said law which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC. The word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on 23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes. (2) NO. PLDT contends that courts should not set aside conclusions reached by the BLGF because its function is precisely the study of local tax problems and it has necessarily developed an expertise on the subject. The BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. PBA VS. CA FACTS:Philippine Basketball Association received an assessment from the CIR for payment of deficiency amusement tax. PBA filed a protest. CIR denied the same. PBA filed a petition for review with the CTA questioning the denial by CIR of its tax protest. CTA dismissed the PBAs petition holding PBA liable to pay the deficiency amusement tax. On appeal, the CA affirmed the CTA decision. PBA contends that the jurisdiction to collect amusement taxes of PBA games is NOT vested in the national government but instead to the local governments. PBA argues that PD 231, otherwise known as the Local Tax Code of 1973, transferred the power and authority to levy and collect amusement taxes from the sale of admission tickets to

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places of amusement from the national government to the local governments. ISSUE: Whether the amusement tax on PBA tickets is a national tax? HELD: YES. The law is clear. Section 13 of the Local Tax Code provides that the province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement . . ." The foregoing provision of law in point indicates that the province can only impose a tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement. The authority to tax professional basketball games is not therein included, as the same is expressly embraced in PD 1959, which amended PD 1456: "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. The said payment of amusement tax is in lieu of all other percentage taxes of whatever nature and description. While Section 13 of the Local Tax Code mentions "other places of amusement", professional basketball games are definitely not within its scope. Even up to the present, the category of amusement taxes on professional basketball games as a national tax remains the same. This is so provided under Section 125 of the 1997 National Internal Revenue Code. Section 140 of the Local Government Code of 1992 (Republic Act 7160), meanwhile, retained the areas (theaters, cinematographs, concert halls, circuses and other places of amusement) where the province may levy an amusement tax without including therein professional basketball games. YAMANE VS. BA LEPANTO CONDOMINIUM, GR NO. 154993 OCT. 25, 2005 BA Lepanto Condominium Corporation is a duly organized condominium corporation constituted in accordance with the Condominium Act. The Corporation is authorized under its bylaws to collect from its members (the unit-owners) regular assessments to cover operating expenses and capital expenses. BA Lepanto was thereafter assessed 1.6M for business taxes, fees and charges In protesting this assessment, BA Lepanto argued that it had no statutory basis as it was not an owner/operator of any business. As a condominium corporation, it argues that it was not organized for profit, but merely to hold title over the common areas of the Condominium and manage the condominium The protest was denied, hence the corporation filed an appeal with the RTC. It was dismissed. The corporation then filed a petition for review under Rule 42 with the CA. The CA reversed and held that the corporation was not liable for business taxes The treasurer argues that the corporation filed the wrong mode of appeal before the CA when it filed under Rule 42 because the RTC decision was rendered in the exercise of its original jurisdiction (hence, it shouldve been Rule 41) Issue: Was the mode of appeal of BA Lepanto incorrect? Is BA Lepanto liable for business taxes? As to the procedural issue: BA Lepanto filed under the wrong rule because the RTC did not exercise its appellate jurisdiction since the denial of the protest was not the judgment or order of a lower court, but of a local government official (city treasurer) Hence, the RTC decision was rendered in the exercise of its original jurisdiction. The LGC does not confer appellate jurisdiction on the part of the RTCs from the denial of a tax protest by a local treasurer. Therefore it follows that Rule 41 was the correct remedy. o IMPORTANT NOTE: keep in mind that this is for cases before 9282 (CTA jurisdiction) Now, because of RA 9282, the CTA exercise exclusive appellate jurisdiction to review appeal decisions, orders or resolutions of the RTCs in local tax cases originally decided by them in the exercise of their original or appellate jurisdiction. The provision states that the remedy in order to trigger review would be to file a petition for review analogous to that provided for under Rule 42. o In summary, under the rules now as applied to this case, this is what shouldve happened: Treasurer denies protest Appeal with RTC CTA (analogous to Rule 42)

As to liability of condominium corporations for business tax: The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code (Revenue Code), enacted through Municipal Ordinance No. 92-072. It is quite specific as to the particular businesses which are covered by business taxes. The City Treasurer primarily relies on a catchall provision (On owners/operators of any business not specified) The SC held that the City Treasurer failed to point out the legal basis of the assessment (the catch-all provision was not enough and the other provision merely contained etc.) In fact, the condominium act prohibits condominium corporations are from transacting its properties for purposes of gainful profits. More importantly, none of the corporations purposes are geared towards maintaining a livelihood or the making of profits. Hence, it cannot be characterized as a business Therefore, condominium corporations are generally exempt from local business taxation under the LGC. The only exception to this is when unit owners of a condominium band together to engage in activities for profit under the shelter of the condominium corporation. It is prohibited by law and because these acts would constitute ultra vires acts, these unit owners cannot hide using the corporation to use it as a defense when they are taxed for business taxes.

