Taxation and Tax Defined COMMISSIONER OF INTERNAL REVENUE vs. ALGUE, INC., and CTA (1988)

Collector of Internal Revenue disallowed the P75K deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. CTA agreed with Algue, allowing the deduction of P75K as legit business expenses. Collector of IR appealed CTA’s decision.

Commissioner argues: deduction was not allowed bec it was not an ordinary reasonable or necessary business expense.

CTA & Algue: the said amount had been legitimately paid by the Algue for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their

work in the creation of the Vegetable Oil Investment Corporation of the Phils (VOICP) and its subsequent purchase of the properties of the Philippine Sugar Estate Devt Company (PSEDC).

ISSUE: Is the tax deduction proper? YES! HELD: In favor of CTA & Algue!

The amount was earned through the joint efforts of the persons among whom it was distributed. It has been established that the PSEDC had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, 5 others worked for the formation of the VOICP, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of said 5persons, this new corporation purchased the PSEDC properties.

For this sale,

Algue received as agent a commission of P126k, and it was from this commission that the P75k promotional fees were paid to the 5persons.

There is no dispute that the payees duly reported their respective shares of the fees in their ITRs and paid the corresponding taxes thereon.

CTA also found that no distribution of dividends was

involved. 18

Commissioner accuses Algue of tax dodging (attempt to evade a legitimate assessment by involving an imaginary deduction). He claimed that these payments are fictitious bec most of the payees are members of the same family in control of Algue. In fact, no indication was made as to how such payments were made, whether by check or in cash, and there is not enough substantiation of such payments.

However, these suspicions were adequately met by Algue Inc when its President, Guevara, and the accountant, de Jesus, testified that the payments were not made in 1 lump sum but periodically and in different amounts as each payee's need arose. It should be remembered that Algue Inc was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation.

The CTA was correct that the amount of the promotional fees was not excessive. The total commission paid by the PSEDC. to

Algue Inc was P125K. After deducting the said fees, Algue still had a balance of P50K as clear profit from the transaction. The amount of P75K was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically

everything, from the formation of the VOICP to the actual purchase by it of the PSEDC properties. This finding of the respondent court is in accord with Sec 30 of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there

shall be allowed as deductions —

(a) Expenses: (1) In general.--All the ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any trade or business,

including a reasonable allowance for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1):

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may

be included a reasonable allowance for salaries or other compensation for

personal services actually rendered. The test of deductibility in the case

of compensation payments is whether they are reasonable and are, in

fact, payments purely for service. This test and deductibility in the case of

compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be

further stated and illustrated as follows: Any amount paid in the form of

compensation, but not in fact as the purchase price of services, is not

deductible. (a) An ostensible salary paid by a corporation may be a

distribution of a dividend on stock. This is likely to occur in the case of a

corporation having few stockholders, Practically all of whom draw

salaries. If in such a case the salaries are in excess of those ordinarily

paid for similar services, and the excessive payment correspond or bear

a close relationship to the stockholdings of the officers of employees, it

would seem likely that the salaries are not paid wholly for services

rendered, but the excessive payments are a distribution of earnings upon

the stock. . . .

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders.

23

SolGen’s correct that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case,

however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed.

Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as the inevitability and indispensability of taxation is conceded, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.

PROGRESSIVE DEVT CORP vs.QUEZON CITY 1989

City Council of QC adopted Ordinance No. 7997, Series of 1969, the Market Code of Quezon City, Section 3 of which provided:

Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to

the City, ... , as supervision fee�

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, which reads:

SECTION 1. There is hereby imposed (5 %) tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City.

xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public markets shall submit ... a monthly certified list of stallholders of lessees of space in their markets xxx

Petitioner Progressive Devt Corp, owner and operator of a public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against respondent bec the supervision fee or license tax imposed by the ordinances is in reality a tax on income which QC may not impose, the same being expressly prohibited by RA 2264

QC answered: it had authority to enact the ordinances,

maintaining that the tax on gross receipts imposed therein is not a tax on income. SolGen added that the tax on gross receipts was 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 QC to impose.

LC: dismissed the petition: the questioned imposition is not a tax

on income, but rather a privilege tax or license fee which local governments, like QC, are empowered to impose and collect.

ISSUE: Whether the tax imposed 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: LICENSE FEE, in favor of QC!

Section 12, Article III RA 537, the Revised Charter of Quezon City,

authorizes the City Council:

xxx xxx xxx

(b) To provide for the levy and collection of taxes and other city revenues and apply the same to the payment of city expenses in accordance with appropriations.

(c) To tax, fix the license fee, and regulate the business of the following:

... preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables, bread and other provisions.

The scope of legislative authority conferred upon the QC Council in respect of businesses like that of the petitioner, is

comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but also " to tax"

Also, RA 2264, the Local Autonomy Act, provides that:

Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have

authority to impose municipal license taxes or fees upon persons

engaged in any occupation or business, or exercising privileges in

chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for service rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes just and uniform taxes licenses or fees: ...

Thus, RA 2264 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 QC 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.

Petitioner, insists: "supervision fee" collected from rentals, being a return from capital invested in the construction of the Farmers Market, practically operates as a tax on income, 1 of those expressly excepted from respondent's taxing authority, and thus beyond the latter's competence. Petitioner cites the same Section 2 of the Local Autonomy Act :

... Provided, however, That no city, municipality or municipal district may levy or impose any of the following:

xxx xxx xxx

(g) Taxes on income of any kind whatsoever;

SC HELD: The term "tax" frequently applies to all kinds of

exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although 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.

ITCAB, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350.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, applying the standards set forth above, was done principally in the exercise of the respondent's police power. The operation of a privately owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close supervision and control by the respondent City, for the protection of the health of the public.

Thus, the (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. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable. 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 neither 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. The lower court correctly held that the gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due respondent to cover the latter's administrative expensesThe use of the gross amount of stall rentals as basis for determining the collectible amount of license tax, does not by itself, upon the one hand, convert or render the license tax into a prohibited city tax on income. Upon the other hand, it has not been suggested that such basis has no reasonable relationship to the probable costs of regulation and supervision of the petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned market; and the higher the volume of goods sold in such private market, the greater the extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public. Moreover, what we started with should be recalled here: the authority conferred upon the respondent's City Council is not merely "to regulate" but also embraces the power "to tax" the petitioner's business.

Petitioner argues: respondent is without power to impose a gross receipts tax for revenue purposes absent an express grant from the national government. As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that unit not having the inherent power of taxation. The rule, however, finds no application in the instant case where what is involved is an exercise of, principally, the regulatory

power of the respondent City and where that regulatory power is expressly accompanied by the taxing power.

COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, vs. CITY OF MANILA, 1907

Plaintiff sought to recover of the sum of P134,444.97, which it alleged was illegally collected by the defendant from the plaintiff as taxes for the years 1898, 1899, 1900, 1901, 1902, and 1903.

Parties later entered into a stipulation of facts (in Espanol hehe)

ISSUE: Can the sum be recovered?

HELD: NO.

- During the years 1898, 1899, 1900, 1901, 1902, and 1903 the plaintiff paid to the Collector of Internal Revenue and various provinces, in addition to the contribucion industrial, a contribucion territorial and contribucion urbana.

- Plaintiff claims that it was only required, under the laws in force in the Phils, to pay the industrial tax and this to be based upon the dividends declared by said plaintiff in favor of its stockholders. This contention of the plaintiff is based upon paragraph 4 of tarifa primera of the Industrial

Tax Regulations, dated June 19, 1890. This regulation is as follows:

Banks and commercial corporations shall pay "5 per cent of the profits or

dividends which may be distributed to the stockholders according to their

respective balances."

- Thus, plaintiff argued that when banks and commercial associations have paid an industrial tax of 5 per cent upon the dividends declared, that they will thereby be relieved from the necessity of paying a territorial and an urbana tax. Therefore, under this law the plaintiff, being a commercial association, can not be required to pay more taxes in the form of territorial and urbana taxes after having paid an industrial tax in accordance with the above provisions of said Industrial Tax Regulations.

- The case, however, presents another difficulty. This action was brought to recover an excess of taxes from the city of Manila. By the agreed statement of facts whatever excess was paid, if any, was paid to the Dept of Internal Revenue. It is not shown that the Dept of Internal Revenue collected this money for the city of Manila; neither do the stipulated facts show that the city of Manila received all the money so paid. Upon the contrary, however, the stipulated facts in various parts of the Philippine Islands.

- - Note the during the colonial period fiscal system in the

Insular Government was a highly centralized institution. There was one Government Treasury. All taxes levied and assessed by the Government were Insular Taxes and all taxes collected throughout the Philippine Archipelago were covered into the Insular Treasury. When a tax levied by the general law was paid, it was paid once for all. The different governmental entities, such as provinces, etc., under the Spanish Government were not supported by taxes collected by themselves, for themselves, but were supported by appropriations out of the general fund so collected for the Central Government. This method of collecting taxes was somewhat modified later. Section 1 (8) of Act No. 133, provided:

SEC. 18. In all provides organized under this act the urbana

tax, the industrial tax, the stamp tax, and the sum collected

under the regulations for the cutting of timber upon public

lands, and all other taxes known as inland-revenue taxes, shall

cease to be levied and collected as revenue for the Central

Government of the Archipelago from and after the 30th of

June, 1901, and shall thereafter be collected as provincial and

municipal taxes by the provincial treasurers. One-half of the

taxes so collected shall be paid into the treasuries of the

respective municipalities in which they shall be collected, etc.

- It is clear, then, that whatever taxes the plaintiff paid prior to the 30th day of June, 1901, to the Province of Manila, or the other provinces of the Archipelago, were paid to the agent of the Central Government and certainly the city of Manila should not be required to refund said taxes, even granting that they were illegally collected.

- - With reference to the taxes paid by the plaintiff

subsequent to the 30th of June, 1901, in Manila and the various provinces, granting that they were illegally collected, and granting that the city of Manila collected a part of them (which is not shown in the stipulated facts), certainly the city of Manila should not be called upon to refund more than it actually received. The stipulated facts do not show what part of the taxes paid to the plaintiff was paid to the city of Manila and what part to the various provinces. For this reason, granting that the plaintiff has paid more taxes than it should be required to pay under the law, we are unable to say from the record what portion of such illegal collections, if any, was collected or received by the city of Manila.

