Tax 2 | Prof. D. Lucenario | Group A AY 2010-2011, 2nd Sem Page 1 of 29 Philippine Petroleum Corp. v. Municipality of Pililia, Rizal (Paras, 1991)1 Facts: - PPC owns and maintains an oil refinery including 49 storage tanks for its petroleum products in the town of Pililia, Rizal. - The law in control then was Sec. 142 of the NIRC of 1939 saying that manufactured oils and other fuels are subject to specific tax. - During this time several laws were enacted: a. June 28, 1973- PD 231 (Local Tax Code) • Its Sec. 19 and 19(a) provide that the municipality may impose taxes on business, except on those for which fixed taxes are provided on manufacturers, importers or producers of any article of commerce of whatever kind or nature. b. Dec. 27, 1973- Provincial Circular No. 26-73 • It directed all LGUs to refrain from collecting any local tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling or dealing in petroleum products subjects to the specific tax under the NIRC c. Jan. 9, 1873- Provincial Circular No. 26 A-73 • Instruction to all local treasurers to refrain from collecting any local tax imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code on the business of manufacturing, wholesaling or dealing in petroleum products subjects to the specific tax under the NIRC d. July 1, 1974- Pililia Tax Code of 1974 • Secs. 9 and 10 of it imposed a tax on business, except for those for which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or producers of any article of commerce of whatever kind or nature e. March 30, 1974- PD 426 • Amended certain provisions of PD 231 but retaining Sec. 19 and 19(a) with adjusted rates f. April 13, 1974- PD 436 • Granted LGUs certain shares in the specific tax on petroleum products in lieu of local taxes imposed on petroleum products g. March 13, 1977- Provincial Circular No. 6-77 • Directed local treasurers from collecting the storage fee on flammable or combustible materials h. June 3, 1977- PD 1158 (NIRC of 1977) • Its Sec. 153 imposed specific tax on refined and manufactured mineral oils and motor fuels. - The Municipality of Pililia filed a complaint against PPC for the collection of business tax from 1979-1986 and storage permit fees. For its defense, PPC alleged that it is not subject to tax in view of Provincial Circular No. 26-73 and 26 A-73. Issue: WON PPC whose petroleum products is subject to a specific tax may be subjected to a business tax and to storage fees. Held and Ratio: - YES. PD 426 amending the Local Tax Code is deemed to have repealed the 2 provincial circulars when Sec. 19 and 19(a) were carried over into PD 426 and no exemptions were given to manufacturers, wholesalers , retailers or dealers in petroleum products in terms of business taxes. What Sec. 2 of PD 436 prohibits is the imposition of local taxes on petroleum products but it did not amend Sec. 19 an d19(a) of PD 231 as amended by PD 426, wherein the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. 1
Angel Paglicawan
Page 2 of 29 Tax 2 | Group A - The exercise of LGUs of the power to tax is ordained by Sec. 5, Art. X of the 1987 Constitution. Under such provision, only guidelines and limitations that may be established by Congress can define and limit the taxing power of LGUs. - As to the storage fees, Pililia cannot impose it in light of Provincial Circular 6-77 which was not invalidated. Such storage makes use of tanks owned by PPC and not by the municipality thus no service was rendered by the latter meriting an imposition of storage fees. Dispositive: PPC is liable to pay the business taxes accruing prior to 1976 but not the storage fees. MCIAA vs CA2 (overturned by MIAA vs Pasay G.R. No. 163072, April 2, 2009.) Facts: Mactan Cebu International Airport Authority was created under RA 6958 and granted realty tax exemption under Sec. 14 of the said law. In 1994, however, the Treasurer of Cebu assessed realty tax against the MCIAA arguing that the latter was a GOCC. It also argued as an LGU it had the power to levy taxes within its territory as granted by the Constitution and the LGC. MCIAA counter-argued that it was exempt under its charter and that it can be treated to be on the same plane as a government instrumentality and thus exempt from tax. Issue: Whether the LGU had the power to tax the MCIAA Held: Yes. The MCIAA being a GOCC was a taxable entity. The Constitution granted such power to the LGUs while the LGC provides for its exercise, scope and limitations. Power to levy real property tax is based on Section 232 while Section 193 withdraws the tax exemption privileges granted prior to the LGC. These provisions underscore the policy thrust of the government to give more local autonomy to the LGUs. On this taxing power granted to the LGUs, the SC elaborates thus: “These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes and other charges due from them. ” NATIONAL POWER CORPORATION vs. CITY OF CABANATUAN (2003 Apr 9)3 FACTS: - NPC is a GOCC tasked to undertake the "development of hydroelectric generations of power and the production of electricity from nuclear, geothermal and other sources, as well as, the transmission of electric power on a nationwide basis." - NPC sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. - Pursuant to section 37 of Ordinance No. 165-92, the City of Cabanatuan assessed NPC a franchise tax amounting to P808,606.41, representing 75% of 1% of the latter’s gross receipts for the preceding year. - NPC, whose capital stock was subscribed and paid wholly by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities and that as a non-profit organization; it is exempted from the 2 3
April Lacson Carmencita Ambrocio
