Loc-gov-tax.docx

LOCAL GOVT TAXATION AND REAL PROPERTY TAXATION

charge or other imposition unless otherwise specifically provided herein; and, (5) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.

1. LOCAL GOVERNMENT TAXATION Art X. Sec 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. SEC 129. Power to Create Source of Revenue - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. a) Nature of Taxing Power of local government units 1. Direct – the power of the LGU to impose taxes although not an inherent power is granted by a direct mandate of the Constitution 2. Limited – although directly expressed by the Constitution, the power is subject to limitations and guidelines as the legislature may deem necessary to impose 3. Legislative in nature – the power to impose taxes is vested solely in he legislative body of each respective LGU 4. Territorial – the same can only be exercised within the territorial jurisdiction of a LGU b) Fundamental Principles government taxation

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SECTION 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units: (1) Taxation shall be uniform in each local government unit; (2) Taxes, fees, charges and other impositions shall: (a) be equitable and based as far as practicable on the taxpayer's ability to pay; (b) be levied and collected only for public purposes; (c) not be unjust, excessive, oppressive, or confiscatory; (d) not be contrary to law, public policy, national economic policy, or in restraint of trade; (3) The collection of local taxes, fees, charges and other impositions shall in no case be left to any private person; (4) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to disposition by, the local gov’t unit levying the tax, fee,

c) Local Taxing power and Authority 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 LGU concerned through an appropriate ordinance. d) Requisites of a valid ordinance. 1. It must not contravene the Constitution or any statute 2. It must not be unfair or oppressive 3. It must not be partial or discriminatory 4. It must not prohibit but may regulate trade 5. It must be general and consistent with public policy 6. It must not be unreasonable (Magtajas v. Pryce Properties [234 SCRA 225]) e) Procedure for approval and effectivity of tax ordinance 1. Public hearing is required with quorum, voting and approval and/or veto requirements complied with 2. Publication of ordinance within 10 days from approval for 3 consecutive days in an newspaper of general circulation and/or posting in at least 2 conspicuous and publicly accessible places f) Principle of Pre-emption or Exclusionary Doctrine When the nat’l govt elects to tax a particular area, it is impliedly withholding from the LGU the delegated power to tax the same field. g) Limitations on taxing powers of LGU SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and Barangays shall not extend to the levy of the following: (1) Income tax, except when levied on banks and other financial institutions; (2) Documentary stamp tax; (3) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein; (4) Customs duties, registration fees vessels and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned;

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(5) Taxes, fee and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise; (6) Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (7) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and (4) four years, respectively from the date of registration; (8) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (9) Percentage or value added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (10) Taxes on the gross receipts of transaction contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; (11) Taxes on premium paid by way or reinsurance or retrocession; (12) Taxes, fees or charges for the registration of motor vehicle and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles; (13) Taxes, fees or charges on Philippine products actually exported, except as otherwise provided herein; (14) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively; and (15) Taxes, fees or charges, of any kind on the National Government, its agencies and instrumentalities, and local government units. Entities exempt from local taxes a. Local Water Districts b. Cooperatives duly registered under RA 6938 c. Non-stock and non-profit hospitals d. Educational institutions h) Residual taxing power of LGU’s LGUs may exercise the power to levy taxes, fees or charges on any base or subject, provided that the taxes, fees, and charges are a. Not specifically enumerated in the LGC b. Not taxed under the provisions of the NIRC c. Not taxes under other applicable laws i) Common revenue raising powers of LGU’s

