Tax Digests for local government tax

8/4/2019 Tax Digests for local government tax

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Tax Digests for Sept 12, 2011

Geoc. Pierre. Butch

NAPOCOR VS. CITY OF CABANATUAN

FACTS: NAPOCOR, the petitioner, is a government-owed and

controlled corporation tasked to undertake the development of

hydroelectric generations of power and the production of electricity

as well as, the transmission of electric power on a nationwide basis.

NAPOCOR sells electric power to the residents of Cabanatuan City,

posting a gross income of P107M in 1992. Pursuant to Sec. 37 ofOrdinance No. 165-92, the respondent City of Cabanatuan assessed

NAPOCOR a franchise tax amounting to P808K, representing 75% of

1% of the formers gross receipts for the preceding year. NAPOCOR

refused to pay the tax assessment alleging that respondent City has

no authority to impose tax on government entities, and that they are

exempt from payment of all forms of taxes, charges and fees as it

was a non-profit organization.

Respondent City filed a collection suit demanding that NAPOCOR pay

the assessed tax, plus surcharge and 2% monthly interest, alleging

that petitioners exemption from local taxes has already been

appealed by Sec. 193 of the LGC which basically states that tax

exemption presently enjoyed by all persons are withdrawn. Trial

court dismissed the case. CA reversed

ISSUES:

(1) Is NAPOCOR excluded from the coverage of the franchise tax

simply because its stocks are wholly owned by the National

Government and its charter characterized is as a non-profit

organization?

(2) Is the NAPOCORs exemption from all forms of taxes repealed by

the provisions of the Local Government Code (LGC)?

HELD:

(1) NO. First, it is important to define franchise as used in theLGC. A franchise may refer to a general or primary franchise, or

to a special or secondary franchise. The former relates to the

right to exist as a corporation, by virtue of duly approved

articles of incorporation, or a charter pursuant to a special law

creating the corporation. The right under a primary or general

franchise is vested in the individuals who compose the

corporation and not in the corporation itself. On the other hand,

the latter refers to the right or privileges conferred upon an

existing corporation such as the right to use the streets of a

municipality to lay pipes of tracks, erect poles or string

wires.The rights under a secondary or special franchise are

vested in the corporation. To stress, a franchise tax, as used in

the LGC, is imposed based not on the ownership but on the

exercise by the corporation of a privilege to do business. The

taxable entity is the corporation which exercises the franchise,

and not the individual stockholders.

To determine whether the petitioner NAPOCOR is covered by the

franchise tax in question, the following requisites should concur: (1)

that petitioner has a "franchise" in a secondary sense; and (2) that it

is exercising its rights or privileges under this franchise within the

territory of the respondent city government. In this case, petitioner

NAPOCOR fulfills the first requisite. CA 120, creating the NAPOCOR,

serves as its charter defining its composition and vesting in it powe

not available to ordinary corporations. It likewise fulfills the secon

requisite. From its operations in the City of Cabanatuan, petitione

realized a gross income of P107M in 1992. Fulfilling both requisite

petitioner is, and ought to be, subject of the franchise tax

question.

The contention of petitioner that it is excluded from the coverage franchise tax simply because its stocks are wholly owned by th

National Government and its charter characterized it as a "no

profit" organization must necessarily fail. By virtue of its charte

petitioner NAPOCOR was created as a separate and distinct entit

from the National Government. It can sue and be sued under its ow

name, and can exercise all the powers of a corporation under th

Corporation Cod

To be sure, the ownership by the National Government of its enti

capital stock does not necessarily imply that petitioner is no

engaged in business.

(2) YES. Petitioner's contention that its tax exemptions under icharter subsist despite the passage of the LGC is untenable. As

rule, rule, tax exemptions are construed strongly against th

claimant. Exemptions must be shown to exist clearly an

categorically, and supported by clear legal provisions.In the cas

at bar, the petitioner's sole refuge is section 13 of Rep. Act N

6395 exempting from, among others, "all income taxe

franchise taxes and realty taxes to be paid to the Nation

Government, its provinces, cities, municipalities and othe

government agencies and instrumentalities." However, by th

passage of the LGC, the blanket exclusion of instrumentalitie

and agencies of the national government from the coverage o

local taxation has been removed. In the case at bar, section 15

in relation to section 137 of the LGC clearly authorizes th

respondent city government to impose on the petitioner th

franchise tax in question.

PLDT VS. CITY OF BACOLOD

FACTS: PLDT is a holder of a legislative franchise under Act No. 3436

to render local and international telecommunications service

Subsequently, the conditions of its franchise were consolidated wit

RA 7082, whereunder PLDT shall pay a franchise tax equivalent t

three percent (3%) of all its gross receipts, which franchise tax sha

be in lieu of all taxes. Meanwhile, the LGC took effect, grantin

cities and other local government units the power to impose loc

franchise tax on businesses enjoying a franchise. It likewise provide

that all tax exemption privileges then enjoyed by all persons we

withdrawn, necessarily including those taxes from which PLDT

exempted under the in-lieu-of-all-taxes clause in its charter. T

level the playing field among telecommunication companie

Congress enacted RA 7925 (Public Telecommunications Policy Ac

where Sec. 23 thereof or the most favored treatment clause

provides for an equality of treatment in the telecommunication

industry.