- In the last paragraph of the stipulated facts of the plaintiff admits that it paid "en concepto de contribucion industrial," corresponding to the years 1901, 1902, and 1903, the sum of 88,698 pesos as taxes imposed upon the dividends declared by the said plaintiff, in accordance with paragraph 4 of tariff 1 of the Industrial Tax Regulations. This is a part of the amount which the plaintiff attempts to recover. It seems from the admission of the plaintiff in its stipulated facts that this amount was collected in accordance with the law of June 19, 1890. If that is so, certainly the plaintiff should not be permitted to recover this particular amount.

- From the stipulated facts it appears that the plaintiff has been required to pay taxes which it should not have been required to pay in accordance with the provisions of the law of June 19, 1890. It does not appear, however, to whom these illegal taxes have been paid. It does not appear that all, or any part thereof, were paid to the city of Manila.

Case remanded to the lower court for a new trial, in order that the plaintiff may have an opportunity to show what part, if any, of such illegal taxes were actually collected and received by the city of Manila.

PAL vs. ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his capacity as National Treasurer

The disputed registration fees were imposed by Commissioner Elevate pursuant to Section 8, RA4136, the Land Transportation and Traffic Code.

(PAL) is a corporation is engaged in the air transportation business under a legislative franchise. Under its franchise, PAL is exempt from the payment of taxes.

On the strength of an opinion of the Secretary of Justice PAL has, since 1956, not been paying motor vehicle registration fees.

1971, however, appellee Commissioner Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, appellee refused to register the appellant's motor vehicles unless the amounts imposed were paid. PAL thus paid, under protest, P19,529.75 as registration fees of its motor vehicles.

After paying under protest, PAL wrote to Commissioner Edu demanding a refund of the amounts paid, invoking Calalang v. Lorenzo where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise.

Edu denied request for refund based on Republic v. Philippine Rabbit Bus, that motor vehicle registration fees are regulatory and

not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise.

PAL filed the complaint against LTC Commissioner Edu and National Treasurer Carbonell

Respondents contend: Registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of the state. Yes, Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings, but it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle registration fees.

TC: Ruled for LTC, PAL lost.

ISSUE: What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees? TAX!!

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law. Today, the matter is governed by Rep. Act 4136 [1968]), the Land Transportation Code.

Section 73 of Commonwealth Act 123 states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money collected under the provisions of this Act shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the centum shall during the next previous year and the remaining eighty per centum shall be deposited in the Philippine Treasury to create a special fund for the construction and maintenance of national and provincial roads and bridges. as well as the streets and bridges in the chartered cities to be alloted by the Secretary of Public Works and Communications for projects recommended by the Director of Public Works in the different provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of this Act shall be deposited in a special trust account in the National Treasury to constitute the Highway Special Fund, which shall be apportioned and expended in accordance with the provisions of the" Philippine Highway Act of 1935. "Provided, however, That the amount necessary to maintain and equip the Land Transportation Commission but not to exceed twenty per cent of the total collection during one year, shall be set aside for the purpose. (As amended by RA 64-67, approved August 6, 1971).

Thus, the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency.

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. Section 591-593 Land Transportation codes shows that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax.

Vehicle registration fees were originally intended only for rigid purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes."

Thus, may the respondent administrative agency be required to refund the paid in 1971? NO.

NB. PAL's current franchise now however is clear and specific. PAL is now exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.

DECISION: WHEREFORE, the petition is hereby partially

GRANTED. The prayed for refund of registration fees paid in 1971 is DENIED. (LTFRB) is enjoined from collecting any tax, fee, or other charge on the registration and licensing of PAL’s motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590.

PHILEX V. CIR (tax v. ordinary debt) FACTS: • BIR asked Philex to pay tax for 1991-1992 in the total

amount of P123,821,982.52. Philex refused stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore asking for an off-set. Philex filed a case with the CTA.

• Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994

• In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities, since both had already become “due and demandable, as well as fully liquidated;” hence, legal compensation can properly take place.

ISSUE: WON there should be an offset?

HELD: NO. “Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. DEBTS are due to the Government in its corporate capacity, while TAXES are due to the Government in its sovereign capacity.”

Philex’s claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. A distinguishing feature of a tax is that it is compulsory rather

than a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities.

MARCOS II V. CA (necessity theory) FACTS: Ferdinand R. Marcos II, the eldest son of the

decedent, questions the actuation of CIR in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his late father, despite the pendency of the proceedings on probate of the will of the late president. ISSUE:WON BIR may collect on estate and income tax of a

deceased pending probate proceedings? HELD: NO. Under Section 87 of the NIRC, it is the probate or

settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. The Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate. It has been repeatedly observed, and not without merit, that the enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such

collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. The court recognized the liberal treatment of claims for taxes

charged against the estate of the decedent. Such taxes were exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government. Vectigalia nervi sunt rei publicae — taxes are the sinews of the state.

NPC v. City of Cabanatuan (necessity theory) FACTS: • NAPOCOR sells electric power to the resident

Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. City of Cabanatuan assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the former’s gross receipts for the preceding year.

• NPC refused to pay the tax assessment, which argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees.

• The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay. Respondent alleged that petitioner’s exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local Government Code).

• The trial court issued an order dismissing the case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the petitioner to pay the city government the tax assessment.

ISSUE: WON NPC is exempted from franchise tax by the local government? HELD: NO. • Taxes are the lifeblood of the government, for without

taxes, the government can neither exist nor endure. A

principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity;

without taxes, government cannot fulfill its

mandate of promoting the general welfare and well-being of the people.

• In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives.

33 Taxation assumes even greater

significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to Article X, section 5 of the 1987 Constitution.

• The local government code removed the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation.

• A franchise tax 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. By virtue of its charter, petitioner 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. The ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business.

LORENZO V.POSADAS (benefit-received principle) FACTS: Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real and personal properties Proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The court thought it better to appoint a trustee and 10 years after the death of Hanley, the property shall pass to Matthew Hanley. Moore was appointed as Trustee, until replaced by Lorenzo. The Collector filed with the CFI for the collection of P2,052.74 for the inheritance tax against the estate, which was granted. The plaintiff paid under protest, and since he was not refunded he went to court. ISSUE: WON there is delinquency in payment of the tax? HELD:YES. The delinquency in payment occurred on the date

when Moore became trustee, because delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provision of law requiring the payment of interest in appropriate cases is mandatory. The tax and interest due were not paid within ten days after the date of notice and demand thereof by the Collector, a surcharge of 25% should be added. Demand was made by the Deputy Collector upon Moore in a communication dated October 16, 1931.The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became liable for the payment of the surcharge. IN RELATION TO THE TOPIC: “The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. The collection of the tax would then be left to the will of a private individual, which is detrimental to the State as taxes are essential to the very existence of government. “ The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government, but upon the necessity of money for the support of the state. For this reason, no one is allowed to object to or resist

the payment of taxes solely because no personal benefit to him can be pointed out. They also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distinctions. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax . Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public."

CALTEX V. COA (non-revenue purpose; public purpose) FACTS: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offsetting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration. ISSUE: Whether the amounts due from Caltex to the OPSF

may be offsetted against Caltex’ outstanding claims from said funds. HELD: NO. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the

police power of the state. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

PASCUAL V. SEC. OF PUBLIC WORKS (inherent limitation: public purpose) FACTS: RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item (Section 1 c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals (the projected and planned subdivision roads, which were not yet constructed, within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta “donated” said parcels of land to the Government 5 months after the enactment of RA 920, on the condition that if the Government violates such condition the lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the donation and the Constitutionality of the item in RA 920, it being not for a public purpose. ISSUE: Whether the item in the appropriation is valid. HELD: NO.

The right of the legislature to appropriate funds is correlative with its right to tax, under constitutional provisions against taxation, except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President, and the disbursement of said sum became effective on 20 June 1953 pursuant to Section 13 of the Act, the result is that the appropriating sough a private purpose and hence, null and void.

PLANTERS. V. FERTIPHIL CORP (public purpose) Facts: • Marcos issued LOI 1465, imposing a capital recovery

component of Php10.00 per bag of fertilizer o Levy to continue until adequate capital is raised

to make PPI financially viable

• Fertiphil remitted to the Fertilizer and Pesticide Authority (FPA), which then remitted said amount to Far East Bank and Trust Company, the depository bank of PPI

o Php6,689,144 was remitted from 1985 to 1986

• After EDSA, Fertiphil demanded from PPI a refund of the amount it remitted; PPI refused

• Fertiphil filed a complaint for collection and damages o Questioned constitutionality of LOI 1465

� Claimed it was unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process

• FPA: o Issuance of LOI 1465 was a valid exercise of

police power of the state in insuring the fertilizer industry

o Fertiphil did not sustain any damage because the burden imposed by the levy fell on the ultimate consumer, not the seller

Issues:

1. WON the issuance of LOI 1465 was an exercise of the police power of the state

2. WON the levy was for a public purpose Ratio: 1. The imposition of the levy was a exercise of the taxation

power of the state. Both the power of taxation and police power are inherent powers of the state. But each one is distinct from the other – police power is for the regulation of a behavior or conduct, while taxation is for revenue generation.

While it is true that the power to tax can be used as an implement of police power, the primary purpose of the levy was revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax

In the present case, the imposition of Php10 per bag is too excessive to serve a mere regulatory purpose.

Even if it was an exercise of the police power of the state, the LOI would still be invalid as it did not comply with the test of “lawful subjects” and “lawful means”. Specifically, that the interest of the public, generally, requires its exercise, and that the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.

2. An inherent limitation on the power of taxation is public purpose. Taxes are exacted for a purely public purpose, and thus cannot be used for purely private purposes or for the exclusive benefit of private persons.

LOI 1465 is not for a public purpose. First, it is expressly provided that the levy be imposed to benefit a private company – PPI. Second, the levy was conditional and dependent on PPI becoming financially viable. Third, the levies were directly remitted and deposited in FEBTC, the bank of PPI, which used said remittances to pay of PPI’s debts. All of these show that the purpose for the issuance of LOI 1465 was to support a private company which clearly did not comply with the public purpose requirement for the imposition of taxes.