Page 3 of 29 Tax 2 | Group A payment of all forms of taxes, charges, duties or fees in accordance with sec. 13 of Rep. Act No. 6395, as amended. - The RESPONDENT filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and 2% monthly interest. It alleged that NPC’s exemption from local taxes has been repealed by section 193 of Rep. Act No. 7160. - The TRIAL COURT dismissed the case and ruled that the tax exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the national government. - On appeal, the COURT OF APPEALS reversed the trial court’s Order on the ground that section 193, in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to NPC. - NPC filed a Motion for Reconsideration which was denied by the CA, thus, the present petition for review. ISSUE/HELD: WON NPC is liable to pay franchise tax – YES WON the City of Cabanatuan has the authority to issue Ordinance No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in relation to section 137 of the LGC – YES RATIO: Sec. 137. Franchise Tax.- Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein. Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. - Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. 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 wellbeing of the people. - 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 charges pursuant to Article X, section 5 of the 1987 Constitution. Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments. - This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country’s highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. DINA: The only way
Page 4 of 29 Tax 2 | Group A to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers. - Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on instrumentalities and agencies of the national government. Section 133. Common Limitations on the Taxing Powers of the 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: xxx (o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. - As this Court ruled in the case of MCIAA vs. Marcos, nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit. In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the respondent city government to impose on the petitioner the franchise tax in question. - To determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. A special or secondary franchise 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. NPC fulfills both requisites. - 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 NPC is not engaged in business. Governmental functions are those pertaining to the administration of government, and as such, are treated as absolute obligation on the part of the state to perform while proprietary functions are those that are undertaken only by way of advancing the general interest of society, and are merely optional on the government. NPC generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. The public interest involved in its activities, however, does not distract from the true nature of the petitioner as a commercial enterprise. - Section 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. It is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational institution, NPC clearly does not belong to the exception. - Section 137 of the LGC clearly states that the LGUs can impose franchise tax "notwithstanding any exemption granted by any law or other special law." This particular provision of the LGC does not admit any exception. - Section 192 of the LGC empowers the LGUs, through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or other special law," the respondent city government clearly did not intend to exempt the petitioner from the coverage thereof. - The power to tax is the most effective instrument to raise needed revenues to finance and
Page 5 of 29 Tax 2 | Group A support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. City of San Pablo v Reyes4 •
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Act No. 3648 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities in consideration of which a franchise tax equal to two percentum of the gross earnings from electric current sold or supplied under this franchise in each said municipality..”which shall be in lieu of any and all taxes of any kind nature or description levied, established or collected by any authority whatsoever, municipal, provincial or insular, now or in the future,… “. Later, Republic Act No. 2340 transferred the franchise to Meralco (respondent). PD No. 551 was enacted stating similar exemptions regarding payable franchise taxes as in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current. However, RA. 7160, (Local Government Code – LGC) took effect on January 1, 1992 authorizing the province/city to impose a tax on business enjoying a franchise at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year realized within its jurisdiction. It also included the ff. sections repealing tax exemption privileges. Sec. 193 — Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non- stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. Sec. 534 (f) — Repealing Clause — All general and special law, acts, city charters, decrees, executive orders, proclamation and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this code are hereby repealed or modified accordingly. The Sangguniang Panglunsod of San Pablo City enacted Ordinance No. 56, otherwise known as the Revenue Code of the City of San Pablo which provides:Sec. 2.09. Franchise Tax — There is hereby imposed a tax on business enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the cross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within the city. The City Treasurer (petitioner) sent to private respondent a letter demanding payment of the aforesaid franchise tax. From 1994 to 1996, private respondent paid "under protest" a total amount of P1,857,711.67 then filed action before the Regional Trial Court to declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon private respondent MERALCO and to claim for a refund of the taxes paid. The RTC declared the imposition of a franchise tax under Section 2.09 Article D of Ordinance No. 56 as ineffective and void insofar as the respondent MERALCO is concerned for being violative of Act No. 3648, Republic Act No. 2340 and PD 551 saying that the LGC did not expressly or impliedly repeal the tax exemption/incentive enjoyed by it under its charter. The RTC also granted MERALCO'S claim for refund of franchise taxes paid under protest. Meralco petitioned the SC on WON the LGC repealed their tax exemptions.