Respondent City of Bacolod, made an assessment on PLDT to pa

franchise tax due to it. PLDT complied therewith. However, due to

ruling issued by the DOF stating that PLDT, among oth


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Geoc. Pierre. Butch

telecommunication companies, became exempt from local franchise

tax, PDT stopped paying the local franchise and business tax to

respondent City. PLDT filed a protest and asking for a refund of the

local franchise tax it previously paid.

ISSUE:

Whether or not Sec 23 of Rep. Act No. 7925, also called the most -favored-treatment clause, operates to exempt petitioner PLDT from

the payment of franchise tax imposed by the respondent City of

Bacolod?

HELD:

NO. Sec 23 does not operate to exempt PLDT from the payment of

franchise tax imposed upon it by the City of Bacolod since it does not

appear that Congress intended such to operate as a blanket tax

exemption. Sec 23 cannot be considered as having amended

petitioner's franchise so as to entitle it to exemption from the

imposition of local franchise taxes.

Tax exemptions are highly disfavored and are interpreted

in strictissimi juris against the taxpayer and liberally in favor of the

taxing authority. Thus, tax exemption must be expressed in the

statute in clear language that leaves no doubt of the intention of the

legislature to grant such exemption. In the case at bar, the term

exemption in Sec 23 of RA 7925 does not mean tax exemption,

rather exemption from certain regulations and requirements

imposed by the National Telecommunications Commission (NTC).

VILLEGAS VS. HIU CHIONG TSAI

Ordinance No. 6537 was passed by the Municipal board of Manila

signed by Petitioner Mayor Villegas. Section 1 thereof prohibits aliensfrom being employed or to engage or participate in any position or

occupation or business enumerated therein, whether permanent,

temporary or casual, without first securing an employment permit

from the Mayor of Manila and paying the permit fee of P50.00

except persons employed in the diplomatic or consular missions of

foreign countries, or in the technical assistance programs of both the

Philippine Government and any foreign government, and those

working in their respective households, and members of religious

orders or congregations, sect or denomination, who are not paid

monetarily or in kind.

Respondent Hiu Chiong Tsai Pao Ho who was employed in Manila,

filed a petition for the issuance of the writ of preliminary injunction

and restraining order to stop the enforcement of Ordinance No. 6537

as well as for a judgment declaring said Ordinance No. 6537 null and

void on ground that it was discriminatory and violative of the rule of

uniformity in taxation; that it violates the fundamental principle on

illegal delegation of legislative powers as it fails to prescribe any

standard to guide and/or limit the action of the Mayor; and it is

arbitrary, oppressive and unreasonable. The TC issued the writ of

preliminary injunction and declared the said Ordinance null and void.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot b

declared null and void on the ground that it violated the rule o

uniformity of taxation because the rule on uniformity of taxatio

applies only to purely tax or revenue measures and that Ordinanc

No. 6537 is not a tax or revenue measure but is an exercise of th

police power of the state, it being principally a regulatory measure

nature.

ISSUE:

Whether or not respondent judge erred in ruling ordinance 6537 an

violated the cardinal rule of uniformity of taxation, the princip

against undue designation of legislative power, and due process an

equal protection clauses of the Constitutio

HELD:

Ordinance No. 6537 is not principally a regulatory measure. Whi

the first part thereof requires alien to secure an employment permi

the second part required the payment of employment which is no

regulatory but a revenue measure.

The P50 fee is unreasonable as it is excessive an fails to conside

substantial differences in situations among aliens. It is collected fro

every employed alien whether he is casual or permanent, part tim

or full time or whether he is a lowly employee or a highly pai

executive. It likewise fails to lay down any criterion to guide th

Mayor in the exercise of his discretion. It has been held that wher

an ordinance of a municipality fails to guide or limit the mayor

action, expresses and entirely lacks standard, such is invalid. Th

ordinance in question violates the due process of law and equ

protection rule of the Constitution.

PROGRESSIVE DEVT CORP. VS. QUEZON CITY

The City Council of Respondent Quezon City adopted Ordinance NO

7997 or the Market Code of QC which provided that a (5 %) tax o

gross receipts on rentals or lease of space in privately-owned publ

markets in Quezon City is imposed as supervision fee. Petitione

owner and operator of a public market named Farmers Market

Shopping Center" filed a petition for prohibition against responden

on ground that the supervision or license tax is in reality a tax o

income which respondent may not impose. Respondent Ci

contended that the tax imposed therein is not a tax on income bu

one imposed for the enjoyment of the privilege to engage in

particular trade or business which was within the power

respondent to impose.

ISSUE:

Whether the tax imposed by respondent on gross receipts of sta

rentals is properly characterized as partaking of the nature of a

income tax or, alternatively, of a license fee?