Cities & Municipalites - Community Tax All LGU’s 1. Service fees and charges for services rendered (Sec. 153) 2. Public utility charges (Sec. 154) 3. Toll fees or charges Prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the LGU concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the AFP and PNP on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are 65 yrs or older. When public safety and welfare so requires, the Sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use.) Scope of Taxing Power j.) Taxing Power of Province 1. Local Transfer Tax of Real Property(Section 135, LGC) -sale, donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of one percent (1%) (based of SP of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. No. 6657 shall be exempt from this tax. 2. Business Tax on Printing and Publication (Section 136 LGC) 3. Local Franchise Tax (Section 137, LGC) 4. Tax on Sand, Gravel and Other Quarry Resources (Section 138, LGC) may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter 5. Professional Tax (Section 139, LGC) -pay the professional tax to the province where he practices his profession or where he maintains his principal office in case he practices his profession in several places -such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Phils without being subjected to any other national or local tax, license, or free for the practice of such profession -payable annually on or before the thirty first (31st) day of January 6.Amusement Tax (Section 140, LGC) -collected from the proprietors, lessees, or operators of theaters,cinemas, concert halls, circuses, boxing stadia, and other places of amusement - at a rate of not more than ten percent (10%) of the gross receipts from admission fees. 7. Tax on Route Delivery Truck or Vans (Section 141, LGC)

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k.) Taxing Powers of Municipalities May levy taxes, fees, and charges not otherwise levied by provinces. (Sec. 142) 1. Local Business Tax (Section 143, LGC) 2. Fees on business and occupation (Section 146, LGC) 3. Fees on sealing and licensing of weights and measures (Section 148, LGC) 4. Fishery Rentals, Fees and charges (Section 149, LGC) l.) Taxing Powers of Cities They may levy taxes which the province and municipality may impose. The tax rates, fees, and charges which the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of professional and amusement taxes (see Sec 151, LGC) m.) Taxing Powers of Barangay 1. Taxes on stores with fixed business establishments (gross receipts of P50k or less for cities, P30k for municipalities) 2. Service fees for use of barangay-owned properties and services rendered 3. Barangay clearance 4. Other fees and charges for (a) commercial breeding of fighting cocks, cockpits and cockfighting; (b) on places of recreation with admission fees; and (c) billboards, signboards and outdoor advertisements n.) Professional Tax Professional tax is payable in the province where the taxpayer practices his profession or where the principal office is located in case he practices his profession in several places. Note: (1) The taxpayer has the option. Such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any national or local tax, license or fee for the practice of such profession (see Sec/ 139, LGC) (2) Professional tax may be imposed by a province or city but not by a municipality or barangay (3) Professionals exclusively employed in government shall be exempt from payment o.) Community Tax Cities or municipalities may levy a community tax (Sec. 156) Liable to Community Tax (Sec. 157) 1. Individual inhabitants 18 yrs of age or over who - has been regularly employed on a wage or salary basis for at least 30 consecutive working days during the yr - engaged in business or occupation, or who owns real property with an aggregate assessed value of P1k or more - who is required by law to file an income tax return

(Rate of P5 and an add’l tax P1 for every P1k but not exceeding P5k) In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. 2.Juridical (Sec. 158) Every corporation no matter how created or organized, whether domestic or resident foreign, - engaged in or doing business in the Phils (P500 and an add’l tax not exceeding P10k w/ the following schedule: (1) For every P5k worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payt of RPT - P2.00; and (2) For every P5k of gross receipts/earnings derived by it from its business in the Phils during the preceding yr - P2. The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation. Exempt from the community tax (Sec. 159( (1) Diplomatic and consular representatives; and (2) Transient visitors when their stay in the Phils does not exceed 3 months. p.) Business Tax - based on gross receipts Who are covered: 1. Manufacturers, assemblers and producers 2. Wholesalers, dealers and distributors 3. Exporters, manufacturers of essential commodities 4. Retailers (if both wholesale and retail, then pay both taxes) 5. Contractors 6. Banks and other financial institutions 7. Peddlers 8. Other business not specified Note: Those already subject to tax under (1) to (7) can no longer be subject to tax under (8) otherwise it will be deemed as double taxation. Before a business may be subject to local business tax, the business must not be subject to VAT or percentage tax under the NIRC or if the business is subject to excise, VAT or percentage tax under the NIRC, the tax rate shall not exceed 2% of gross sales/ receipts of the preceding calendar year. A business subject to tax shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired. (Sec 145) q.) Situs of Local Gov’t Taxation (Sec. 150)

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w/ branch/sales office Yes No