ISSUE: WON the City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Meralco which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on savings or income. SC: YES. The tax exemptions granted by the special laws of the Meralco charter were repealed by the LGC. •
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Sec. 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations except 1) local water districts, 2) cooperatives duly registered under R.A. 6938,
Christine Leones
Page 6 of 29 Tax 2 | Group A
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(3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. Jurisprudence also support the withdrawal of privileges Mactan Cebu International Airport Authority vs. Marcos and Cagayan Electric Power and Light Co. Inc. vs. Commissioner of Internal Revenue). POWER TO CREATE SOURCES OF FUNDS: The power to tax is primarily vested in Congress. However, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution which: Sec. 5 — Each Local Government unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments. The important legal effect of Section 5 is that henceforth, in interpreting statutory provision on municipal fiscal powers, doubts will have to resolved in favor of municipal corporations.
ILOILO BOTTLERS INC. v. CITY OF ILOILO5 (delivery trucks engaged in distribution) FACTS: • In Jan. 1960, the City of Iloilo (Iloilo) enacted Ordinance No. 5 s.1960, which after several amendments, provides in essence, Any firm, person, or corporation engaged in the distribution, manufacture, or bottling of softdrinks in the City of Iloilo must pay a municipal license tax. • Iloilo Bottlers Inc., (IBI) is engaged in bottling of Pepsi Cola and 7-up. In late 1966, it owned and operated a bottling plant in Iloilo City. Since then, it had been paying the municipal license tax due under the said Ordinance. • In July 1968, it closed the bottling plant in Iloilo City and transferred the same to Pavia, Iloilo. In addition to bottling, it also sold softdrinks to its customers. • In July 1969, Iloilo demanded from IBI the payment of municipal license tax due under the Ordinance. IBI replied stating that it was not liable for such tax in view of the transfer of its bottling plant and its direct selling to its customers (IBI argued that under our jurisprudence, such does not constitute ‘distribution’) • Due to the insistence of Iloilo, IBI had been paying the said tax due under protest since 1972. Moreover, it also paid the back taxes it failed to pay since the transfer of its bottling plant. CASE • •
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IBI filed a case for recovery of the tax which it paid under protest before the CFI Iloilo with the same arguments as in its reply CFI: Decided in favor of IBI Appeal by Iloilo City
ISSUE: WoN IBI is liable for the municipal license tax? HELD/RATIO: YES. • Being an excise tax, ie. Tax on the privilege of engaging in a particular business/activity, the municipal license tax can only be imposed within the territory of Iloilo City. • Under the Ordinance, the transactions subject to the municipal license tax are: (1) bottling; (2) manufacture; (3) distribution. While IBI already transferred its bottling plant to Pavia, there is no dispute that it (cannot) be taxed as (bottler or manufacturer). • However, it can be considered as engaged in distribution in Iloilo City. It is generally recognized that the right to manufacture involves the right to sell/distribute. Thus, a manufacturer is not deemed engage in the separate business of selling when it sells the products it manufactures. • But there are cases when the manufacturer can be deemed so engaged. The marketing 5
Dianne De Los Reyes
Page 7 of 29 Tax 2 | Group A
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system or sales operation employed by the manufacturer is determinative. If the sales transactions are entered into or invoiced in the main office, with the warehouse functioning merely as storage house for the delivery of the products, then there is no separate business. But if the sales transactions are perfected in the warehouses maintained by manufacturers, then, the transactions constitute separate business. Based on the facts, IBI is engaged in such separate business of selling/distribution since the delivery trucks are not merely used to deliver products to consummate a priorly perfected contract of sale but are used as selling units.