HELD:


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Geoc. Pierre. Butch

Pursuant to Sec 12, Art II of RA 537, the Revised Charter of QC grants

the QC City Council not only to regulate and fix the license fee, but

also to tax. Moreover, RA 2264 of the Local Autonomy Act confers

upon local governments broad taxing authority extending to almost

"everything, excepting those which are mentioned therein," provided

that the tax levied is "for public purposes, just and uniform," does

not transgress any constitutional provision and is not repugnant to a

controlling statute. Both the Local Autonomy Act and the Charter ofrespondent clearly show that respondent is authorized to fix the

license fee collectible from and regulate the business of petitioner as

operator of a privately-owned public market.

The term "tax" frequently applies to all kinds of exactions of monies

which include levies for revenue as well as levies for regulatory

purposes such that license fees are frequently called taxes. However,

to be more specific, license fee is a legal concept distinguishable

from tax: the former is imposed in the exercise of police power

primarily for purposes of regulation, while the latter is imposed

under the taxing power primarily for purposes of raising

revenues. Thus, if the generating of revenue is the primary purpose

and regulation is merely incidental, the imposition is a tax; but if

regulation is the primary purpose, the fact that incidentally revenue

is also obtained does not make the imposition a tax.

To be considered a license fee, the imposition questioned must

relate to an occupation or activity that so engages the public interest

in health, morals, safety and development as to require regulation

for the protection and promotion of such public interest; the

imposition must also bear a reasonable relation to the probable

expenses of regulation, taking into account not only the costs of

direct regulation but also its incidental consequences as

well. Accordingly, a charge of a fixed sum which bears no relation at

all to the cost of inspection and regulation may be held to be a tax

rather than an exercise of the police power.

In the case at bar, the "Farmers Market & Shopping Center" was built

by virtue of Resolution No. 7350 by respondent's local legislative

body authorizing petitioner to establish and operate a market with a

permit to sell foodstuffs. The same resolution imposed upon

petitioner, as a condition for continuous operation, the obligation to

"abide by and comply with the ordinances, rules and regulations

prescribed for the establishment, operation and maintenance of

markets in Quezon City." The "Farmers' Market and Shopping

Center" being a public market in the' sense of a market open to and

inviting the patronage of the general public, even though privately

owned, petitioner's operation thereof required a license issued by

the respondent City, the issuance of which was done principally in

the exercise of the respondent's police power.

Thus, the imposition of (5%) tax imposed in Ordinance No. 9236

constitutes, not a tax on income, not a cityincome tax, but rather a

license tax or fee for the regulation of the business in which the

petitioner is engaged. Local governments are allowed wide discretion

in determining the rates of imposable license fees even in cases of

purely police power measures, in the absence of proof as to

particular municipal conditions and the nature of the business being

taxed as well as other detailed factors relevant to the issue of

arbitrariness or unreasonableness of the questioned rates. Petitione

has not shown that the rate of the gross receipts tax is s

unreasonably large and excessive and so grossly disproportionate t

the costs of the regulatory service being performed by th

respondent as to compel the Court to characterize the imposition a

a revenue measure exclusively.

MOBIL PHIL. VS. CITY TREASURER OF MAKATI

FACTS: Mobil Phil is a corporation engaged in the manufacturing an

sale of petroleum products. The City Treasurer of Makati is in charg

of the implementation of the Citys revenue code and collection

local taxes. Mobil filed an application with the City treasurer fo

retirement of its business in Makati City as it moved its princip

place of business to Pasig along with a declaration of its gross sale

receipts. The respondent issued Mobil a billing slip with a

assessment of taxes to be paid. Mobil paid under protest. Ci

treasurer issued an OR and approved the application for retiremen

Thereafter, Mobil filed a claim for refund. The City treasurer denie

the claim.

The relevant law provision of the Revenue code provides that

person or entity doing business shall be subject to business tax. Th

tax shall be fixed by the quarter. The initial tax for the quarter

which a business starts to operate shall be two and one-half percen

(2%) of one percent (1%) of its capital investment. Thereafter, th

tax shall be computed based on the gross sales or receipts of th

preceding quarter. In the succeeding calendar year, regardless o

when the business started to operate, the tax shall be based on th

gross sales or receipts for the preceding calendar year. That tax sha

accrue on the first day of January of each year and payment shall b

made within the first 20 days of January or of each subseque

quarter as the case may be.

Respondent argues since the business tax accrues only on the firday of January and becomes payable within the first 20 days there

or of each subsequent quarter, the payments made by Mobil in th

year 1998 are therefore payments for the business tax for 199

which accrued in January of 1998 and became payable within th

first 20 days of January or of each subsequent quarter. Thus, upo

retirement in August 1998, the taxes for said year which shou

accrue in January 1999 became immediately payable before th

application for retirement can be approved. Hence, the assessme

does not constitute double taxation. On the other hand, Mob

contented that the 1997 gross sales/revenue is merely the basis fo

the amount of business taxes due for the privilege of carrying on

business in the year when the tax was paid.