Recorded at

Allocation

Branch/Sale ofc Principal ofc

None None

Note: An office may be considered a sales office (1) if the office only accepts orders but does not issue sales invoice; (2) if the office does not accept orders but issues sales invoices or (3) if the office accepts orders and issues sales invoices The following sales allocation shall apply to manufacturers with factories, plants and plantations, etc.: Plantation & factory in same location Yes

Allocation to principal 30%

No

30%

Allocation to factory, etc 70% The 70% above shall be divided: 1. Factory – 60% 2. Plantation – 40% If 2 or more factories, etc = 70% is prorated

Note: Sec.150(b) is only resorted to if there is no branch or sales office. In addition, the allocation shall be applied irrespective of whether or not the sales are made in the locality where the factory, plant or plantation is located. r.) Remedies of LGU a. Administrative action i. Distraint of personal property ii. Levy upon real property iii. Compromise b. Judicial action - LGU concerned may institute an ordinary civil action with regular courts for the collection of delinquent taxes w/in 5 years from the date the taxes, fees or charges become due (Sec 138, 194) Note: Either of these remedies or both may be pursued concurrently or simultaneously at the discretion of the LGU concerned (Sec 174) s.) Remedies of taxpayer Prior to assessment a. Question the constitutionality or legality of tax ordinances on appeal (see Sec.187) (Administrative) b. Petition for declaratory relief as and when applicable (Judicial) Steps (30-60-30 days compliance is mandatory)

1. Appeal to the SOJ w/in 30 days from effectivity 2. The SOJ has 60 days to decide but an appeal does not suspend the effectivity of the ordinance 3. Within 30 days from the SOJ’s decision or after 60 days inaction, an appeal may be filed with the RTC After Assessment a. Protest of assessment (Sec 195) 1. Assessment notice issued by local treasurer 2. File written protest with the local treasurer within 30 days from date of payment 3. The Treasurer has to decide within 60 days 4. An appeal to the RTC is then available upon denial or 60day inaction by the treasurer 5. The RTC decision is appealable to the CTA En Banc 6. Appeal to the SC within 15 days from receipt of resolution. Note: (1) Unlike in RPT, no protest under payment is required. (2) Review by RTC over denial of protest by the local treasurer falls within the court’s original jurisdiction. (3) CTA held that the local Govt’s assessment for business taxes and other regulatory fees is civil in nature and basically a personal action. For purposes of instituting actions in court, the place where the taxpayer’s principal office is located may also be considered as the proper venue. (4) The failure of the taxpayer to file and perfect its appeal with the RTC w/in the prescribed period deprives the Court of the jurisdiction to entertain and determine the correctness of the assessment made by the city treasurer. b. Claim for refund (Sec 196) t.) Prescriptive Periods for assessment and collection GR: An assessment must be made w/in 5 yrs from the date they become due. Collection w/in 5 yrs fr assessment. Exp: If there is fraud or intent to evade payt of the tax, assessment may be made w/in 10 yrs from discovery Suspension of running of prescription a. The treasurer is legally prevented from the assessment or collection of the tax b. The taxpayer requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect; and c. The taxpayer is out of the country or otherwise cannot be located u. Claim for Refund or tax credit for erroneously or illegally collected tax, fee or charge The taxpayer must file a written claim within 2 years from the date of payment of tax or from the date when the taxpayer is entitled to refund.