DISPOSITIVE: Reversed. Pepsi-Cola Bottling Co. vs. City of Butuan6 Facts: • Pepsi-Cola Bottling Co. (Pepsi) filed a suit to recover the sums paid by it to the City of Butuan pursuant to Municipal Ordinance No. 110 which the former assails as null and void. • Pepsi’s warehouse in Butuan serves as storage for its products, the Pepsi-Cola soft drinks. The soft drinks are bottled in Cebu and shipped to the Butuan City warehouse for distribution and sale in Butuan and Agusan. • The City of Butuan enacted Municipal Ordinance No. 110 imposing a tax of P0.10 per case of 24 bottles of soft drinks or carbonated drinks. Under the said ordinance, the tax is imposed only upon an agent or consignee of any person, association, partnership, company or corporation engaged in selling soft drinks or carbonated drinks. In effect, merchants engaged in the sale of soft drinks, etc. are not subject to the tax unless they are agents or consignees of another dealer who must be one engaged in business outside the City. • The contentions raised by Pepsi in assailing the subject ordinance as null and void are: 1. That it partakes that nature of import tax 2. That it amounts to double taxation 3. That it is excessive, oppressive and confiscatory 4. That it is unjust and discriminatory 5. That Sec. 2 of RA 2264, upon the authority of which the ordinance was enacted, is an unconstitutional delegation of legislative powers. Issues: Whether or not Municipal Ordinance No. 110 is null and void Held: Yes, Municipal Order No. 110 is null and void • The Supreme Court held that Pepsi’s second and last contentions are devoid of merit. • Double taxation, in general, is not forbidden by our fundamental law. We have not adopted the injunction against double taxation found in the Constitution of the US and of some states of the Union. As to the alleged unconstitutional delegation of legislative powers, the SC pointed out that the general principle against delegation of legislative powers is subject to one well-established exception: that legislative powers may be delegated to local governments in respect to matters of local concerns. • According to the SC, the tax rate imposed by the subject ordinance is manifestly too small to be excessive, oppressive or confiscatory. However, the court held that it is discriminatory because 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, would be exempt from the tax. • The classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be satisfied if the classification is based upon substantial distinctions which makes real differences; if it is germane to the purpose of legislation or ordinance; if the classification applies not only to present conditions but also to future conditions substantially identical to those of the present; and if it applies equally to all those who belong to the same class. These conditions are not fully met by the subject ordinance.
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Gian Hernal
Page 8 of 29 Tax 2 | Group A CITY OF BAGUIO v DE LEON7 October 31, 1968; Fernando, J. FACTS: • De Leon was renting out his property in Baguio and was gaining income from it. • Under an Baguio City Ordinance, De Leon was held liable as a real estate dealer with a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to pay the P50 annual fee • Lower court upheld the validity of an Ordinance 1 of the City of Baguio imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio • That is the principal question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the consent of the Mayor, which for him was indispensable. The lower court was of a different mind. ISSUE/HELD: 1. Did Baguio City have authority to enact the ordinance? Yes. The challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority for the enactment thereof. 2. Does it impose double taxation? No. RATIO: First issue: The source of authority for the challenged ordinance is supplied by RA 329, amending the city charter of Baguio empowering it to fix the license fee and regulate "businesses, trades and occupations as may be established or practiced in the City." • Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of the ordinance now assailed, the decision appealed from must be affirmed. • In Medina v. City of Baguio, SC clarified the effect of the amendatory section insofar as it would expand the previous power vested by the city charter "Appellants apparently have in mind section 2553, paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to impose a license fee for the purpose of rating the business that may be established in the city. The power as thus conferred is indeed limited, as it does not include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely having in view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, to license and to regulate provided that the subjects affected be one of those included in the charter. In this sense, the ordinance under consideration cannot be considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence." Second issue: An argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city, it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., vs. THE MUNICIPAL BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City of Manila8 7 8
Karichi Santos Lou Diane Rigodon