ISSUE: Whether the assessment constitutes double taxation(alternatively, are the business taxes paid by petitioner in 199

business taxes for 1997 or 1998?)

HELD: YES. Business taxes imposed in the exercise of police power fo

regulatory purposes are paid for the privilege of carrying on

business in the year the tax was paid. It is paid at the beginning

the year as a fee to allow the business to operate for the rest of th

year. It is deemed a prerequisite to the conduct of business.


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Geoc. Pierre. Butch

Income tax, on the other hand, is a tax on all yearly profits arising

from property, professions, trades or offices, or as a tax on a

persons income, emoluments, profits and the like. It is tax on

income, whether net or gross realized in one taxable year. It is due

on or before the 15th day of the 4th month following the close of the

taxpayers taxable year and is generally regarded as an excise tax,

levied upon the right of a person or entity to receive income or

profits.

In this case, Respondent is wrong when it said that the payments

made by petitioner in 1998 are payments for business tax incurred in

1997 which only accrued in January 1998. Likewise, it erred when in

making petitionerliable for business taxes based on its gross

income/revenue for January to August 1998. Under the Makati

Revenue Code, it appears that the business tax, like income tax, is

computed based on the previous years figures. A newly -started

business is already liable for business taxes at the start of the

quarter when it commences operations. In computing the amount of

tax due for the first quarter of operations, the business capital

investment is used as the basis. For the subsequent quarters of the

first year, the tax is based on the gross sales/receipts for the previous

quarter. In the following year(s), the business is then taxed based on

the gross sales or receipts of the previous year. The business taxes

paid in the year 1998 is for the privilege of engaging in business for

the same year, and not for having engaged in business for 1997.

Also, if found that the retirement or termination of the business is

legitimate, [a]nd the tax due therefrom be less than the tax due for

the current year based on the gross sales or receipts, the difference

in the amount of the tax shall be paid before the business is

considered officially retired or terminated. Here, for the year 1998,

petitioner paid a total of P2,262,122.48 to the City Treasurer as

business taxes for the year 1998. The amount of tax as computed

based on petitioners gross sales for 1998 is only P1,331,638.84.

Since the amount paid is more than the amount computed based on

petitioners actual gross sales for 1998, petitioner upon its

retirement is not liable for additional taxes to the City of Makati.

respondent erroneously treated the assessment and collection of

business tax as if it were income tax, by rendering an additional

assessment of P1,331,638.84 for the revenue generated for the year

1998.

MACTAN CEBU VS. MARCOS, 261 SCRA 667

FACTS: Petitioner Mactan Cebu International Airport Authority

(MCIAA) was created by virtue of Republic Act No. 6958, mandated

to "principally undertake the economical, efficient and effective

control, management and supervision of the Mactan International

Airport in the Province of Cebu and the Lahug Airport in Cebu City.

Since the time of its creation, MCIAA enjoyed the privilege of

exemption from payment of realty taxes in accordance with Section

14 of its Charter. On October 11, 1994, however, Mr. Eustaquio B.

Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu,

demanded payment for realty taxes on several parcels of land

belonging to the petitioner. MCIAA objected to such demand for

payment as baseless and unjustified, claiming in its favor the

aforecited Section 14 of RA 6958 which exempt it from payment of

realty taxes. It was also asserted that it is an instrumentality of the

government performing governmental functions, citing section 13

of the Local Government Code of 1991 which puts limitations on th

taxing powers of local government units. Respondent City refused t

cancel and set aside petitioner's realty tax account, insisting that th

MCIAA is a government-controlled corporation whose tax exemptio

privilege has been withdrawn by virtue of Sections 193 and 234 o

the Local Governmental Code that took effect on January 1, 1992.

ISSUE: Whether the MCIAA is exempt from realty taxes?

HELD: NO. Since taxes are what we pay for civilized society, or ar

the lifeblood of the nation, the law frowns against exemptions fro

taxation and statutes granting tax exemptions are thus construe

strictissimi juris against the taxpayers and liberally in favor of th

taxing authority. A claim of exemption from tax payment must b

clearly shown and based on language in the law too plain to b

mistaken. Elsewise stated, taxation is the rule, exemption therefro

is the exception. However, if the grantee of the exemption is

political subdivision or instrumentality, the rigid rule of constructio

does not apply because the practical effect of the exemption

merely to reduce the amount of money that has to be handled by th

government in the course of its operations.

The power to tax is primarily vested in the Congress; however, in ou

jurisdiction, it may be exercised by local legislative bodies, no long

merely by virtue of a valid delegation as before, but pursuant t

direct authority conferred by Section 5, Article X of the Constitutio

Under the latter, the exercise of the power may be subject to suc

guidelines and limitations as the Congress may provide whic

however, must be consistent with the basic policy of local autonom

There can be no question that under Section 14 of R.A. No. 6958 th

petitioner is exempt from the payment of realty taxes imposed b

the National Government or any of its political subdivision

agencies, and instrumentalities. Nevertheless, since taxation is th

rule and exemption therefrom the exception, the exemption ma

thus be withdrawn at the pleasure of the taxing authority. The on

exception to this rule is where the exemption was granted to privat

parties based on material consideration of a mutual nature, whic

then becomes contractual and is thus covered by the no

impairment clause of the Constitution. The LGC, enacted pursuant t

Section 3, Article X of the constitution provides for the exercise b

local government units of their power to tax, the scope thereof or it

limitations, and the exemption from taxation.The LGC express

repealed the exemption RA 6958, thereby withdrawing th

exemption on realty tax given to the petitioner.