CASES 1. Drilon vs Lim GR No. 112497 August 4, 1994

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The principal issue in this case is the constitutionality of Sec 187 of LGC. The SOJ (on appeal to him of four oil companies and a taxpayer) declared Ord. No. 7794 (Manila Revenue Code) null and void for non-compliance with the procedure in the enactment of tax ordinances and for containing certain provisions contrary to law and public policy. The SOJ can declare an ordinance void for not having followed the requirements of the law but he cannot replace it with his own law or he cannot say that is is unwise. In DRILON V. LIM [AUGUST 4, 1994], then SOJ Drilon set aside the Manila Revenue Code on two grounds, namely the inclusion of certain ultra vires provisions and its non-compliance with the prescribed procedure in its enactment. In ruling that the act of then Sec. Drilon was proper, the SC noted that when the Secretary alters or modifies or sets aside a tax ordinance, he is not allowed to substitute his own judgment for the judgment of the LGU that enacted the measure. In the said case, Secretary Drilon only exercised supervision and not control. 2. City of Manlia v. J. Angel Valera Colet GR NO. 120051 December 10. 2013 Doctrine The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot overcome the specific exception/exemption in Section 133(j) of the same Code. Facts: City of Manila enacted the Manila Revenue Code. Sec 21(B) stated that, a yearly tax of 3% on the gross sales or receipts of the previous year is hereby imposed on keepers of garages, cars for rent or hire, transportation contractors, persons who transport passenger or freight for hire, and common carriers by land, air or water, except owners of bancas and animal-drawn two-wheel vehicle which was shortly amended by Ord No. 7807, lowering rate from 3% to 0.5% per annum. Businesses affected assailed the constitutionality of the ordinance. They claim that one common limitations on the LGU’s taxing power is Sec 133(j) of LGC stating that 7 such taxing powers shall not extend to the transportation business and in case of any doubt, any tax ordinance shall be construed strictly against the LGU enacting it and liberally in favor of the taxpayer. The City contended that it is irrelevant which of Sec. 133(j) and 143(h) of the LGC is the special or general provision since there is an exempting clause in Sec 133, that is, “Unless otherwise provided herein,” which means that even if the businesses enumerated therein are exempted from

the levy of local tax, if there is a provision to the contrary, such as Sec 143(h), the LGU could still impose the local tax. Issue WON Sec 21(B) of Manila Revenue Code, as amended is valid and constitutional. Ruling No. Sec 21(B), as amended, is null and void for being beyond the power of the City of Manila to enact, approve, and implement under the LGC. It is already well-settled that unlike the inherent power to tax by the State, LGU’s taxing power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide. Among the common limitations on the taxing power of LGUs is Sec 133(j) of the LGC, which states that the taxing power of LGUs shall not extend to "taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code." In contrast, Sec 143 (a) to (g) of LGC identify the particular businesses taxable and fix tax rate for each while Sec 143 (h) is the "catch-all provision" to impose tax "on any business, not otherwise specified previously, which the LGU concerned may deem proper to tax." This not a specific grant of power to the LGU to impose business tax on the gross sales or receipts of such a business. The omnibus grant of power to LGU under Sec 143(h) cannot overcome the specific exception/exemption in Sec 133(j). A special and specific provision prevails over a general provision irrespective of their relative positions in the statute. In the case at bar, Manila cannot enact an ordinance imposing business tax on the gross receipts of transportation contractors, persons engaged in the transportation of passengers or freight by hire, and common carriers by air, land, or water, when it was already specifically prohibited from doing so. 3. Manila Electric Company v. Province of Laguna (G.R. No. 131359. May 5, 1999) FACTS: MERALCO was granted a franchise by several municipal councils and the National Electrification Administration to operate an electric light and power service in the Laguna. Upon enactment of LGC, the prov’l gov;t issued ordinance imposing franchise tax. MERALCO paid under protest and later claims for refund because of the duplicity with Sec 1 of P.D. No. 551 (Such franchise tax shall be payable to the CIR and shalL be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority)This was denied by the governor (Joey Lina) relying

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on a more recent law (LGC). MERALCO filed with the RTC a complaint for refund, but was dismissed. Hence, this petition. ISSUE: WON the imposition of franchise tax under the provincial ordinance is violative of the non-impairment clause of the Constitution and of P.D. 551. HELD: No. There is no violation of the non-impairment clause for the same must yield to the inherent power of the state (taxation). SC explained that prior to the 1987 Constitution; the taxing power of LGUs was exercised under limited statutory authority. Under the present Constitution, the taxing power of LGUs is deemed to exist, subject only to specific exceptions that the law may prescribe. Otherwise stated, the taxing power of LGUs is a direct grant of the Constitution, and is not a delegated power of Congress. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.The provincial ordinance is valid and constitutional.