Tan v. Del Rosario (inherently legislative) Facts:

• The constitutionality of RA 7496 – the Simplified Net Income Taxation Scheme (SNIT) violates the following

provisions of the Constitution: � Art6, Sec26(1)

• Every bill passed in Congress shall embrace only one subject which shall be expressed in the title thereof

� Art6, Sec28(1) • The rule of taxation shall be uniform and

equitable. The congress shall evolve a progressive system of taxation

� Art3, Sec1 • No person shall be deprived of Uproperty

without due process of law, nor shall any person be denied equal protection of the law

Issue/s: WON RA 7496 violated the constitutional requirement that

taxation shall be uniform and equitable in that it attempts to tax

single proprietorships and professionals differently from

corporations and partnerships

Ratio:

• NO. Uniformity of taxation merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities. Such classification is valid as long as: (1) standards used are substantial and not arbitrary; (2) categorization is germane to achieve the legislative purpose; (3) law applies, all things being equal, to both present and future conditions; and (4) the classification applies equally well to all those belonging to the same class.

• What may be apparent is simply that the amendatory law reflects he legislative intent to increasingly shift the income tax system towards the schedular approach.

• Also, with the legislature primarily lies the discretion to determine the nature (kind0, object (purpose), extent (rate), coverage (subjects), and situs (place) of taxation. The court cannot freely delve into these matters, unless the tax becomes so unconscionable and unjust as to amount to confiscation of property. Only then will the courts able to strike it down.

CIR VS SANTOS (inherently legislative) FACTS: Guild of Phil Jewellers questions the constitutionality

of certain provisions of the National Internal Revenue Code and Tariff and Customs Code of the Philippines

1. It is their

contention that present tariff and tax structure increases manufacturing costs and render local jewelry manufacturers uncompetitive against other countries. In support of their position, they submitted what they purported to be an exhaustive study of the tax rates on jewelry prevailing in other Asian Countries, in comparison to tax rates levied in the country. Judge Santos of RTC Pasig, public respondent herein, ruled that the laws in question are confiscatory and oppressive and declared them INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned. It stated: The Court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages) customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast, imported gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and Singapore. Petitioner CIR assailed decision rendered by pub resp contending that the latter has no authority to pass judgment upon the taxation policy of the government. Petitioners also impugn the decision by asserting that there was no showing that the tax laws on jewelry are confiscatory. Issue: WON RTC has authority to pass judgment upon taxation policy of government Ratio/Held: NO. The case at bar involves a debate on the

WISDOM of the laws in question. This is a matter on which the RTC is not competent to rule. In Angara vs. Electoral Commission, Justice Laurel made it clear that "the judiciary does not pass upon questions of wisdom, justice or expediency of legislation." In the exercise of judicial power, the court is allowed only "to settle actual controversies involving rights which are legally demandable and enforceable", and may not annul an act of the political departments simply because they feel it is unwise or impractical. The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. This is not to say that RTC have no power whatsoever to declare a law unconstitutional. But this authority does not extend to deciding questions which pertain to legislative policy. RTC have the power to declare the law unconstitutional but this authority does not extend to deciding questions which pertain to legislative POLICY. RTC can only look into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence.

1 It will be noted that, while under the present law (sec 150), jewelry is subject to

a 20% excise tax in addition to a 10% value-added tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage tax under then Section 184(a) of the Tax Code, as amended by P.D. 69. Section 104, Hdg. Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff

and Customs Code, as amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on natural or cultured pearls and precious or semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995. Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the court a quo.

LTO VS CITY OF BUTUAN (Delegation to Loc Gov) Facts: Respondent City of Butuan asserts that the pertinent

provisions of the Local Government Code allows LGUs to collect registration fees or charges along with the corresponding issuance of all kinds of licenses or permits for the driving of tricycles.

Sec. 129. Power to Create Sources or 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. Sec. 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: x x x x x x x x x (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles. In accordance therewith, the City passed an ordinance which provided for the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof. Petitioner LTO, on the other hand, explains that one of the functions of the national government that has been transferred to LGUs is the franchising authority over tricycles-for-hire of the LTFRB, BUT NOT, the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles. ISSUE: WON under the present set up, the power of the LTO to register, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to local government units. Held/Ratio: NO. Although police power and taxation are

correlative to each other, that does not mean that the grant of one necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored. The power over tricycles granted under Section 458(8)(3)(VI)

2 of the Local Government Code to

LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the

2 Under the Local Government Code, certain functions of the DOTC

were transferred to the LGUs, thusly: Sec. 458. Powers, Duties, Functions and Compensation. — x x x x x x x x x (3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises and authorizing the issuance of permits or licenses, upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the city and pursuant to this legislative authority shall: x x x x x x x x x (VI) Subject to the guidelines prescribed by the Department of Transportation and Communications, regulate the operation of tricycles and grant franchises for the operation thereof within the territorial jurisdiction of the city.

registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by law. (Decentralization of registration system will result into higher incidence of theft and fake licenses.)

BASCO VS PAGCOR (1991) (Delegation to Loc Gov)

Facts: Petitioners filed the instant petition seeking to annul

PAGCOR Charter (PD 1869) because it is allegedly contrary to morals, public policy and order, and because — a. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law; b. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy; c. It violates the equal protection clause of the constitution in that it legalizes PAGCOR — conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices; d. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo) ISSUE (relevant to tax): WON the Charter has intruded into the

local government’s right to impose taxes and license fees Held/Ratio: NO Petitioners contend that the exemption clause

in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." Their contention is without merit for the following reasons: (a) The City of Manila, being a mere Municipal corporation

has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it.” Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax"

(b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers." Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power.

(c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government. Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of

"licenses or permits" is no longer vested in the City of Manila.

(d) SUPREMACY of NATIONAL GOVT. Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government.

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government.

(e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides: Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. (emphasis supplied) The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy.

GARCIA V. EXEC SEC (Delegation to the President)

FACTS:

ABAKADA v. Ermita (Delegation to the President) Facts: 1. RA 9337: VAT Reform Act enacted on May 24, 2005. 2. Sec. 4 (sales of goods and properties), Sec. 5 (importation

of goods) and Sec. 6 (services and lease of property) of RA 9337, in collective, granted the Secretary of Finance the authority to ascertain:

a. whether by 12/31/05, the VAT collection as a percentage of the 2004 GDP exceeds 2.8% or

b. the nat’l gov’t deficit as a percentage of the 2004 GDP exceeds 1.5%

3. If either condition is met, the Sec of Finance must inform the President who, in turn, must impose the 12% VAT rate (from 10%) effective January 1, 2006.

4. ABAKADA maintained that Congress abandoned its exclusive authority to fix taxes and that RA 9337 contained a uniform proviso authorizing the President upon recommendation by the DOF Secretary to rasie VAT to 12%.

5. Sen Pimentel maintained that RA 9337 constituted undue delegation of legislative powers and a violation of due process since the law was ambiguous and arbitrary. Same with Rep. Escudero.

6. Pilipinas Shell dealers argued that the VAT reform was arbitrary, oppressive and confiscatory.

7. Respondents countered that the law was complete, that it left no discretion to the President, and that it merely charged the President with carrying out the rate increase once any of the 2 conditions arise.

Issue: WON there was undue delegation – No. Ratio: 1. Constitution allows as under exempted deligation the

delegation of tariffs, customs duties, and other tolls, levies on goods imported and exported. VAT is tax levied on sales of goods and services which could not fall under this exemption. Hence, its delegation if unqualified is unconstitutional.

2. Legislative power is authority to make a complete law. Thus, to be valid, a law must be complete in itself, setting forth therein the policy and it must fix a standard, limits of which are sufficiently determinate and determinable.

3. No undue delegation when congress describes what job must be done who must do it and the scope of the authority given. (Edu v Ericta)

4. Sec of Finance was merely tasked to ascertain the existence of facts. All else was laid out.

5. Mainly ministerial for the sec to ascertain the facts and for the president to carry out the implementation for the vat. They were agents of the legislative dept.

6. No delegation but mere implementation of the law.

Maceda v. Macaraig (Delegation to Admin Agencies)

Facts: 1. Senator Maceda, through this taxpayer’s suit, sought to

prevent the Fiscal Incentives Review Board (FIRB) from processing and granting the tax refunds/credits claimed by the National Power Corp (NPC).

2. The NPC used to enjoy an absolute and unqualified tax exemption under RA 358 so as to allow the NPC to accomplish its task of nationwide electrification. Such exemption was withdrawn and reinstated partially or completely, with provisions qualified or unqualified, several times.

3. Most pertinent was E.O. # 93 which once again withdrew all tax and duty incentives to all government and private entities including the NPC. Moreover, E.O. # 93 gave the authority to the FIRB to restore, revise the scope and prescribe the date of effectivity of such tax/duty exemptions. (Sec 2 (a), (b) and (d) of E.O. # 93)

4. FIRB issued Resolution # 17-87 which restored NPC’s tax and duty exemption privileges.

Issue: WON E.O. # 93 was unconstitutional for being an

undue delegation of legislative power – No; E.O. # 93 was complete in itself and was valid; the FIRB Resolution restoring NPC tax exemptions was also valid. Ratio: 1. Though the Secretary of Justice opined that Sec. 2 (a) to

(d) of E.O. # 93 constituted undue delegation of legislative power, he was overruled by the respondent Executive Secretary. The Executive Secretary has the power to modify, alter or reverse the statutory construction given by a dept secretary.

2. STANDARD: Greater national interest along with the rest of Sec. 3 of E.O. # 93: effect on relative price levels, contribution of beneficiary to revenue generation and nature of the beneficiary’s activities

3. The maxim delegatus non potest delegare has been relaxed to adapt itself to the complexities of modern government. (admin law: why is it important? – time, org’z aptitute and expertise)

4. HOW THE CASE WAS DECIDED: The petition itself was dismissed for lack of merit. NPC should be granted the tax refunds it asked for because the legislative intent was for the NPC to enjoy extensive, if not absolute, tax exemption so as to expedite its task of nationwide electrification. The allegation that this in effect allowed tax evasion by the 3 oil companies which supplied NPC with crude oil was refuted.

Osmeña v. Orbos (Delegation to Admin Agencies)

Facts: 1. Petitioner, John Osmeña, filed R65 certiorari to assail the

constitutionality of the provision (§ 8, paragraph 1 (c) of P.D. No. 1956) conferring the authority upon the Energy Regulatory Board (ERB) to impose additional amounts on petroleum products as an undue delegation of legislative power.

2. PD 1956 created the Oil Price Stabilization Fund (OPSF) – basically a buffer fund which is to reimburse the oil companies from their losses brought about by the government’s artificial maintenance of oil prices.