NOTE: A distinction should also be made between the phrase

National Government and Republic of the Philippines, as they a

not interchangeable.Republic of the Philippines is broader an

synonymous with Government of the Republic of the Philippine

defined as the corporate governmental entity through which th

functions of government are exercised throughout the Philippine

including, save as the contrary appears from the context, the variou

arms through which political authority is made affective in th

Philippines, whether pertaining to the autonomous regions, th

provincial, city, municipal or barangay subdivisions or other forms

local government. These autonomous regions, provincial, cit


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Geoc. Pierre. Butch

municipal or barangay subdivisions are the political subdivisions. On

the other handNational Government refers to the entire

machinery of the central government, as distinguished from the

different forms of local governments. The National Government

then is composed of the three great departments: the executive, the

legislative and the judicial. An agency of the Government refers to

any of the various units of the Government, including a department,

bureau, office, instrumentality, or government-owned or controlledcorporation, or a local government or a distinct unit therein. An

instrumentality refers to any agency of the National Government,

not integrated within the department framework, vested with special

functions or jurisdiction by law, endowed with some if not all

corporate powers, administering special funds, and enjoying

operational autonomy, usually through a charter. This term includes

regulatory agencies, chartered institutions and government-owned

and controlled corporations.

PLDT VS. CITY OF DAVAO

GR 143867, Aug. 22, 2001

FACTS: PLDT applied for a Mayors Permit to operate its Davao Metro

Exchange. Respondent City withheld action on the application

pending payment by PLDT of the local franchise tax for 1999. PLDT

protested the assessment and requested a refund for the franchise

tax it paid for the year 1997 and first to third quarters of 1998. PLDT

contends that it was exempt from the payment of franchise tax

relying on the opinion of the Bureau of Local Government Finance

(BLGF) which provides that PLDT shall only be liable to pay the

franchise tax on its gross receipts realized from 1992 up to March 15,

1995, the period which PLDT was not yet enjoying the most favored

clause proviso of RA 7925 which brought back the tax exemption of

the in lieu of all taxes proviso of RA 7082, PLDTs franchise. The City

treasurer denied the protest and claim for tax refund and cited the

opinion of the City Legal officer and the Ordinance which provides

that notwithstanding any exemption granted by any law or other

special law, there is hereby imposed a tax on businesses enjoying a

franchise, at a rate of Seventy-five percent (75%) of one percent (1%)

of the gross annual receipts for the preceding calendar year based on

the income or receipts realized within the territorial jurisdiction of

Davao City. The trial court ruled that the LGC withdrew all tax

exemptions previously enjoyed by all persons and authorized local

government units to impose a tax on businesses enjoying a franchise

notwithstanding the grant of tax exemption to them. The trial court

likewise denied petitioners claim for exemption under R.A. No. 7925

for the following reasons: (1) it is clear from the wording of 193 of

the Local Government Code that Congress did not intend to exempt

any franchise holder from the payment of local franchise and

business taxes and (2) the opinion of the Executive Director of the

Bureau of Local Government Finance to the contrary is not binding

on respondents.

ISSUE: (1) Whether PLDT is exempted from local franchise tax? (2)

Whether the opinions of the BLGF are binding?

(1) NO. The grant of taxing powers to local government units under

the Constitution and the LGC does not affect the power of Congress

to grant exemptions to certain persons, pursuant to a declared

national policy. The legal effect of the constitutional grant to local

governments simply means that in interpreting statutory provision

on municipal taxing powers, doubts must be resolved in favor

municipal corporations. The question, therefore, is whether, aft

the withdrawal of its exemption by virtue of 137 of the LGC, PLD

has again become entitled to exemption from local franchise tax.

To begin with, tax exemptions are highly disfavored. The ta

exemption must be expressed in the statute in clear language tha

leaves no doubt of the intention of the legislature to grant sucexemption. And, even if it is granted, the exemption must b

interpreted in strictissimi juris against the taxpayer and liberally

favor of the taxing authority.