Page 9 of 29 Tax 2 | Group A Facts: The Municipal Board of the City of Manila passed Ordinance No. 3379, an ordinance imposing a property tax on motor vehicles operating within the city limits. Petitioner alleged that the tax imposed is a license tax which is beyond the power of the Municipal Board, it is against uniformity of taxation and constitutes double taxation. Issue: WON the ordinance is valid. Held: No. I. The ordinance is beyond the power of the municipal board. Section 18 (p) of RA No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." However, section 70 (b) of the Motor Vehicle Law, provides that no fees may be exacted or demanded for the operation of any motor vehicle except property tax which may be imposed by a municipal corporation. This in effect limits the power of the municipal board to impose only property taxes. II. The tax imposed is not a property tax but a license fee. While Ordinance No. 3379 of the City of Manila refers to property tax and it is fixed ad valorem , it is merely levied on motor vehicles operating within the said city with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. III. It infringes the rule of uniformity of taxation. The ordinance intends to burden with the tax only those registered in the City of Manila and excludes motor vehicles who come to Manila for a temporary stay or for short errands. Ormoc Sugar Co., Inc v Municipal Board of Ormoc City (1967, J. Fernando)9 Facts: Appeal from a decision of the CFI of Leyte, Fifth Branch, in a declaratory relief proceeding to test the validity of a Municipal Ordinance of the City of Ormoc stating: SECTION 1. City Tax. — There shall be paid to the City Treasurer on any and all productions of centrifugal sugar (B-Sugar locally sold or sold within the Philippines a city tax of Twenty Centavos (P0.20) per picul and one percentum (1%) on the gross sale of its derivatives and by-products produced by the Ormoc Sugar Company, Incorporated, or by any other sugar mills [sic] in Ormoc City. Issue: Is the said ordinance valid? Held: YES. (Note: This is the 1967 case. See the 1968 case.) a. When the Local Autonomy Act was enacted in 1959, the sphere of autonomy of a chartered city in the enactment of taxing measures has been considerably enlarged. In the language of the statute: SECTION 2. Taxation. — 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 services 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: Provided, That municipalities and municipal districts shall, in no case impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under 9
Nathan Marasigan
Page 10 of 29 Tax 2 | Group A the provisions of the National Internal Revenue Code x x x . Hodges v. Municipal Board restated the controlling doctrine in this wise: X x x we have announced the doctrine that the grant of the power to tax to chartered cities under Section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject only to the limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining Company vs. Municipality of Roxas, Province of Palawan, G.R. No. L-20125, July 20, 1965). There is no showing, and we do not believe it is possible to show, that the tax levied, called by any name, — percentage tax or sales tax — comes under any of the specific exceptions listed in section 2 of the Local Autonomy Act. X x x Since its public purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained as valid.1äwphï1.ñët b. Petitioner assails the said ordinance as being in restraint of trade. In the absence of a clear and specific showing that a constitutional or statutory provision was violated, such allegation is unmeritorious. Considering the indubitable policy expressly set forth in the Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid. Gaston vs Republic Planters Bank (1988)10 Facts: • Petitioners sugar producers, sugarcane planters and millers filed a petition for mandamus to compel the respondent government regulatory bodies, Philippine Sugar Commission/Sugar Regulatory Administration (Philsucom/SRA) to implement the privatization of Republic Planters Bank (Bank) by the transfer and distribution of shares of stock of the Bank to petitioners as beneficial owners. • Petitioners claim that said shares were funded by the deduction of P1.00 per picul from their sugar proceeds from 1978-1988 as Stabilization Fund pursuant to Sec. 7 of P.D. 388, which created the Philsucom. • Respondents PHILSUCOM and SRA argue that no trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that the suit is barred by laches. Issues: (1) WON the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds. (2) WON shares of stock in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom the fees were collected or levied. Held: Writ Denied. •
•
10
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 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. 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. The SC ruled that 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. The collections made accrue to a "Special Fund," a "Development and Stabilization Fund". 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. Having been levied for a special purpose, the revenues collected are to be
Princess Ramirez
Page 11 of 29 Tax 2 | Group A
•
•
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. That the fees were collected from petitioners and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fund 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. 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.
Progressive Development Corp. vs. QC (1989, Feliciano J)11 FACTS: QC Council adopted Ordinance 7997 [Market Code of Quezon City (1969)] Section 3 of which provided “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% (amended to 5% in 1972) of the gross receipts from stall rentals to the City, as supervision fee.” Failure to do so shall subject the operator to the penalties incl. revocation of permit to operate. Progressive Development Corp., which owned and operated “Farmers Market & Shopping Center,” a public market, filed a Petition for Prohibition with Preliminary Injunction against the city before the then CFI Rizal on the ground that the supervision fee or license tax imposed by the ordinances is in reality a tax on income which QC may not impose, because it is expressly prohibited by RA 2264, as amended. The lower court dismissed the petition. ISSUE: Whether the imposition is a TAX ON INCOME, w/c local governments are prohibited from imposing, or a LICENSE FEE, w/c local governments are empowered to impose and collect? LICENSE FEE HELD: The Supreme Court affirmed the decision of the CFI and denied the Petition for Review for lack of merit. First, Sec. 12, Art. III of RA 537 (Revised Charter of QC) grants the city council power to tax, not merely regulate or fix license fees, and Sec. 2 of RA 2264 (Local Autonomy Act) authorizes cities/municipalities to impose municipal license taxes, 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. THUS, both the QC Charter and the Local Autonomy Act show that the city is authorized to fix the license fee collectible from and regulate the business of the company as operator of a privately-owned public market. Second, TAX v. LICENSE FEE Tax Applies to all kinds of exactions of monies, which become public funds