3. OPSF drew funds through duty collections on petroleum products and additional amounts imposed on petroleum products

Sub Issue: (baka lang kasi itanong) WON powers granted to

the ERB under PD 1956 partake of the nature of the taxation power of the State – No; while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the state. Main Issue: WON there was undue delegation of legislative

power – No; the delegation was valid. Ratio: 1. For a valid delegation of power, it is essential that the law

delegating the power must be: a. Complete in itself; it must set forth the policy to

be executed by the delegate and b. It must fix a standard – limits of which are

sufficiently determinate or determinable to which the delegate must conform

2. The standard indicates the circumstances under which the

legislative comand is to be effected. Thereafter, the administrative agency may in pursuance of the standard promulgate supplemental rules and regulations. (Edu v. Ericta was cited)

3. Standard may be express or implied from the policy and purpose of the act considered as a whole.

4. In this case, STANDARD was so long as there exists

the need to protect the general public and the petroleum industry from the adverse consequences of pump rate fluctuations. The assailed provision expressly authorized the ERB to impose additional amounts to augment the OPSF resources using this standard.

Commissioner v. CA (Delegation to Admin Agency)

Facts: 1. RA 7654 was enacted by Congress on June 10, 1993 and

took effect July 3, 1993. It amended partly Sec. 142 (c) of the NIRC

3

2. Fortune Tobacco manufactured the following cigaretter brands: Hope, More and Champion. Prior to RA 7654, these 3 brands were considered local brands subjected to an ad valorem tax of 20 to 45%. Applying the amendment and nothing else, (see footnote below) the 3 brands should fall under Sec 142 (c) (2) NIRC and be taxed at 20 to 45%.

3. However, on July 1, 1993, petitioner Commissioner of Internal Revenue issued Revenue Memorandum Circular37-93 which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax. The reclassification was before RA 7654 took effect.

4. In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these brands a rate of 55% instead of just 20 to 45% under Sec 142 (c) (2) NIRC.

5. There was no notice and hearing. CIR argued that the memo circular was merely an interpretative ruling of the BIR which did not require notice and hearing.

Issue: WON RMC 37-93 was valid and enforceable – No; lack

of notice and hearing violated due process required for promulgated rules. Moreover, it infringed on uniformity of taxation / equal protection since other local cigarettes bearing foreign brands had not been included within the scope of the memo circular. Ratio: 1. Contrary to petitioner’s contention, the memo was not a

mere interpretative rule but a legislative rule in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. Promulgated legislative rules must be published.

2. On the other hand, interpretative rules only provide guidelines to the law which the administrative agency is in charge of enforcing.

3. BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but legislated under its quasi-legislative authority.

4. BELLOSILLO separate opinion: the administrative issuance was not quasi-legislative but quasi-judicial. Due process should still be observed of course but use Ang Tibay v. CIR.

3 Sec. 142 (c) ... There shall be... collected on cigarettes... a tax at the rates

prescribed below... :

(1) On locally manufactured cigarettes which are currently classified

and taxed at 55% � 55%

(2) On other locally manufactured cigarettes (already at 20 to 45%)

� 20 to 45%

Iloilo Bottlers v. City of Iloilo (Territorial)

Facts: 1. The City of Iloilo implemented a tax ordinance imposing an

excise tax on the privilege of distributing, bottling or manufacturing softdrinks within its territorial jurisdiction.

2. Iloilo Bottlers formerly complied with this tax ordinance but it stopped paying when it transferred its plant to Pavia, Iloilo which is outside Iloilo City.

3. The defendant, Iloilo City, demanded payment from the plaintiff.

4. Plaintiff paid under protest so as not to disrupt its business operations.

Issue: WON Iloilo Bottlers was liable under the tax ordinance – Yes; plaintiff bottled and manufactured outside Iloilo City but it distributed within the city’s territory. Ratio: 1. Excise taxes can be levied by the taxing authority only

when the acts, privileges or businesses are done or performed within the jurisdiction of said authority. The situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City.

2. There is no question that after it transferred its plant to Pavia, Iloilo, Iloilo Bottlers no longer manufactured and bottled its softdrinks within Iloilo City. Thus it can only be taxed if it could be considered to distribute softdrinks in Iloilo City.

3. For tax purposes, there are 2 types of marketing systems: a. 1st system – all sales are made and entered into

in the main office; no warehouse sales; no separate stores maintained for selling.

b. 2nd system – sales are entered into at stores or warehouses maintained by the company.

4. Those following the 1st system are not considered engaged in the separate business of selling or dealing in their products, the distribution process merely an incident or a necessary consequence of the primary business. In other words, the Court recognizes that the right to manufacture implies the right to sell.

5. Plaintiff was found to be under the 2nd system. It must be considered to be engaged in the separate business of selling. Plaintiff’s fleet of delivery trucks did not merely deliver goods already sold but also served as rolling stores. Route salesmen sold goods independently from the main store.

Commissioner v. BOAC (Territorial)

Facts: 1. Commissioner of Internal Revenue (CIR) questioned a

ruling by the Court of Tax Appeals wherein the CTA set aside the CIR’s assessment of deficiency income taxes against respondent British Overseas Airways Corporation (BOAC).

2. BOAC is a UK government-owned corporation engaged in the international airline business. It did not have landing rights in the Philippines nor was it granted a certificate of public convenience by the Civil Aeronautics Board. It did not have flight operations in the Philippines; it did not carry passengers or cargo.

3. However, it maintained a general sales agent. (Warner Barnes and Co. at first then Qantas Airways) The agent sold BOAC tickets covering passengers and cargoes.

Issue: 1. WON BOAC is a resident foreign corporation. (tax scheme

is different for a nonresident foreign corporation) – Yes; BOAC is a resident corporation doing business in the Philippines.

2. WON the revenue derived by BOAC from sales of its tickets, while having no flight operations in the Philippines, is taxable. – Yes; the revenue constitutes income from Philippine sources so it is taxable.

Ratio: 1. Sec 20 of the 1977 Tax Code defines a resident foreign

corporation as a foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein.

2. BOAC was engaged in business in the Philippines through a local agent during the period covered by the CIR’s assessments. It is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines. (Sec 24(b), (2), Tax Code as amended

3. Tax Code provides that for revenue to be taxable, it must constitute income from Philippine sources (see previous paragraph)

4. Income is broadly and comprehensively defined as cash received or its equivalent or the amount of money comint to a person within a specific time.

5. Source of an income is the property, activity or service that produced the income. For the source to be considered as from the Philippines, it is sufficient that the income is derived from activity within the Philippines.

6. In this case, the sale of the tickets in the Philippines is the source of income. The situs of the source of payments is the Philippines.

Hopewell Power Corp v. CIR (Territorial)

Facts: 1. Petitioner sought for tax credit/refund of input value-added

tax (VAT) paid on capital goods. Hopewell Power Corp. Is a domestic corporation engaged in the business of power generation and sale.

2. The basis for asking for such refund is Sec 106 (b) of the Tax Code as amended by RA 7716. (petitioner actually relied on Sec 106 (c) of the 1994 Tax Code which was the law governing at that time; same content anyway)

3. Sec 106 (c) of the 1994 Tax Code requires that an

applicant for refund prove that a. It is a VAT registered person b. Input taxes claimed was paid on capital goods c. Input taxes have not been applied against output

tax liability d. Administrative claim was seasonably filed (2 yr

prescriptive period)

4. Of its 6 claims, 4 had prescribed and 2 had been filed seasonably. Court was also convinced that requisites (a) and (c) had been met.

Issue: WON there should be a refund/WON the input taxes

claimed was paid on capital goods – Yes; the expenditures were properly considered as capital goods. The amount was recomputed and reduced though. Ratio: 1. Capital goods refer to goods with estimated useful life

greater than 1 year and which are treated as depreciable assets under Sec 29(f), used directly or indirectly in the production and sale of taxable goods or services.

2. Statutorily, capital expenditures are specified as amounts paid out for a new building or for permanent improvements or betterments made to increase the value of any property or amounts expended in restoring property.

3. Hopewell spent for engineering and structural services

for the purpose of constructing power plant facilities needed in the production of electricity, which is its chief product. Such expenses were necessary and, as such, should form part of the cost of the power plant facilities.

Smith v. CIR (Territorial)

Tanada v. Angara (International Comity) May 2, 1997 Facts:

- Sec. Rizalino Navarro (DTI Secretary) representing the Philippines government, signed the Final Act Embodying the Result of the Uruguay Round of Multilateral Negotiations, which created the World Trade Organization.

- By signing such act, the Philippines agreed to adopt the ministerial declarations and decisions of the WTO, and to submit the WTO agreement for the consideration and approval

- President Ramos sent two letters to the Philippine Senate, stating that the Uruguay Rounds Final Act is submitted for its concurrence pursuant to sec. 21 Article VII of the constitution.

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- The Senate adopted resolution no. 97, wherein the Senate concurred in the ratification of the President.

- The petition was filed seeking to nullify the act of the Philippine Senate, arguing inter alia that:

o It contravenes sec. 10 Art. II and sec. 12 Article XII of the Constitution

o The WTO proviso derogates from the power to tax, which is lodged in the Congress

Issues

1. WON the act of the Phil. Senate contravenes the Constitution? NO

2. WON it limits, impairs and restricts the exercise of legislative power by congress (specifically the power to tax)? NO

1. NO, it does not contravene the constitution - The Petitioners cited the WTO agreement place nationals and

products of member countries on the same footing as Filipinos and local products. They argue that this is in contravention with the “Filipino First” Policy of the Constitution. See sec. 10 Art. II and sec. 12 Article XII of the Constitution

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- First, these provisions are not self-executing. These are merely statements of principles and policies. A law should be passed by congress to clearly define and effectuate such principles. The reason for denying this a cause of action are sourced from basic considerations of due process and the lack of judicial authority to wade into uncharted ocean of social and economic policy making the said provisions should be read and understood in relation to the other section, especially sec 1 and sec 13.

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4 Art VII Section 21. No treaty or international agreement shall be valid

and effective unless concurred in by at least two-thirds of all the

Members of the Senate.

5 Art II Section 10. The State shall promote social justice in all phases

of national development.

Article XII Section 12. The State shall promote the preferential use of Filipino

labor, domestic materials and locally produced goods, and adopt measures

that help make them competitive.

6 Article XII Section 1. The goals of the national economy are a more

equitable distribution of opportunities, income, and wealth; a sustained

increase in the amount of goods and services produced by the nation

for the benefit of the people; and an expanding productivity as the key

to raising the quality of life for all, especially the under-privileged.

- Hence, the Consitution ordains the ideals of economic nationalism, but it also takes into account the realities of the outside world. It did not intent to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Phil. Economy. In fact, it allow the exchange on the basis of equality and reciprocity, frowning only on foreign competition which is unfair

2. No, it does not limit the power of the congress - the WTO agreement provides that each member shall ensure

the conformity of its laws, regulations and administrative procedure.