Here, PLDT justifies its claim of tax exemption by citing R.A. No. 792

otherwise known as the Public Telecommunications Policy Act of th

Philippines. PLDT claims that Smart and Globe enjoy exemption fro

the payment of the franchise tax by virtue of their legislativ

franchises per opinion of the Bureau of Local Government Finance.

argues that because Smart and Globe are exempt from the franchis

tax, it follows that it must likewise be exempt from the tax bein

collected by the City of Davao because the grant of tax exemption t

Smart and Globe ipso facto extended the same exemption to

There is nothing in the language of RA 7925 nor in the proceedings o

both the House of Representatives and the Senate in enacting th

said law which shows that it contemplates the grant of ta

exemptions to all telecommunications entities, including thos

whose exemptions had been withdrawn by the LGC. The wor

exemption in 23 of R.A. No. 7925 could contemplate exemptio

from certain regulatory or reporting requirements, bearing in min

the policy of the law. It is noteworthy that, in holding Smart an

Globe exempt from local taxes, the BLGF did not base its opinion o

23 but on the fact that the franchises granted to them after th

effectivity of the LGC exempted them from the payment of loc

franchise and business taxes.

(2) NO. PLDT contends that courts should not set aside conclusion

reached by the BLGF because its function is precisely the study o

local tax problems and it has necessarily developed an expertise o

the subject. The BLGF is not an administrative agency whose finding

on questions of fact are given weight and deference in th

courts. The BLGF was created merely to provide consultativ

services and technical assistance to local governments and th

general public on local taxation, real property assessment, and oth

related matters, among others.

PBA VS. CA

FACTS:Philippine Basketball Association received an assessment fro

the CIR for payment of deficiency amusement tax. PBA filed

protest. CIR denied the same. PBA filed a petition for review with th

CTA questioning the denial by CIR of its tax protest. CTA dismisse

the PBAs petition holding PBA liable to pay the deficien

amusement tax. On appeal, the CA affirmed the CTA decision. PB

contends that the jurisdiction to collect amusement taxes of PB

games is NOT vested in the national government but instead to th

local governments. PBA argues that PD 231, otherwise known as th

Local Tax Code of 1973, transferred the power and authority to lev

and collect amusement taxes from the sale of admission tickets t


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Geoc. Pierre. Butch

places of amusement from the national government to the local

governments.

ISSUE: Whether the amusement tax on PBA tickets is a national tax?

HELD: YES. The law is clear. Section 13 of the Local Tax Code provides

that the province shall impose a tax on admission to be collected

from the proprietors, lessees, or operators of theaters,cinematographs, concert halls, circuses and other places of

amusement . . ." The foregoing provision of law in point indicates

that the province can only impose a tax on admission from the

proprietors, lessees, or operators oftheaters, cinematographs,

concert halls, circuses and other places of amusement. The authority

to tax professional basketball games is not therein included, as the

same is expressly embraced in PD 1959, which amended PD 1456:

"proprietor, lessee or operator of . . . professional basketball games"

is required to pay an amusement tax equivalent to fifteen per

centum (15%) of their gross receipts to the Bureau of Internal

Revenue, which payment is a national tax. The said payment of

amusement tax is in lieu of all other percentage taxes of whatever

nature and description.

While Section 13 of the Local Tax Code mentions "other places of

amusement", professional basketball games are definitely not within

its scope. Even up to the present, the category of amusement taxes

on professional basketball games as a national tax remains the same.

This is so provided under Section 125 of the 1997 National Internal

Revenue Code. Section 140 of the Local Government Code of 1992

(Republic Act 7160), meanwhile, retained the areas (theaters,

cinematographs, concert halls, circuses and other places of

amusement) where the province may levy an amusement tax

without including therein professional basketball games.

YAMANE VS.BALEPANTO CONDOMINIUM,GRNO.154993OCT.25,2005

BA Lepanto Condominium Corporation is a duly organizedcondominium corporation constituted in accordance with the

Condominium Act. The Corporation is authorized under its by-

laws to collect from its members (the unit-owners) regular

assessments to cover operating expenses and capital expenses.

BA Lepanto was thereafter assessed 1.6M for business taxes,fees and charges In protesting this assessment, BA Lepanto

argued that it had no statutory basis as it was not an

owner/operator of any business. As a condominium

corporation, it argues that it was not organized for profit, but

merely to hold title over the common areas of the

Condominium and manage the condominium

The protest was denied, hence the corporation filed an appealwith the RTC. It was dismissed. The corporation then filed a

petition for review under Rule 42 with the CA. The CA reversed

and held that the corporation was not liable for business taxes

The treasurer argues that the corporation filed the wrong mode

of appeal before the CA when it filed under Rule 42 because the

RTC decision was rendered in the exercise of its original

jurisdiction (hence, it shouldve been Rule 41)

Issue: Was the mode of appeal of BA Lepanto incorrect? Is BA

Lepanto liable for business taxes?