Taxing power primarily for purposes of raising revenues Uniform and equitable; 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 11
Rhauline Lambino
License Fee Imposition 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 Exercise of police power primarily for purposes of regulation Imposition must also bear a reasonable relation to the probable expenses of regulation (direct and incidental costs)
Page 12 of 29 Tax 2 | Group A HERE, QC Council Resolution 7350 creating the Farmers Market and Shopping Center, authorized Progressive Dev’t Corp. to establish and operate a market with a permit to sell fresh meat, fish, poultry and other foodstuffs, with 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.” Its operation is akin to public market in the sense of a market open to and inviting the patronage of the general public, even though privately owned. It is established for the rendition of service to the general public, which warrants close supervision and control by the city, for the protection of the health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold with applicable food and drug and related standards, for the prevention of fraud and imposition upon the buying public, and so forth. THUS, the 5% tax is not a city income tax within the meaning of Sec. 2(g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which the company is engaged. Third, rates presumed to be reasonable, and an ordinance carries presumption of validity. 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. HERE, the company has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so grossly disproportionate to the costs of the regulatory service being performed by the city as to compel the Court to characterize the imposition as a revenue measure exclusively. Fourth, the gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due the city to cover the latter’s administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to the public. It does not by itself convert or render the license tax into a prohibited city tax on income. Also, such has a reasonable relationship to the probable costs of regulation and supervision of the company’s kind of business. 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. Fifth, 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. However, the rule is not applicable here, since the case involves an exercise of, principally, the regulatory power of the city expressly accompanied by the taxing power. Sison v. Ancheta (Fernando, 1984)12 Facts: Sec. 1 of BP 135 amended Sec. 21 of the NIRC of 1977 creating a tax rate schedule for different tax bases of taxable income.Petitioner Sison alleged that such amendment is discriminatory against like him whose income arises from the exercise of profession as against those earn a fixed salary or income. He characterized it as a violation of the equal protection clause, of due process and of the uniformity in taxation rule. Issue: WON Sec. 1 of BP 135 is a valid exercise of the State’s taxing power. Held and Ratio: • YES. The said provision violates no constitutional rule such as equal protection, due process and uniformity in taxation. Petitioner was not able to present any evidence showing any arbitrariness on said legislation. Congress has the power to make reasonable and natural classifications for purposes of taxation. “Where the differentiation complained of conforms to the practical dictates of justice and equity, it is not discriminatory” (J. Tuason). • Moreover, the distinction rests on reasonable grounds. Tax payers who are receivers of fixed 12
Angel Paglicawan
Page 13 of 29 Tax 2 | Group A salaries do not have overhead expenses which can be made deductible to the taxable income as against those who receive income through the exercise of profession. The basis then is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Dispositive: Sec. 1 of BP 135 is valid. Matalin Coconut vs Malabang13 (decided under the Local Autonomy Act or LAA or RA 2264) Facts: • In 1966 the Municipality of Malabang enacted an ordinance imposing a police inspection fee of Php 0.3 for every sack of cassava starch or flour to be shipped or taken out of the municipality and penalizes non-payment with a fine and/or imprisonment. • Matalin Coconut, and Purakan Plantation (as intervenor), filed a petition for declaratory relief challenging the validity of the ordinance, arguing that it was beyond the powers of the municipality as per the LAA and unreasonable, oppressive and confiscatory. The trial court found that the tax was a percentage sales tax beyond the power of the municipality under the LAA and decided in favor of Matalin and ordered the refund of taxes paid, thereby prompting this appeal by the Municipality. Issue: Whether or not the ordinance imposing a police inspection fee on the transport of cassava is valid? Held: • The tax is invalid, however the SC decided on a different ground than that of the TC. While agreeing with the lower court that the amount imposed was a tax, not a fee, since its purpose was to raise revenue, it was not a tax based on sales but rather a tax based on bags transported out of the municipality. • Also, the SC emphasized that under the LAA, a liberal interpretation must be given to the taxing power of LGUs. It is “sufficiently plenary to cover "everything, excepting those which are mentioned subject only to the limitation that the tax so levied is for public purposes, just and uniform” • The ordinance imposing the tax must still be stricken down, however, because it is unjust and confiscatory. The police only count the number of bags for the purpose of computing the tax. The alleged service of escorting the trucks to the beach is unnecessary while that of inspecting if the cassava is fit for consumption is beyond police competence. Finally, a marginal profit of only Php 0.4 is realized per bag and the imposition of the tax would force the closure of the companies and affect the economic growth of the municipality and the country. EUSEBIO VILLANUEVA, ET AL. vs. CITY OF ILOILO (1968 December 28)14 FACTS: - On September 30, 1946 the municipal board of Iloilo City enacted ORDINANCE 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. - The spouses Eusebio Villanueva and Remedios Sian Villanueva, owners of four tenement houses containing 34 apartments challenged the validity and constitutionality of this ordinance. - THE COURT, in City of Iloilo vs. Villanueva, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." - On January 15, 1960, believing that with the passage of the Local Autonomy Act (RA 2264) it had acquired the authority or power to enact a similar ordinance, the municipal board of Iloilo City 13 14