RTC upheld NPC’s tax exemption. On appeal the CA reversed the trial court’s Order on the ground that Sec. 193, expressly withdrew the exemptions granted to NPC. ISSUE: WON the City has the authority to issue Ordinance and impose an annual tax on “businesses enjoying a franchise HELD: YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the Nat’l Gov’t, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. 5. QC v. ABS-CBN GR 166408 Oct 6, 2008 Issue WON broadcasting and telecommunication companies liable to pay local transfer taxes? Ruling No, these franchise holders are now subject to VAT.

4. NPC vs City of Cabanatuan G.R. No. FACTS: NPC is a GOCC created under CA No. 120, as amended. Petitioner sells electric power to the residents of Cabanatuan City. Pursuant to an ordinance, Cabanatuan assessed NPC a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter’s gross receipts for the preceding year. NPC refused to pay the tax assessment arguing that the City has no authority to impose tax on govt entities. NPC also contended that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended. City filed a collection suit in the RTC, demanding that petitioner pay the assessed tax due, plus surcharge, alleging that NPC’s exemption from local taxes has been repealed by sec. 193 of the LGC, which reads as follows: “Sec. 193. Withdrawal of Tax Exemption Privileges.Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.”

6. PLDT v. CITY OF DAVAO GR. No. 143867 TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL TAXES” PROVISION Facts: PLDT paid a franchise tax equal to 3% of its gross receipts. The franchise tax was paid “in lieu of all taxes on this franchise or earnings thereof” pursuant to RA 7082. The exemption from “all taxes on this franchise or earnings thereof” was subsequently withdrawn by LGC, which at the same time gave LGU’s the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The LGC took effect on January 1, 1992. The City of Davao enacted Ordinance in 1992 imposing a tax on businesses enjoying a franchise, a rate of 75% of 1% of the gross annual receipts. Subsequently, Congress granted in favor of Globe Globe and Smart franchises which contained “in leiu of all taxes” provisos. In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Phils, Sec. 23 of which provides that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted

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telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises. The law took effect on March 16, 1995. In Jan 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro exchange, it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax for the year 1997 and for the first to the third quarters of 1998. Issue: WON by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart. Held: No. Tax exemptions should be granted only by clear and unequivocal provision of law "expressed in a language too plain to be mistaken. The word "exemption" in R.A. No. 7925 is not a direct, "clear and unequivocal" way of communicating the legislative intent. Nor does the term "exemption" in Sec. 23 of R.A. No. 7925 mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by the NTC. 7. PHILIPPINE MATCH CO. V. CITY OF CEBU GR L-30745 JANUARY 18, 1978 Facts: Phil Match Co., Ltd., whose principal office and factory is in Manila, is engaged in the manufacture of matches. It ships cases or cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within the territories and districts under its Cebu branch or the whole Visayas-Mindanao region. Cebu City itself is just one of the eleven districts under the company's Cebu City branch office. The company does not question the tax on the sales of matches consummated in Cebu City, meaning matches sold and delivered within the city. It assails the legality of the tax collected on out-oftown deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city; (2) transfers of matches to salesmen assigned to different agencies outside of the city and (3) shipments of matches to provincial customers pursuant to salesmen's instructions. Issue WON Cebu City’s imposition of gross sales tax on sales of matches stored by Philippine Match Co. in Cebu City but delivered to customers outside the city valid. Ruling Yes. The city can validly tax the sales of matches to customers outside of the city as long as the orders were