As to the procedural issue:

BA Lepanto filed under the wrong rule because the RTC did noexercise its appellate jurisdiction since the denial of the prote

was not the judgment or order of a lower court, but of a loc

government official (city treasurer) Hence, the RTC decision wa

rendered in the exercise of its original jurisdiction. The LGC doe

not confer appellate jurisdiction on the part of the RTCs fro

the denial of a tax protest by a local treasurer. Therefore

follows that Rule 41 was the correct remedy.

o IMPORTANT NOTE: keep in mind that this is for casebefore 9282 (CTA jurisdiction)

Now, because of RA 9282, the CTA exercise exclusive appellajurisdiction to review appeal decisions, orders or resolutions o

the RTCs in local tax cases originally decided by them in th

exercise of their original or appellate jurisdiction. The provisio

states that the remedy in order to trigger review would be tfile a petition for review analogous to that provided for unde

Rule 42.

o In summary, under the rules now as applied to thcase, this is what shouldve happened:

Treasurer denies protest Appeal with RT CTA (analogous to Rule 42)

As to liability of condominium corporations for business tax:

The coverage of business taxation particular to the City oMakati is provided by the Makati Revenue Code (Revenu

Code), enacted through Municipal Ordinance No. 92-072. It

quite specific as to the particular businesses which are covere

by business taxes. The City Treasurer primarily relies on a catchall provision (On owners/operators of any business not specified

The SC held that the City Treasurer failed to point out the legbasis of the assessment (the catch-all provision was not enoug

and the other provision merely contained etc.) In fact, th

condominium act prohibits condominium corporations are fro

transacting its properties for purposes of gainful profits. Mor

importantly, none of the corporations purposes are geare

towards maintaining a livelihood or the making of profit

Hence, it cannot be characterized as a business

Therefore, condominium corporations are generally exemfrom local business taxation under the LGC. The only exceptio

to this is when unit owners of a condominium band together t

engage in activities for profit under the shelter of th

condominium corporation. It is prohibited by law and becausthese acts would constitute ultra vires acts, these unit owne

cannot hide using the corporation to use it as a defense whe

they are taxed for business taxes.

ERICSSON VS.CITY OF PASIG,GRNO.176667,NOV.22,2007

Ericsson Telecommunications, Inc. (petitioner), a corporatiowith principal office in Pasig City, is engaged in the desig


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engineering, and marketing of telecommunication

facilities/system. It was assessed business tax deficiencies for

various years based on its gross revenue.

Respondent assessed deficiency local business taxes onpetitioner based on the latter's gross revenue as reported in its

financial statements, arguing that gross receipts is synonymous

with gross earnings/revenue, which, in turn, includes

uncollected earnings. On the other hand, petitioner, contends that only the portion of

the revenues which were actually and constructively received

should be considered in determining its tax base.

Issue: Should the local business tax on contractors be based on gross

receipts or gross revenues?

Insofar as petitioner is concerned, the applicable provision is

subsection (e), Section 143 of the LGC Code covering contractors and

other independent contractors, to wit:

SEC. 143. Tax on Business. - The municipality may impose

taxes on the following businesses:

x x x x

(e) On contractors and other independent contractors, in

accordance with the following schedule:

With gross receipts for the preceding calendar

year in the amount of:

x x x x

Amount of Tax Per

Annum

The above provision specifically refers to gross receipts which

is defined under Section 131 of the Local Government Code, as

follows:

(n) "Gross Sales or Receipts"include the total amount of

money or its equivalent representing the contract price,

compensation or service fee, including the amount charged

or materials supplied with the services and the deposits or

advance payments actually or constructively received

during the taxable quarter for the services performed or to

be performed for another person excluding discounts ifdeterminable at the time of sales, sales return, excise tax,

and value-

Thus, the law is clear. Gross receipts include money or its equivalent

actually or constructively received in consideration of services

rendered or articles sold, exchanged or leased, whether actual or

constructive. There is, therefore, constructive receipt, when the

consideration for the articles sold, exchanged or leased, or the

services rendered has already been placed under the control of the

person who sold the goods or rendered the services without any

restriction by the payor.

In contrast, gross revenue covers money or its equivalent actually o

constructively received, including the value of services rendered or

articles sold, exchanged or leased, the payment of which is yet to breceived.

In petitioner's case, its audited financial statements reflect income

or revenue which accrued to it during the taxable period although

not yet actually or constructively received or paid . This is because

petitioner uses the accrual method of accounting, where income is

reportable when all the events have occurred that fix the taxpayer's

right to receive the income, and the amount can be determined with

reasonable accuracy; the right to receive income, and not the actua

receipt, determines when to include the amount in gross income.

The imposition of local business tax based on petitioner's gross

revenue will inevitably result in the constitutionally proscribed

double taxationtaxing of the same person twice by the same

jurisdiction for the same thing inasmuch as petitioner's revenue or

income for a taxable year will definitely include its gross receipts

already reported during the previous year and for which local

business tax has already been paid.

Thus, respondent committed a palpable error when it assessed

petitioner's local business tax based on its gross revenue as reported

in its audited financial statements, as Section 143 of the Local

Government Code and Section 22(e) of the Pasig Revenue Code

clearly provide that the tax should be computed based on gross

receipts.

DRILON VS.LIM,235SCRA135

The principal issue in this case is whether or not Section 187 othe LGC is constitutional. In summary, it provides that publ

hearings are required before local tax ordinances are approve

Further, it provides that any question on the legality of ta

ordinances may be appealed to the Secretary of Justice.