- By their nature, treaties really limit or restrict the absoluteness of sovereignty. But by their voluntary acts, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact.

- Certain restrictions include: o Limitations imposed by the very nature of

membership in the family of nations. o Limitations imposed by treaty stipulations.

- Doctrine of incorporation. The constitution states that it adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equity, justice, freedom, cooperation and amity.

The State shall promote industrialization and full employment based on

sound agricultural development and agrarian reform, through industries

that make full and efficient use of human and natural resources, and

which are competitive in both domestic and foreign markets. However,

the State shall protect Filipino enterprises against unfair foreign

competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions

of the country shall be given optimum opportunity to develop. Private

enterprises, including corporations, cooperatives, and similar collective

organizations, shall be encouraged to broaden the base of their

ownership.

Article XII Section 13. The State shall pursue a trade policy that serves the

general welfare and utilizes all forms and arrangements of exchange on the

basis of equality and reciprocity.

Manila International Airport Authority vs. CA July 20, 2006 (Exemption of Gov’t Entities, Agencies, and Instrumentality) Facts:

- MIAA operates the NAIA Complex; it administers the land, improvements, and equipment within the NAIA Complex.

- The Office of the Government Corporate Counsel (OGCC) opined that the Local Gov. Code withdrew the exemption from real estate tax granted to MIAA by its Charter (sec 21). MIAA negotiated with the City of Paranaque

- The MIAA failed to pay real estate tax delinquency despite having received final notices of real estate tax delinquency from the City of Paranaque for the taxable years 1992-2001. Then in July 2001, the City of Paranaque issued notices of levy and warrants on Airport lands and Buildings, and the mayor threatened to sell at public auction.

- MIAA filed petition to restrain the city from imposing real estate tax on the airport lands and buildings. It argued that:

o The real owner is the Republic of the Phil. o It is for the benefit of the general public;

hence it is for public use and public service o Sec 21 of the MIAA charter exempts them

- The City of Paranaque argued that Sec 193 of the LGC withdrew the tax exemption privileges of GOCCs

Issue

1. WON MIAA is a GOCC? NO 2. WON exempt from real estate tax? YES

1. No; MIAA is an instrumentality of the National

Government - GOCCs are NOT exempt from real estate tax.

However, MIAA is not a GOCC - A GOCC must be organized as a stock or non-stock

corporation. MIAA is neither. o It is not a stock corporation since even if it

has capital, it is not divided into shares of stocks. It also has no stock holders or voting shares

o It is not a non-stock corporation either. It has no members. Even if we assume that the government is its member, it is still not a non-stock corporations because 20% of its gross operating income goes to the national treasury. Non-stock corporations are not supposed to disturbute any part of its income to its member. Furthermore, MIAA is neither organized for charitable, religious, educational, professional etc purposes.

- HENCE, MIAA IS A GOVERNMENT INSTRUMENTALITY. The only difference with other instrumentalities is that it is vested with corporate powers

o It remains part of the government machinery although not integrated with development framework

- Sec 133 (o) of the LGC recognizes the basic principle that LGUs cannot tax the national government, which merely delegated to local governments the power to tax. The tax powers of the LGUs s granted by the constitution, but are subject to such guidelines and limitations as the Congress may provide.

- General Rule: tax exemption is construed against the taxpayer claiming exemption

- Exemption: The power to tax national government instrumentalities is construed against the local government. Any doubts whether a person, article, or acitivity is taxable is resolved against taxation

- Also, there is also no reason for LGUs to tax instrumentalities rendering essential public services to inhabitants of local governments. The only exemption is when Congress clearly intended to tax instrumentalities for the delivery of public services for sound and compelling policy considerations.

2. Yes, it is exempted from real estate tax since MIAA is

owned by the republic of the Phil. - the Airport buildings and lands are property of public

dominion, according to Article 420 of Civil Code which states which are property of public dominion. (those intended for public use, like ports)

- the lands and buildings of MIAA are devoted to public use because they are used by the public for international and domestic travel. The fact that MIAA collects terminal fees and other charges does not remove the character as property for public use. Someone must pay for the maintenance. Such fees are often termed user’s tax. This means taxing those among the public who actually use a public facility instead of taxing all the public.

- Since they are for public use, they are outside the commerce of men. They canot be subject to levy, encumbrance or dispotition.

- Unless the president issues a proclamation withdrawing the land and buildings from public use, they remain public dominion and are inalienable.

- The minority asserts that MIAA is not exempt from real estate tax because section 193 of the LGC withdrew tax exemption from all persons. They argue that MIAA is a juridical person. The minority is flawed. Sec 193 of the LGC withdrew tax exemption of all persons exempt when otherwise provided in the Code. Sec 133 (o) expressly provides otherwise.

- Hence even if MIAA fails to pay the real property taxes, said portion cannot be sold at public auction

HELD: the real property tax assessments and notices of delinquencies issued by the city of pasay to MIAA are voide; except those pertaining to portions of the aiport which are

leased to private properties. This is based on Section 234 (a) Dissent of Tinga

- they pretended that Mactan International Airport Case does not exist. Such a case states that airports are taxable. The majority does not even engage in the Mactan case in anyway.

- There is really no prohibition against the government taxing itself, and nothing obscene with allowng government entities exercising propriety functions to be taxed for the purposes of raising the coffers of the LGU

Philippine Fisheries Development Authority vs. CA July 31, 2007 (Exemption of Gov’t Entities, Agencies, and Instrumentality) Facts:

- the Ministry of Public Works and Highways reclaimed from the sea a 21 hectare parcel of land (termed as the Iloilo Fishing Port Complex or IFPC). Upon its completion, it turned over the IFPC to the Philippine Fisheries Development Authority, the petitioner.

- Thereafter, the petitioner leased portions of IFPC to private firms and individuals engaged in fishing business.

- The city of Iloilo assessed the entire IFPC for real property tax. It scheduled the sale at public auction to satisfy its tax delinquency. The petitioner filed an injunction case.

1. WON petitioner is a GOCC? NO 2. WON public dominion? YES

1. it is not a GOCC, but rather an instrumentality of the

national government. Hence, it is generally exempt from payment of real property tax. However, said exemption does not apply to portions of the IFPC which was leased to private entities

- to be considered a GOCC, it must be organized either as a stock or non-stock corporation.

- To be a stock corporation: o It has stock capital divided into shares o Authorized to distribute dividends and

allotments of surpluses and profits to its stockholders

- To be non-stock o They must have members o Must not distribute any part of income to

members - Since, petitioner is neither, it is classified as an

national government instrumentality, which is defined as an 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.

o Instrumentalities are exempt from local taxes pursuant to sec 133 (o) of LGC

- However, when an instrumentality grants to a taxable person the beneficial use of a real property, then said instrumentality becomes liable to pay the real property tax. This is pursuant to sec 234(a) of the LGC

2. YES, it is property of public dominion. - Art 420 of the Civil Code says that ports are part of

public dominion - The Iloilo fishing port is a port constructed for public

use and public service. As such, it cannot be subject to execution and foreclosure sale, even if the petitioner fails to pay its taxes, if there is no Congressional authorization.

FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, vs. VENANCIO CONCEPCION, as Acting Collector of Internal Revenue, (Uniformity in Taxation)

- Section 100 of Act 2339 (promulgated 1914) imposed

an annual tax of P4 per square meter upon electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on premises not occupied by buildings. The section was amended by Act 2432, reducing the tax to P2 per square meter. The taxes imposed by Act 2432 were ratified by the US Congress on 4 March 1915.

- Francis A. Churchill and Stewart Tait, co-partners in Mercantile Advertising Agency, owed a billboard to which they were taxed at P104. The tax was paid under protest. Churchill and Tait instituted the action to recover the amount. It is now urged that the trial court erred:

o (1) In not holding that the tax as imposed constitutes deprivation of property without compensation or due process of law, because it is confiscatory and unjustly discriminatory

o (2) in not holding that the said tax is void for lack of uniformity, because it is not graded according to value; because the classification on which it is based on any reasonable ground; and furthermore, because it constitutes double taxation.

WON confiscatory as to the business of the plaintiff? NO

- plaintiffs argued that it is confiscatory because they cannot afford to raise the rental fees of the billboards since the merchants could not afford to pay more

- It will thus be seen that the contention that the rates charged for advertising cannot be raised is purely hypothetical, based entirely upon the opinion of the plaintiffs, unsupported by actual test, and that the plaintiffs themselves admit that a number of other persons have voluntarily and without protest paid the tax herein complained of.

- In Chicago and Grand Trunk Railway Co. vs. Wellman, it was held that While the protection of vested rights of property is a supreme duty of the courts, it has not come to this, that the legislative power rests subservient to the discretion of any railroad corporation which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call `operating expenses.'

2. Is the tax void for lack of uniformity? NO

- Section 5 of the Philippine Bill, wherein it is declared "that the rule of taxation in said Islands shall be uniform."

- Uniformity in taxation — says Black on Constitutional Law, page 292 — means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and luxuries, shall all be assessed at the same rate. Different articles may be taxed at different amounts, provided the rate is uniform on the same class everywhere, with all people, and at all times.

- A tax is uniform when it operates with the same force and effect in every place where the subject of it is found

- The statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in other words, "the rule of taxation" upon such signs is uniform throughout the Islands. The rule, which we have just quoted from the Philippine Bill, does not require taxes to be graded according to the value of the subject or subjects upon which they are imposed, especially those levied as privilege or occupation taxes. We can hardly see wherein the tax in question constitutes double taxation.

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC. vs. CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, (Valid Classification of

taxpayers/subject matter to be taxed)

- On August 16, 1960, the City of Butuan enacted Ordinance No. 110. Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola

- the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961.

- plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and those that if may later on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

- Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it is highly unjust and discriminatory;

1. YES, it is an important tax, something which cannot

be imposed by the city of Butuan - Under Ordinance 110, merchants engaged in the sale

of soft drink or carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City.

- The intention of the law was to limit the application of the ordinance to soft drinks brought into the city from outside sources. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of law.

2. Yes it is unjust and discriminatory - only sales by "agents or consignees" of outside

dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax.

- The classification made in the exercise of this authority, to be valid, must, however, be reasonable and this requirement is not deemed satisfied unless:

o (1) it is based upon substantial distinctions which make real differences;

o (2) these are germane to the purpose of the legislation or ordinance;

o (3) the classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and

o (4) the classification applies equally all those who belong to the same class.