booked and paid for in the company’s branch office in the city. Those matches can be regarded as sold in the city because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer. A different interpretation would defeat the tax ordinance and encourage tax evasion. 8. Ongsuco v. Malones GR 182065 Oct 27, 2009 Facts: The Sangguniang Bayan of Maasin on Aug 17 1997 approved Municipal Ordinance No. 98-01 for increased rentals for the stalls and the imposition of goodwill fees in the amount of P20k and P15k for stalls located on the first and second floors of the municipal public market, respectively. The same Code authorized respondent to enter into lease contracts over the said market stalls,[5]and incorporated a standard contract of lease for the stall holders at the municipal public market. Petitioners argued that public hearing was mandatory in the imposition of goodwill fees. Sec 186 of LGC 1991 provides that an ordinance levying taxes, fees, or charges shall not be enacted w/out any prior hearing conducted for the purpose. Municipal Ordinance is invalid on the ground that the conferences held on Aug 11, 1998 and Jan 22, 1999 could not be considered public hearings. Accdg to Art 277(b)(3) of the IRR of the LGC: (3) The notice or notices shall specify the date or dates and venue of the public hearing or hearings. The initial public hearing shall be held not earlier than 10 days from the sending out of the notice or notices, or the last day of publication, or date of posting thereof, whichever is later. The letter was sent to stall holders on 6 August 1998, informing the latter of the meeting to be held, as was in fact held, on 11 August 1998, only five days after notice. Issue WON a public hearing conducted after the passage of a tax ordinance cure the defect in its enactment (for failure to hold one prior to the enactment). Ruling No. SC held that a public hearing conducted after the passage of a tax ordinance does not cure the defect in its enactment. The LGC requires that public hearings be held prior to the enactment by the LGU of the ordinance levying taxes, fees, and charges. 9. Cagayan Electric Power and Light Co. v. City of Cagayan de Oro, G.R. 191761, November 14, 2012 DOCTRINE: Failure to appeal to the SOJ w/in the statutory period of 30 days from the effectivity of the ordinance is fatal to one’s cause. FACTS:

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On Jan 10, 2005, the Sangguniang Panlungsod of CDO passed Ord. No. 9503-2005 imposing a tax on the lease or rental of electric and/o rtelecommunication posts, poles or towers by pole owners to other pole users at 10% of the annual rental income derived from such lease or rental. The City Council, in a letter dated Mar 15, 2005, informed CEPALCO the passage of the subject ordinance. On Sep 30, 2005, purportedly on pure question of law, filed a petition for declaratory relief assailing the validity of Ordinance before RTC. Issue WON the 30-6-30 period rule is mandatory. HELD: Yes. The Court ruled that CEPALCO failed to exhaust administrative remedies. Sec 5 of said ordinance provided that the “Ordinance shall take effect after 15 days following its publication in a local newspaper of general circulation for at least three (3) consecutive issues.” Gold Star Daily published Ordinance Feb 1-3, 2005. Ordinance thus took effect on Feb 19, 2005. CEPALCO filed its petition for declaratory relief before the RTC on Sep 30, 2005, clearly beyond the 30-day period provided in Sec 187. CEPALCO did not file anything before the SOJ. Thus, the Court found that CEPALCO ignored the mandatory nature of the statutory periods. 10. YAMANE V. BA LEPANTO CONDOMINIUM CORP GR 154993 OCTOBER 25, 2005 Doctrine: What determines tax liability is the tax ordinance. The LGC is simply the enabling law for the local legislative body. Facts:: Condominium Corp. is situated in Makati City received a Notice of Assessment of its liability to pay the correct city business taxes. The Assessment was silent as to the statutory basis of the business taxes assessed. Corp. responded with a written tax protest contending Assessment has no basis and Corp not liable for business taxes Makati Revenue Code imposes business tax on owners or operators of any business. Corporation is not an owner or operator of any business in the contemplation of the Makati Revenue Code and even in the LGC. It was submitted that the Corporation, as a condominium corporation, was organized not for profit under its articles of incorporation or by-laws to engage in profitmaking activities. The protest was rejected by the City Treasurer. Corporation filed an Appeal with the RTC of Makati who dismissed the appeal for lack of merit. RTC concluded that the activities of the Corporation fell squarely under the definition of "business" thus subject to local business taxation.