ERICSSON VS. CITY OF PASIG, GR NO. 176667, NOV. 22, 2007 Ericsson Telecommunications, Inc. (petitioner), a corporation with principal office in Pasig City, is engaged in the design,

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engineering, and marketing of telecommunication facilities/system. It was assessed business tax deficiencies for various years based on its gross revenue. Respondent assessed deficiency local business taxes on petitioner based on the latter's gross revenue as reported in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue, which, in turn, includes uncollected earnings. On the other hand, petitioner, contends that only the portion of the revenues which were actually and constructively received should be considered in determining its tax base. services rendered has already been placed under the control of the person who sold the goods or rendered the services without any restriction by the payor. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income. The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported Amount of Tax Per in its audited financial statements, as Section 143 of the Local Annum Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts. DRILON VS. LIM, 235 SCRA 135 The principal issue in this case is whether or not Section 187 of the LGC is constitutional. In summary, it provides that public hearings are required before local tax ordinances are approved. Further, it provides that any question on the legality of tax ordinances may be appealed to the Secretary of Justice. Pursuant to Sec 187, the Sec of Justice had, on appeal to him by four oil companies, declared Ordinance 7794 (Manila Revenue Code) void for non-compliance with prescribed procedure. The RTC, in a petition for certiorari filed by the City of Manila, declared Sec 187 unconstitutional because it gave the secretary of justice power of control over local governments when it should only be power of supervision.

Issue: Should the local business tax on contractors be based on gross receipts or gross revenues? Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the LGC Code covering contractors and other independent contractors, to wit: SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses: xxxx (e) On contractors and other independent contractors, in accordance with the following schedule: With gross receipts for the preceding calendar year in the amount of: xxxx The above provision specifically refers to gross receipts which is defined under Section 131 of the Local Government Code, as follows: (n) "Gross Sales or Receipts" include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and valueThus, the law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. There is, therefore, constructive receipt, when the consideration for the articles sold, exchanged or leased, or the

As to validity of Sec 187 Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the

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Tax Digests for Sept 12, 2011

judgment of the local government that enacted the measure. Secretary Drilon did set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be. What he found only was that it was illegal. All he did in reviewing the said measure was determine if the petitioners were performing their functions in accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. As we see it, that was an act not of control but of mere supervision. Therefore, he did not exercise power of control. As to non-compliance with procedure: In his resolution, Secretary Drilon declared that there were no written notices of public hearings on the proposed Manila Revenue Code that were sent to interested parties and there were no minutes proving such hearings. However, the SC found that the procedural requirements were observed as there was notice through publication and dissemination. was the basis of respondent Makati for the collection of taxes from petitioner was null and void. However, the Court agrees with the contention of respondents that petitioner was proscribed from filing its complaint with the RTC of Makati for the reason that petitioner failed to appeal to the Secretary of Justice within 30 days from the effectivity date of the ordinance as mandated by Section 187 of the Local Government Code. Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof. In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court. But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. For this reason the courts construe these provisions of statutes as mandatory. A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause. Moreover, petitioner even paid without any protest the amounts of taxes assessed by respondents Makati and Acting Treasurer as provided for in the ordinance. Evidently, the complaint of petitioner with the Regional Trial Court was merely an afterthought.

JARDINE DAVIES INSURANCE VS. ALIPOSA, GR NO. 118900 FEB. 27, 2003 PRCI (Philippine Racing Club) appealed to the DOJ for the nullification of the Makati Revenue Code, which provides, among others, the schedule of real estate, business and franchise taxes. The rates provided are higher than those in the Metro Manila Revenue Code. PRCI argues that the ordinance was approved without public hearings and that the franchise tax was not within the scope of the taxing powers of Makati. The DOJ declared the ordinance null and void but the City of Makati filed a petition to declare the DOJ resolution null and void. Meanwhile, Makati implemented the ordinance and found Jardine Davies to be liable for taxes under such ordinance. Jardine Davies, however, requested that its tax liabilities be computed based on the Metro Manila Revenue Code considering that the DOJ already considered it null and void. The City of Makati asserted that the ordinance was still valid as its petition with the RTC was still pending. In the meantime, the RTC upheld the validity of the ordinance. However, Jardine Davies still filed a complaint with the RTC, asking for refund of its overpayments. It based its action on the fact that it should be refunded the amounts it paid pursuant to the Makati Revenue Code for the time period wherein it was declared to be invalid by the DOJ and before the time it was declared valid by the RTC.

Issue: Can Jardine Davies still maintain its action? The Court agrees with petitioner that as a general precept, a taxpayer may file a complaint assailing the validity of the ordinance and praying for a refund of its perceived overpayments without first filing a protest to the payment of taxes due under the ordinance. In this case, petitioner, relying on the resolution of the Secretary of Justice in The Philippine Racing Club, Inc. v. Municipality of Makati case, posited in its complaint that the ordinance which

Geoc. Pierre. Butch