These conditions are not fully met by the ordinance in question.

Manila Race Horce v. Dela Fuente (valid

classification of taxpayers/subject matter to be taxed)

Facts: Ordinance No. 3065 of the City of Manila imposes a tax

on stable owners based on the number of race horses kept or

maintained in the stables (P10/year for each race horce).

Manila Race Horce Trainers Association, Inc., a group of

owners of boarding stables for race horses wants to declare

the Ordinance invalid for being violative of the Constitution. It is

argued that the ordinance taxes race horses and not boarding

stables (Sec. 2 of the Ordinance does not impose a license fee

on empty stables).

Held. Ordinance VALID. The spirit, rather than the letter, of an

ordinance determines the construction thereof, and the court

looks less to its words and more to the context, subject matter,

consequence and effect. The tax is assessed not on the

owners of the horses but on the owners of the stables, as

counsel admit in their brief, although there is nothing, of

course, to stop stable owners from shifting the tax to the horse

owners in the form of increased rents or fees, which is

generally the case. It is also plain from the text of the whole ordinance that the

number of horses is used in the assessment purely as a

method of fixing an equitable and practical distribution of the

burden imposed by the measure. Far from being obnoxious,

the method is fair and just. It is but fair and just that for a

boarding stable where only one horse is maintained

proportionately less amount should be exacted than for a

stable where more horses are kept and from which greater

income is derived.

In taxing only boarding stables for race horses, we do not

believe that the ordinance makes arbitrary classification. it was

said there is equality and uniformity in taxation if all articles or

kinds of property of the same class are taxed at the same rate.

From the viewpoint of economics and public policy the taxing

of boarding stables for race horses to the exclusion of boarding

stables for horses dedicated to other purposes is not

indefensible. The owners of boarding stables for race horses

and, for that matter, the race horse owners themselves, who in

the scheme of shifting may carry the taxation burden, are a

class by themselves and appropriately taxed where owners of

other kinds of horses are taxed less or not at all, considering

that equity in taxation is generally conceived in terms of ability

to pay in relation to the benefits received by the taxpayer and

by the public from the business or property taxed. Race horses

are devoted to gambling if legalized, their owners derive fat

income and the public hardly any profit from horse racing, and

this business demands relatively heavy police supervision.

Taking everything into account, the differentiation against

which the plaintiffs complain conforms to the practical dictates

of justice and equity and is not discrimatory within the meaning

of the Constitution.

Eastern Theatrical v. Alfonso(valid classification of

taxpayers/subject matter to be taxed) Facts. 12 corporations involved in the motion picture business

are impugning the validity of City of Manila Ordinance 2958

which imposes a fee on the price of every admission ticket sold

by cinemas, theaters, theatrical shows and boxing exhibitions

for violative of the consti provision regarding the uniformity and

equality of taxation, and the equal protection of the laws. It is

also argued that based on Sec 2444(m) of the Revised Admin

Code, the ordinance was enacted beyond the powers of the

City of Manila.

Held. The whole argument of plaintiffs hinges, therefore, on

the assumption that the power granted to the City of Manila by

section 2444(m) of the Revised Administrative Code is limited

to the authority to impose a tax on business, with exclusion of

the power to impose a tax amusement; but, the assumption is

based on an arbitrary labeling of the kind of tax authorized by

said section 2444(m).

The very fact that section 2444 (m) of the Revised

Administrative Code includes theaters, cinematographs, public

billiard tables, public pool tables, bowling alleys, dance halls,

public dancing halls, cabarets, circuses and other similar

places, race tracks, horse races, theatrical performances,

public exhibition, circus and other performances and places of

amusements, will show conclusively that the power to tax

amusement is expressly included within the power granted by

section 2444(m) of the Revised Administrative Code.

Appellantts point out to the fact that the ordinance in question

does not tax "many more kinds of amusements" than those

therein specified, such as "race tracks, cockpits, cabarets,

concert halls, circuses, and other places of amusement." the

argument has absolutely no merit. The fact that some places of

amusement are not taxed while others, such as

cinematographs, theaters, vaudeville companies, theatrical

shows, and boxing exhibitions and other kinds of amusements

or places of amusement are taxed, is no argument at all

against the equality and uniformity of the tax imposition.

Equality and uniformity of the tax imposition. Equality and

uniformity in taxation means that all taxable articles or kinds of

property of the same class shall be taxed at the same rate. The

taxing power has the authority to make reasonable and natural

classifications for purposes of taxation; and the appellants

cannot point out what places of amusement taxed by the

ordinance do not constitute a class by themselves and which

can be confused with those not included in the ordinance.

--------------------------------------- Section 2444 (m) of the Revised Administrative code reads as follows:

To tax fix the license fee and regulate the business of hotels restaurants refreshment places,

cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters,

cinematographs; and further to fix the location of and to tax fix the license fee for and regulate

the businessof lively stables, the license fee for and regulate the business of livery stable,

boarding stables, embalmers, public billiard table public pool tables, bowling alleys, dance

halls, public dancing halls, cabarets, circusand other similar parades, public vehicles, race

tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus andother

performances and places of amusements, match factories, blacksmith shops, foundries, steam

boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar, pitch, resin, coal, oil,

gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe products

thereof and of all other highly combustible or explosivematerials and other establishment likely

to endanger the public safety or give rise to conflagration or explosion and subject to the

provision of ordinance issue by the (Philippines Health Service) Bureau of Health in

accordance with law tanneries, renders tallow chandlers bone factories and soap factories.

Shell v. Municipality of Cordova(valid classification of

taxpayers/subject matter to be taxed)

Facts:The Municipality of Cordova, Cebu adopted a series of

ordinances, one of which is Ordinance 10 which imposes an

annual tax of P150 on occupation or the exercise of the

privilege of installation manager. Shell, Co. wants to refund the

taxes paid by it on the ground that the ordinances imposing the

taxes are ultra vires. Held. The ordinances are valid.

Ordinance No. 10 which imposes an annual tax of P150 on

"installation manager" comes under the provisions of

Commonwealth Act No. 472. The claim that "installation

manager" is a designation made by the plaintiff and such

designation cannot be deemed to be a "calling" as defined in

section 178 of the National Internal Revenue Code (Com. Act

No. 466), and that the installation manager employed by the

plaintiff is a salaried employee which may not be taxed by the

municipal council under the provisions of Commonwealth Act

No. 472 is without merit.

Even if the installation manager is a salaried employee of the

plaintiff, still it is an occupation "and one occupation or line of

business does not become exempt by being conducted with

some other occupation or business for which such tax has

been paid'1 and the occupation tax must be paid "by each

individual engaged in a calling subject thereto." And pursuant

to section 179 of the National Internal Revenue Code, "The

payment of . . . occupation tax shall not exempt any person

from any tax, . . . provided by law or ordinance in places where

such . . . occupation in . . . regulated by municipal law, nor

shall the payment of any such tax be held to prohibit any

municipality from placing a tax upon the same . . . occupation,

for local purposes, where the imposition of such tax is

authorized by law."

The contention that the ordinance is discriminatory and hostile

because there is no other person in the locality who exercises

such "designation" or occupation is also without merit, because

the fact that there is no other person in the locality who

exercises such a "designation" or calling does not make the

ordinance discriminatory and hostile, inasmuch as it is and will

be applicable to any person or firm who exercises such calling

or occupation named or designated as "installation manager."

Abra Valley College v. Aquino (Prohibition Against

Taxation of Religious, Charitable Entities and Educational

Entities) Facts: The Municipal Treasurer of Bangued, Abra caused to

be seized and sold the lot and building of Abra Valley Junior

College for its failure to pay taxes (P5140.31).

Petitioner school wants to declare the notice of sale and notice

of seizure annulled. The lot and the building was sold at public

auction to the mayor.

Provincial fiscal: building and lot used for educational purposes

are exempted from the payment of taxes.

RTC: not exempted since the second floor is used by the

Director of the school for residential purposes;

Respondent: (raised for the first time in the SC but still

considered in the interest of substantial justice) for commercial

purposes because the ground floor of the college building is

being used and rented by a commercial establishment, the

Northern Marketing Corporation

Issue: Is the school exclusively used for educational purposes? Held. NO (leased to commercial establishment)

Section 22, paragraph 3, Article VI, of the then 1935 Philippine

Constitution, exempts "Cemeteries, churches and parsonages

or convents appurtenant thereto, and all lands, buildings, and

improvements used exclusively for religious, charitable or

educational purposes ... from real taxes.

The Assessment Law also exempts from real property tax (c)

churches and parsonages or convents appurtenant thereto,

and all lands, buildings, and improvements used exclusively for

religious, charitable, scientific or educational purposes.

It was clarified that the term "used exclusively" also considers

incidental use. The exemption in favor of property used

exclusively for charitable or educational purposes is 'not limited

to property actually indispensable' but extends to facilities

which are incidental to and reasonably necessary for the

accomplishment of said purposes,

The test of exemption from taxation is the use of the property

for purposes mentioned in the Constitution.

It must be stressed however, that while this Court allows a

more liberal and non-restrictive interpretation of the phrase

"exclusively used for educational purposes" as provided

for in Article VI, Section 22, paragraph 3 of the 1935 Philippine

Constitution, reasonable emphasis has always been made that

exemption extends to facilities which are incidental to and

reasonably necessary for the accomplishment of the main

purposes. Otherwise stated, the use of the school building or

lot for commercial purposes is neither contemplated by law,

nor by jurisprudence. The lease of the first floor thereof to the

Northern Marketing Corporation cannot by any stretch of the

imagination be considered incidental to the purpose of

education.

Under the 1935 Constitution, the trial court correctly arrived at

the conclusion that the school building as well as the lot where

it is built, should be taxed, not because the second floor of the

same is being used by the Director and his family for

residential purposes, but because the first floor thereof is being

used for commercial purposes. However, since only a portion

is used for purposes of commerce, it is only fair that half of the

assessed tax be returned to the school involved.

Lung Center v. QC(Prohibition Against Taxation of

Religious, Charitable Entities and Educational Entities) Facts: Lung Center of the Philippines (both land and hospital)

was assessed for tax purposes.

In the middle of the lot is the hospital. A big space at the

ground floor is being leased to private parties, for canteen and

small store spaces, and to medical or professional practitioners

who use the same as their private clinics for their patients

whom they charge for their professional services. The corner

right side of Quezon Avenue and Elliptical Road, is being

leased for commercial purposes to Elliptical Orchids and

Garden Center.