Corporation filed a Petition for Review... with the Court of Appeals. CA declared that the Corporation was not liable to pay business taxes to the City of Makati. The Corporation was not engaged in profit. As its sole purpose was to hold title to the common areas in the condominium and to maintain the condominium, assessment collected from unit owners are limited to those necessary to defray the expenses in the maintenance of the common areas and management the condominium. City Treasurer argued that the Corporation is engaged in business, for the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in "full appreciative living values" for the condominium units which would command better market prices should they be sold in the future. Issue WON the City Govt of Makati can hold condominium corporations liable to pay business taxes. WON an LGU tax a condominium corporation Ruling The SC noted that the City Treasurer did not make any reference to any provision of the Makati City Revenue Code which would serve as legal authority for the collection of business taxes from condominiums in the city. The Supreme Court pointed out that in issuing a notice of assessment, reference to the local tax ordinance is vital because the power of LGUs to impose local taxes is exercised through the appropriate ordinance enacted by the Sanggunian and not by the LGC. Condominium corporations are not “businesses” as the same is defined under the LGC which is a “commercial activity regularly engaged with a view to profit.” Even if a condominium corporation can levy fees, these are used merely to finance the expenses of the condominium and nothing more. 11. ERICSSON TELECOMMUNICATIONS VS. CITY OF PASIG GR 176667 Nov 22, 2007 Facts: Petitioner was assessed a business tax deficiency for the years 1998 and 1999 amounting to P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in its audited financial statements for the years 1997 and 1998. Petitioner filed a Protest dated December 21, 2000, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. The City of Pasig issued another Notice of Assessment to petitioner on November 19, 2001, this time based on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and P4,710,242.93, respectively, based on

Jesus Ray Quilantang | 3L

its gross revenues for the years 1999 and 2000. Again, petitioner filed a Protest on January 21, 2002, reiterating its position that the local business tax should be based on gross receipts and not gross revenue. Issue: WON the local business tax on contractors should be based on gross receipts or gross revenue. Ruling The local business tax is imposed on gross receipts. In the said case, the SC differentiated gross receipts and gross revenue. 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 whereas 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. 12. ORLEYTE (PHIL. BRANCH) v CITY OF MAKATI (CTA AC No. 80) Doctrine: A corporation with no business operation, and is merely an investor in another corporation, is not liable for local business tax. Facts:: Orleyte Company Phil. Branch (Orleyte) is a corporation organized under laws of Cayman Islands and licensed to establish a branch office in Makati to engage in the construction and operation of geothermal plants including investment in or forming of enterprises that will design, construct, erect and assemble, commission and operate power-generating plants and related facilities. Orleyte together with another entity established Ormat Leyte Co., Ltd. (OLCL), a limited partnership in the Phils for the purpose in developing, financing, constructing, owning, operating and maintaining geothermal facilities in Leyte Province. It’s investment in OCLC was financed partly by its branch capital and partly by advances from its shareholders, the remainder of which is deposited in several bank accounts. On March 28, 2005, Makati City assessed Orleyte for local business tax on its dividend income from investment in OCLC and foreign exchange gains and interest income from banks. The Notice of Assessment classified Orleyte as a “Holding Company-Management Service” that is subject to local business tax as a contractor of services. Orleyte protested the Makati assessment but was denied. Likewise, Makati RTC also denied its appeal. Orleyte then appealed the RTC decision to the CTA and argued that dividend income, foreign exchange gains, and interest income are not subject to local business tax.

Issue WON Orleyte's interest income, dividends and foreign exchange gains are subject to local business tax. Ruling No. Sec 131 of the LGC defines “gross sales or receipts” subject to local business tax to include the total amount of money or its equivalent, representing the contract price, compensation or service fee, including the amount charged or material supplied with the services as well as deposits or advance payments actually or constructively received. Pursuant to such provisions, for an entity to be liable for local business tax, it must be a contractor whose activity consists essentially of sale of all kinds of services for a fee. Therefore, only income arising from Orleyte’s services performed or to be performed for its customers is subject to local business tax. Orleyte is not engaged in commercial business based on affidavit of non-operation which it has consistently submitted in its annual application for business permit with Makati. Orleyte merely invested in OCLC. Its financial statements show that it had only three sources of revenues namely, equity in net earnings, foreign exchange gain, and interest income. Clearly, Orleyte is not a contractor engaged in providing a service for a fee, thus Makati City as affirmed by RTC Makati erred in classifying Orleyte as a Holding Company-Management Service. Court finds the assessment has no factual and legal basis, so it ordered its cancellation. Having no income arising from services, Orleyte’s dividend income, foreign exchange gains, and interest income do not form part of gross receipts that are subject to local business tax.

Jesus Ray Quilantang | 3L