Pursuant to Sec 187, the Sec of Justice had, on appeal to him bfour oil companies, declared Ordinance 7794 (Manila Revenu

Code) void for non-compliance with prescribed procedure.

The RTC, in a petition for certiorari filed by the City of Manildeclared Sec 187 unconstitutional because it gave the secreta

of justice power of control over local governments when

should only be power of supervision.

As to validity of Sec 187

Section 187 authorizes the Secretary of Justice to review onthe constitutionality or legality of the tax ordinance and,

warranted, to revoke it on either or both of these grounds.

When he alters or modifies or sets aside a tax ordinance, he not also permitted to substitute his own judgment for th


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Geoc. Pierre. Butch

judgment of the local government that enacted the measure.

Secretary Drilon did set aside the Manila Revenue Code, but he

did not replace it with his own version of what the Code

should be. What he found only was that it was illegal.

All he did in reviewing the said measure was determine if thepetitioners were performing their functions in accordance with

law, that is, with the prescribed procedure for the enactment of

tax ordinances and the grant of powers to the city governmentunder the Local Government Code. As we see it, that was an act

not of control but of mere supervision. Therefore, he did not

exercise power of control.

As to non-compliance with procedure:

In his resolution, Secretary Drilon declared that there were nowritten notices of public hearings on the proposed Manila

Revenue Code that were sent to interested parties and there

were no minutes proving such hearings.

However, the SC found that the procedural requirements wereobserved as there was notice through publication and

dissemination.

JARDINE DAVIES INSURANCE VS.ALIPOSA,GRNO.118900FEB.27,2003

PRCI (Philippine Racing Club) appealed to the DOJ for thenullification of the Makati Revenue Code, which provides,

among others, the schedule of real estate, business and

franchise taxes. The rates provided are higher than those in the

Metro Manila Revenue Code.

PRCI argues that the ordinance was approved without publichearings and that the franchise tax was not within the scope of

the taxing powers of Makati. The DOJ declared the ordinance

null and void but the City of Makati filed a petition to declare

the DOJ resolution null and void.

Meanwhile, Makati implemented the ordinance and foundJardine Davies to be liable for taxes under such ordinance.Jardine Davies, however, requested that its tax liabilities be

computed based on the Metro Manila Revenue Code

considering that the DOJ already considered it null and void. The

City of Makati asserted that the ordinance was still valid as its

petition with the RTC was still pending. In the meantime, the

RTC upheld the validity of the ordinance.

However, Jardine Davies still filed a complaint with the RTC,asking for refund of its overpayments. It based its action on the

fact that it should be refunded the amounts it paid pursuant to

the Makati Revenue Code for the time period wherein it was

declared to be invalid by the DOJ and before the time it was

declared valid by the RTC.

Issue: Can Jardine Davies still maintain its action?

The Court agrees with petitioner that as a general precept, ataxpayer may file a complaint assailing the validity of the

ordinance and praying for a refund of its perceived

overpayments without first filing a protest to the payment of

taxes due under the ordinance.

In this case, petitioner, relying on the resolution of the Secretaryof Justice in The Philippine Racing Club, Inc. v. Municipality of

Makati case, posited in its complaint that the ordinance which

was the basis of respondent Makati for the collection of taxe

from petitioner was null and void.

However, the Court agrees with the contention of respondenthat petitioner was proscribed from filing its complaint wit

the RTC of Makati for the reason that petitioner failed t

appeal to the Secretary of Justice within 30 days from th

effectivity date of the ordinance as mandated by Section 18

of the Local Government Code. Clearly, the law requires that the dissatisfied taxpayer wh

questions the validity or legality of a tax ordinance must file h

appeal to the Secretary of Justice, within 30 days fro

effectivity thereof. In case the Secretary decides the appeal,

period also of 30 days is allowed for an aggrieved party to go t

court. But if the Secretary does not act thereon, after the laps

of 60 days, a party could already proceed to seek relief in cour

These three separate periods are clearly given for compliance a

a prerequisite before seeking redress in a competent cour

Such statutory periods are set to prevent delays as well a

enhance the orderly and speedy discharge of judicial functions

For this reason the courts construe these provisions of statuteas mandatory.

A municipal tax ordinance empowers a local government unit timpose taxes. The power to tax is the most effective instrumen

to raise needed revenues to finance and support the myria

activities of local government units for the delivery of bas

services essential to the promotion of the general welfare an

enhancement of peace, progress, and prosperity of the peopl

Consequently, any delay in implementing tax measures wou

be to the detriment of the public. It is for this reason tha

protests over tax ordinances are required to be done with

certain time frames. In the instant case, it is our view that th

failure of petitioners to appeal to the Secretary of Justic

within 30 days as required by Sec. 187 of R.A. 7160 is fatal t

their cause.

Moreover, petitioner even paid without any protest thamounts of taxes assessed by respondents Makati and Actin

Treasurer as provided for in the ordinance. Evidently, th

complaint of petitioner with the Regional Trial Court was mere

an afterthought.

Documents

Tax Digests for local government tax