The petitioner accepts paying and non-paying patients. The

petitioner receives annual subsidies from the government.

The institution filed a claim for exemption predicated on its

claim that it’s a charitable institution.

It averred that a minimum of 60% of its hospital beds are

exclusively used for charity patients and that the major thrust of

its hospital operation is to serve charity patients. The petitioner

contends that it is a charitable institution and, as such, is

exempt from real property taxes.

Central Board of Assessment Appeals of Quezon City thinks

otherwise: Before a patient is admitted for treatment in the

Center, first impression is that it is pay-patient and required to

pay a certain amount as deposit. That even if a patient is living

below the poverty line, he is charged with high hospital bills.

Held: Portions of the land leased to private entities as well as

those parts of the hospital leased to private individuals are not

exempt from such taxes. Portions of the land occupied by the

hospital and portions of the hospital used for its patients,

whether paying or non-paying, are exempt from real property

taxes.

Petitioner is a charitable institution within the context of the

1973 and 1987 Constitutions. To determine whether an

enterprise is a charitable institution/entity or not, the elements

which should be considered include the statute creating the

enterprise, its corporate purposes, its constitution and by-laws,

the methods of administration, the nature of the actual work

performed, the character of the services rendered, the

indefiniteness of the beneficiaries, and the use and occupation

of the properties.

In the legal sense, a charity may be fully defined as a gift, to be

applied consistently with existing laws, for the benefit of an

indefinite number of persons, either by bringing their minds and

hearts under the influence of education or religion, by assisting

them to establish themselves in life or otherwise lessening the

burden of government. It may be applied to almost anything

that tend to promote the well-doing and well-being of social

man. It embraces the improvement and promotion of the

happiness of man. The word "charitable" is not restricted to

relief of the poor or sick. The test of a charity and a charitable

organization are in law the same. The test whether an

enterprise is charitable or not is whether it exists to carry out a

purpose reorganized in law as charitable or whether it is

maintained for gain, profit, or private advantage.

Under P.D. No. 1823, the petitioner is a non-profit and non-

stock corporation which, subject to the provisions of the

decree, organized for the welfare and benefit of the Filipino

people principally to help combat the high incidence of lung

and pulmonary diseases in the Philippines.

The general purpose of its creation is to ease the burden

among the Filipinos from contracting respiratory illnesses

which are considered as among the most prevalent in the

country.

Hence, the medical services of the petitioner are to be

rendered to the public in general in any and all walks of life

including those who are poor and the needy without

discrimination.

As a general principle, a charitable institution does not lose its

character as such and its exemption from taxes simply

because it derives income from paying patients, or receives

subsidies from the government, so long as the money received

is devoted or used altogether to the charitable object which it is

intended to achieve; and no money inures to the private benefit

of the persons managing or operating the institution

The fundamental ground upon which all exemptions in favor of

charitable institutions are based is the benefit conferred upon

the public by them, and a consequent relief, to some extent, of

the burden upon the state to care for and advance the interests

of its citizens.20

Subsidies are like a gift or donation of any other kind except

they come from the government. The crux is the presence or

absence of material reciprocity.

Therefore, the fact that subsidization of part of the cost of

furnishing such housing is by the government rather than

private charitable contributions does not dictate the denial of a

charitable exemption if the facts otherwise support such an

exemption, as they do here.

In this case, the petitioner adduced substantial evidence that it

spent its income, including the subsidies from the government

for 1991 and 1992 for its patients and for the operation of the

hospital. It even incurred a net loss in 1991 and 1992 from its

operations.

Even as we find that the petitioner is a charitable institution, we

hold, that those portions of its real property that are leased to

private entities are not exempt from real property taxes as

these are not actually, directly and exclusively used for

charitable purposes.

The settled rule in this jurisdiction is that laws granting

exemption from tax are construed strictissimi juris against the

taxpayer and liberally in favor of the taxing power. Hence, a

claim for exemption from tax payments must be clearly shown

and based on language in the law too plain to be mistaken.

Section 28(3), Article VI of the 1987 Philippine Constitution

provides, thus:

(3) Charitable institutions, churches and parsonages or

convents appurtenant thereto, mosques, non-profit cemeteries,

and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or educational

purposes shall be exempt from taxation.32

The tax exemption under this constitutional provision covers

property taxes only.33 As Chief Justice Hilario G. Davide, Jr.,

then a member of the 1986 Constitutional Commission,

explained: ". . . what is exempted is not the institution itself . . .;

those exempted from real estate taxes are lands, buildings and

improvements actually, directly and exclusively used for

religious, charitable or educational purposes."34

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160

in order to be entitled to the exemption, the petitioner is

burdened to prove, by clear and unequivocal proof, that (a) it is

a charitable institution; and (b) its real properties are

ACTUALLY, DIRECTLY and EXCLUSIVELY used for

charitable purposes. "Exclusive" is defined as possessed and

enjoyed to the exclusion of others; debarred from participation

or enjoyment; and "exclusively" is defined, "in a manner to

exclude; as enjoying a privilege exclusively."40 If real property

is used for one or more commercial purposes, it is not

exclusively used for the exempted purposes but is subject to

taxation.41 The words "dominant use" or "principal use" cannot

be substituted for the words "used exclusively" without doing

violence to the Constitutions and the law.42 Solely is

synonymous with exclusively.43

What is meant by actual, direct and exclusive use of the

property for charitable purposes is the direct and immediate

and actual application of the property itself to the purposes for

which the charitable institution is organized. It is not the use of

the income from the real property that is determinative of

whether the property is used for tax-exempt purposes.44

The petitioner failed to discharge its burden to prove that the

entirety of its real property is actually, directly and exclusively

used for charitable purposes. While portions of the hospital are

used for the treatment of patients and the dispensation of

medical services to them, whether paying or non-paying, other

portions thereof are being leased to private individuals for their

clinics and a canteen. Further, a portion of the land is being

leased to a private individual for her business enterprise under

the business name "Elliptical Orchids and Garden Center."

Gaston v. Republic Planters Bank (Prohibition on

Use of Tax Levied for Special Purpose) Philippine Sugar Commission (PHILSUCOM) which was

tasked with the function of regulating and supervising the sugar

industry was abolished.

P. D. No. 388, promulgated on February 2,1974, which created

the PHILSUCOM, provided for the collection of a Stabilization

Fund for the purpose of financing the growth and development

of the sugar industry market to be administered in trust by the

Commission and deposited in the Philippine National Bank

derived by collecting 2 pesos/picul produced and milled for 5

years, and 1 peso/picul produced and milled every year

thereafter.

Petitioners filed a mandamus to compel the distribution of

shares of stock in PNB, in the name of PHILSUCOM to the

sugar producers, planters and millers who contributed in the

Stabilization fund.

Petitioners say that the fees collected were held in trust for the

sugar planters and millers (belonging to them) and not public

funds (belonging to PHILSUCOM) which should be transferred

to the general funds of the government upon dissolution of the

Commission.

Section 7 of P.D. No. 388 does provide that the stabilization

fees collected "shall be administered in trust by the

Commission." However, while the element of an intent to

create a trust is present, a resulting trust in favor of the sugar

producers, millers and planters cannot be said to have ensued

because the presumptive intention of the parties is not

reasonably ascertainable from the language of the statute

itself.

No implied trust in favor of the sugar producers either can be

deduced from the imposition of the levy. It is not clearly shown

from the statute itself that the PHILSUCOM imposed on itself

the obligation of holding the stabilization fund for the benefit of

the sugar producers.

Petitioners maintain that this infusion of fresh capital was

accomplished by PHILSUCOM, using the proceeds of the

P1.00 per picul stabilization fund to pay for its subscription in

shares of stock of respondent Bank. It is petitioners'

submission that all shares were placed in PHILSUCOM's name

only out of convenience and necessity and that they are the

true and beneficial owners thereof.

But, while it is true that the collected stabilization fees were set

aside by PHILSUCOM to pay its subscription to RPB, it did not

collect said fees for the account of the sugar producers. That

stabilization fees are charges/levies on sugar produced and

milled which accrued to PHILSUCOM under PD 338, as

amended. ...

The stabilization fees collected are in the nature of a tax, which

is within the power of the State to impose for the promotion of

the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They

constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections

made accrue to a "Special Fund," a "Development and

Stabilization Fund," almost Identical to the "Sugar Adjustment

and Stabilization Fund" created under Section 6 of

Commonwealth Act 567. 1 The tax collected is not in a pure

exercise of the taxing power. It is levied with a regulatory

purpose, to provide means for the stabilization of the sugar

industry. The levy is primarily in the exercise of the police

power of the State (Lutz vs. Araneta, supra.).

The stabilization fees in question are levied by the State upon

sugar millers, planters and producers for a special purpose —

that of "financing the growth and development of the sugar

industry and all its components, stabilization of the domestic

market including the foreign market. the fact that the State has

taken possession of moneys pursuant to law is sufficient to

constitute them state funds, even though they are held for a

special purpose. Having been levied for a special purpose, the

revenues collected are to be treated as a special fund, to be, in

the language of the statute, "administered in trust' for the

purpose intended. Once the purpose has been fulfilled or

abandoned, the balance, if any, is to be transferred to the

general funds of the Government. That is the essence of the

trust intended (See 1987 Constitution, Article VI, Sec. 29(3),

lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2

The character of the Stabilization Fund as a special fund is

emphasized by the fact that the funds are deposited in the

Philippine National Bank and not in the Philippine Treasury,

moneys from which may be paid out only in pursuance of an

appropriation made by law (1987) Constitution, Article VI, Sec.

29[1],1973 Constitution, Article VIII, Sec. 18[l]).

That the fees were collected from sugar producers, planters

and millers, and that the funds were channeled to the purchase

of shares of stock in respondent Bank do not convert the funds

into a trust fired for their benefit nor make them the beneficial

owners of the shares so purchased. It is but rational that the

fees be collected from them since it is also they who are to be

benefited from the expenditure of the funds derived from it. The

investment in shares of respondent Bank is not alien to the

purpose intended because of the Bank's character as a

commodity bank for sugar conceived for the industry's growth

and development. Furthermore, of note is the fact that one-

half, (1/2) or PO.50 per picul, of the amount levied under P.D.

No. 388 is to be utilized for the "payment of salaries and wages

of personnel, fringe benefits and allowances of officers and

employees of PHILSUCOM" thereby immediately negating the

claim that the entire amount levied is in trust for sugar,

producers, planters and millers.

To rule in petitioners' favor would contravene the general

principle that revenues derived from taxes cannot be used for

purely private purposes or for the exclusive benefit of private

persons. The Stabilization Fund is to be utilized for the benefit

of the entire sugar industry, "and all its components,

stabilization of the domestic market," including the foreign

market the industry being of vital importance to the country's

economy and to national interest.

San Miguel Corp. v. Avelino (Non-Impairment of

Jurisdiction of the Supreme Court)

Facts: San Miguel challenged the existing Ordinance of the

Tax Code of the City of Mandaue. This was on the ground that

Section 12(e) (7) in relation to Section 12(e) (1) and (2),

Mandaue City Ordinance No. 97, is illegal and void because it

imposed a specific tax beyond its territorial jurisdiction. The

validity of the ordinance was sustained by the City Fiscal.

However, when the case appealed to the Secretary Justice,

Macaraig, the challenged ordinance was deemed “of doubtful

validity”.

Respondent City filed a suit for collection on the issue of the

validity of the ordinance which had the effect of questioning the

opinion of the Justice Secretary. San Miguel filed a petition for

certiorari and prohibition to oppose the suit and have it

dismissed. It claimed that under Section 47, which states that

"The decision of the Secretary of Justice shall be final and

executory unless, within thirty days upon receipt thereof, the

aggrieved party contents the same in a court of competent

jurisdiction”, the suit for collection was not the appeal allowed

by the law.

Issue: WON the courts are ousted its jurisdiction over questions of law because the mode of appeal by the Respondent city was improper. Held: No. The validity of a statute, an executive order or

ordinance is a matter for the judiciary to decide and that

whenever in the disposition of a pending case such a question

becomes unavoidable, then it is not only the power but the duty

of the Court to resolve such a question. To construe Section

47 narrowly would be to raise a serious constitutional question.

For it would in effect bar what otherwise would be a proper

case cognizable by a court precisely is the exercise of the

conceded power of judicial review just because the procedure

contended for which is that of an "appeal," under the

circumstances a term vague and ambiguous, was not followed.

Tan v. Del Rosario (Due Process)

Sec.1 Art 3 Constitution

Facts: Petitioners challenge the constitutionality of RA 7496

aka Simplified Net Income Taxation Scheme (SNIT) under Arts

VI secs. 26 and 28, and III sec. 1 “No person shall be deprived

of . . . property without due process of law, nor shall any

person be denied the equal protection of the laws”. Essentially,

petitioners argue that general professional partnerships and

general partnerships/corporations must be uniformly taxed.

Issue: WON the changes in the tax schedules present in RA 7496 and the different treatment in Professional Partnerships and Corporations and Partnerships, are unconstitutional. Held: No. Petitioner gives a fairly extensive discussion on the

merits of the law, illustrating, in the process, what he believes

to be an imbalance between the tax liabilities of those covered

by the amendatory law and those who are not. With the

legislature primarily lies the discretion to determine the nature

(kind), object (purpose), extent (rate), coverage (subjects) and

situs (place) of taxation. This court cannot freely delve into

those matters which, by constitutional fiat, rightly rest on

legislative judgment. Of course, where a tax measure becomes

so unconscionable and unjust as to amount to confiscation of

property, courts will not hesitate to strike it down, for, despite

all its plenitude, the power to tax cannot override constitutional

proscriptions. The due process clause may correctly be

invoked only when there is a clear contravention of inherent or

constitutional limitations in the exercise of the tax power. No

such transgression is so evident to us.

Sison v. Ancheta (Due Process)

(Sec 1, Art III, Consti) Facts: In a suit for declaratory relief and probation, petitioner

alleges arbitrariness in Sec. 1, BP 135. He reasons that he

would be unduly discriminated against by the imposition of

higher rates of tax upon his income arising from the exercise of

his profession vis-a-vis those which are imposed upon fixed

income or salaried individual taxpayers.

Issue: Whether the imposition of a higher tax rate on taxable

net income derived from business or profession than on

compensation is constitutionally infirm. Held: No. The Constitution as the fundamental law overrides

any legislative or executive act that runs counter to it. In any

case therefore where it can be demonstrated that the

challenged statutory provision - as petitioner here alleges - fails

to abide by its command, then this Court must so declared and

adjudge it null.

It is undoubted that the due process clause may be invoked

where a taxing statute is so arbitrary that it finds no support in

the Constitution. An obvious example is where it can be shown

to amount to the confiscation of property. That would be a clear

abuse of power. It then becomes the duty of this Court to say

that such an arbitrary act amounted to the exercise of an

authority not conferred. That properly calls for the application

of the Holmes dictum. It has also been held that where the

assailed tax measure is beyond the jurisdiction of the state, or

is not for a public purpose, or, in case of a retroactive statute is

so harsh and unreasonable, it is subject to attack on due

process grounds.

Now for equal protection. The applicable standard to avoid the

charge that there is a denial of this constitutional mandate

whether the assailed act is in the exercise of the police power

or the power of eminent domain is to demonstrate "that the

governmental act assailed, far from being inspired by the

attainment of the common weal was prompted by the spirit of

hostility, or at the very least, discrimination that finds to support

in reason. It suffices then that the laws operate equally and

uniformly on all persons under similar circumstances or that all

persons must be treated in the same manner, the conditions

not being different, both in the privileges conferred and the

liabilities imposed.

In the case at bar, petitioner failed to make a case that the

challenged law was constitutionally infirm because the

classifications were valid for tax purposes, and the it is not

arbitrary and confiscatory.

American Bible Society v. City of Manila (Religious

Freedom) (Sec. 5, Art. III, Consti) Facts: Plaintiff Bible Society challenges the City’s imposition of

license fees and refuses to pay taxes on the bible it sold in the

region.

Plaintiff further tried to establish that it never made any profit

from the sale of its bibles, which are disposed of for as low as

one third of the cost, and that in order to maintain its operating

cost it obtains substantial remittances from its New York office

and voluntary contributions and gifts from certain churches,

both in the United States and in the Philippines, which are

interested in its missionary work. Defendant retorts, however,

that they do obtain profit from selling the bibles.

Issue: Nevertheless, the issue in this case is whether tax

imposition and a fee (Ordinances Nos. 2529 and 3000

respectively) on activities religious in characters and on

religious materials are tantamount to religious censorship and

abridgment by the state.

Held: Ordinance No. 2529 which taxes the sale of assorted

merchandise does not apply to the sale of religious materials in

the exercise of the right to freedom of religion. The right to

enjoy freedom of the press and religion occupies a preferred

position as against the constitutional right of property owners.

Otherwise, those who can tax the exercise of this religious

practice can make its exercise so costly as to deprive it of the

resources necessary for its maintenance. Those who can tax

the privilege of engaging in this form of missionary evangelism

can close all its doors to all 'those who do not have a full purse.

Spreading religious beliefs in this ancient and honorable

manner would thus be denied the needy.

With respect to Ordinance No. 3000, as amended, which

requires the obtention of the Mayor's permit before any person

can engage in any of the businesses, trades or occupations

enumerated therein, We do not find that it imposes any charge

upon the enjoyment of a right granted by the Constitution, nor

tax the exercise of religious practices. The fee does not

deprive defendant of his constitutional right of the free exercise

and enjoyment of religious profession and worship, even

though it prohibits him from introducing and carrying out a

scheme or purpose which he sees fit to claim as a part of his

religious system.

Tolentino v. Sec. of Finance (Religious Freedom)

(Sec. 5, Art. III, Consti)

Commissioner v. CA (KINDS OF TAXES:Privilege Tax)

Facts: Atlas Consolidated Mining and Development

Corporation (ACMDC) claims exception from the

Manufacturer’s tax since it uses the steel balls it manufactures

for its purpose.

Issue: WON ACMDC is liable for Manufacturer’s tax

Held: No. ACMDC cannot be said to be engaged in the sale,

barter or exchange of personal property and as such liable

under the Manufacturer’s tax.

Manufacturer’s tax: SEC. 186. There shall be levied, assessed

and collected once only on every original sale, barter,

exchange, or similar transaction either for nominal or valuable

consideration, intended to transfer ownership of, or title to, the

articles

“Privilege taxes on business" are taxes imposed upon the

privilege of engaging in business. They are essentially excise

taxes. To be held liable for the payment of a privilege tax, the

person or entity must be engaged in business.

"To engage" is to embark on a business or to employ oneself

therein. The word "engaged" connotes more than a single act

or a single transaction; it involves some continuity of action.

"To engage in business" is uniformly construed as signifying an

employment or occupation which occupies one's time,

attention, and labor for the purpose of a livelihood or profit. The

expressions "engage in business," "carrying on business" or

"doing business" do not have different meanings, but

separately or connectedly convey the idea of progression,

continuity, or sustained activity. "Engaged in business" means

occupied or employed in business; "carrying on business" does

not mean the performance of a single disconnected act, but

means conducting, prosecuting, and continuing business by

performing progressively all the acts normally incident thereto;

while "doing business" conveys the idea of business being

done, not from time to time, but all the time.

The foregoing notwithstanding, it has likewise been ruled that

one act may be sufficient to constitute carrying on a business

according to the intent with which the act is done. A single sale

of liquor by one who intends to continue selling is sufficient to

render him liable for "engaging in or carrying on" the business

of a liquor dealer.

There may be a business without any sequence of acts, for if

an isolated transaction, which if repeated would be a

transaction in a business, is proved to have been undertaken

with the intent that it should be the first of several transactions,

that is, with the intent of carrying on a business, then it is a first

transaction in an existing business.

Under the tax code then in force, the 7% manufacturer's sales

tax is imposed on the manufacturer for every original sale,

barter, exchange and other similar transaction intended to

transfer ownership of articles.

Thus, a manufacturer, in order to be subjected to the necessity

of paying the percentage tax imposed by Section 186 of the tax

code, must be 'engaged' in the sale, barter or exchange of

personal property. Under a statute which imposes a tax on

persons engaged in the sale, barter or exchange of

merchandise, a person must be occupied or employed in the

sale, barter or exchange of personal property. A person can

hardly be considered as occupied or employed in the sale,

barter or exchange of personal property when he has made

one purchase and sale only.

In the case at bar, ACMDC claims exemptions from the

payment of manufacturer's tax. It asserts that it is not engaged

in the business of selling grinding steel balls, but it only

produces grinding steel balls solely for its own use, or

consumption. However, it admits having lent its grinding steel

balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the

legal concept of "engaging in business" hereinbefore

discussed, we are inclined to agree with ACMDC that it should

not and cannot be held liable for the payment of the

manufacturer's tax.