April Lacson Carmencita Ambrocio
Page 14 of 29 Tax 2 | Group A enacted ORDINANCE 11, series of 1960. - In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. - The appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. - The PLAINTIFFS-APPELLEES filed a complaint, and an amended complaint, respectively, against the City of Iloilo praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. - The LOWER COURT declared the ordinance illegal on the grounds that (a) RA 2264 does not empower cities to impose apartment taxes, (b) the same is oppressive and unreasonable, for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that, and (d) it violates the rule of uniformity of taxation. ISSUE/HELD: WON the City of Iloilo is empowered by the Local Autonomy Act to impose tenement taxes – YES RATIO: - Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein (section 2)," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. - The title of Ordinance 11 designates it as a "municipal license tax on persons engaged in the business of operating tenement houses," and Section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." Thus, appellees contend that it is a real estate tax which makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter. However, the tax in question is not a real estate tax. - A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners. It is a fixed proportion of the assessed value of the property taxed, and requires, therefore, the intervention of assessors, It is collected or payable at appointed times, and it constitutes a superior lien on and is enforceable against the property subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance in question does not possess the aforestated attributes. - 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. It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly Sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege." - In City of Iloilo vs. Villanueva, the lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in Section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in Section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon
Page 15 of 29 Tax 2 | Group A persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." ISSUE/HELD: WON Ordinance 11 imposes double taxation (in the prohibited sense) – NO RATIO: - The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182(A) (3) (s) of the NIRC, besides the tenement tax under the said ordinance. " - The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof. - A license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. - In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax. A real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind or character. ISSUE/HELD: WON Ordinance 11 is oppressive and unreasonable because it carries a penal clause – NO RATIO: - Constitution: "no person shall be imprisoned for a debt or non-payment of a poll tax." - A tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the nonpayment thereof by fine or imprisonment is not in conflict with that prohibition. - Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. ISSUE/HELD: WON Ordinance 11 violates the rule of uniformity of taxation – NO RATIO: - Appellees argue that there is lack of uniformity and relative inequality, because only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition. Also, while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. - Tenement houses constitute a distinct class of property. Taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority. Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. ISSUE/ HELD: WON, Ordinance 11 being a mere reproduction of Ordinance 86, the decision in City of Iloilo vs. Villanueva (L-12695) should be accorded the effect of res judicata – NO RATIO: - There is no identity of subject-matter in that case and this case because the subject-matter in L12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City Charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act.
Page 16 of 29 Tax 2 | Group A - There is likewise no identity of cause of action in the two cases because the main issue in L12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 86, while one of the issues in the present case is whether the City is empowered to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the decision in L12695 which was promulgated on March 23, 1959. - Under the provisions of Section 2 of the Local Autonomy Act, local governments may now tax any taxable subject- matter or object not included in the enumeration of matters removed from the taxing power of local governments. Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris. Ericsson v Pasig15 Facts: Ericsson Telecommunications, Inc. (petitioner) was given assessment notices issued by the City Treasurer of Pasig City for business tax deficiencies based on its gross revenues as reported in its audited financial statements for the years 1997 and 1998 and for the years 1999 and 2000. Petitioner filed a Protest claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. When its protests were denied, the petitioner filed a petition for review with the Regional Trial Court (RTC) of Pasig praying for the annulment and cancellation of petitioner’s deficiency local business taxes. RTC: cancelled and set aside the assessments made by respondent and its City Treasurer. CA: reversed RTC decision. Petitioner: the portion of the revenues which were actually and constructively received should be considered in determining its tax base. Issue: WON the local business tax on contractors should be based on gross receipts or gross revenue. HELD: It should be based on gross receipts. • Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the Local Government Code. Section 143 of the LGC covering contractors and other independent contractors which relates to the petitioner specifically refers to gross receipts which is defined under Section 131 of the LGC, as follows: (n) “Gross Sales or Receipts” include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT); • The law and jurisprudence (CIR v BPI) show that 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. • The concept of a withholding tax on income obviously and necessarily implies that the amount of the tax withheld comes from the income earned by the taxpayer. Since the amount of the tax withheld constitutes income earned by the taxpayer, then that amount manifestly forms part of the taxpayer’s gross receipts. • Receipt of income may be actual or constructive. The rules on actual and constructive possession are provided in Articles 531 and 532 of our Civil Code. In our withholding tax system, possession is acquired by the payor as the withholding agent of the government, because the taxpayer ratifies the very act of possession for the government. There is thus constructive receipt. The processes of bookkeeping and accounting for interest on deposits and yield on deposit substitutes that are subjected to FWT are indeed—for legal purposes— tantamount to delivery, receipt or remittance. • Revenue Regulations No. 16-2005 dated September 1, 2005[20] defined and gave examples of “constructive receipt”, to wit:
15
Christine Leones
Page 17 of 29 Tax 2 | Group A SEC. 4. 108-4. Definition of Gross Receipts. -- x x x “Constructive receipt” occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts: (1) deposit in banks which are made available to the seller of services without restrictions; (2) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and (3) transfer of the amounts retained by the payor to the account of the contractor. • •
•
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 or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. The imposition of local business tax based on petitioner’s gross revenue will inevitably result in the constitutionally proscribed double taxation – taxing of the same person twice by the same jurisdiction for the same thing – inasmuch as petitioner’s revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid.
ORMOC SUGAR COMPANY INC. v. ORMOC16 FACTS: • In Jan. 1964, the Municipal Board of Ormoc City (Ormoc) passed Ordinance No. 4 s. 1964 imposing on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company (OSCI) a tax equivalent to 1% per export sale to USA and other foreign countries • Payments under protest were made by OSCI CASE • OSCI filed a complaint before CFI Leyte against Ormoc, its treasurer, municipal board and mayor alleging that the tax under the Ordinance: (1) is unconstitutional for being violative of the equal protection clause and of the rule on uniformity of taxation; (2)is an export tax forbidden under Sec. 2287 of the Rev. Admin. Code; (3) is not a production/license tax which the Ormoc can impose and; (4) amounts to a customs duty, fee or charge in violation of Act 2264. • Ormoc answered that the tax was within its authority to impose and is not violative of constitutional principles. • CFI: Decided in favor of Ormoc • Appeal by OSCI ISSUE 1. WoN the tax imposed by the Ordinance is within the authority of Ormoc to impose? 2. WoN the tax imposed by the Ordinance is constitutional? HELD/RATIO 1. YES While Sec. 2287 of the Rev. Admin. Code denies from municipal boards the power to levy export tax, it was repealed by the enactment of Act 2264 which gave chartered cities, municipalities and municipal districts the power to levy for public purposes just and uniform taxes, licenses or fees. 2. NO The Ordinance violated the equal protection clause when it imposed the tax only on centrifugal sugars milled at OSCI. While at the time of enactment, OSCI was the only sugar central in Ormoc City, the Ordinance should have still provided for future conditions. By naming OSCI specifically, the Ordinance precludes the subjection of other similar 16
Dianne De Los Reyes
Page 18 of 29 Tax 2 | Group A companies which may be set up after its enactment. DISPOSITIVE: Reversed. OSCI to refund amount paid under protest but without interest. Bagatsing vs. Ramirez17 Facts: • On 12 June 1974, the Municipal Board of Manila enacted Ordinance No. 7522, “An ordinance regulating the operation of public markets and prescribing fees for the rentals of stalls and providing penalties for violation thereof and for other purposes.” • The Federation of Manila Market Vendors Inc. commenced civil case seeking the declaration of nullity of the said ordinance for the reason that (a) the publication requirement under the Revised Charter of the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the enactment of the ordinance, as envisioned by RA 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would violate PD 7 of 30 September 1972 prescribing the collection of fees and charges on livestock and animal products. • Respondent Judge declared Ordinance No. 7522 null and void for non-compliance with the requirement of publication under the Revised City Charter. Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is required by the Local Tax Code; and (b) the Federation failed to exhaust all administrative remedies before instituting an action in court. Issue: Whether or not Ordinance No. 7522 is valid Held: Yes, Ordinance No. 7522 was validly enacted. • The Revised Charter of Manila requires publication before the enactment of the ordinance and after the approval thereof. On the other hand, the Local Tax Code only prescribes for publication after the approval of ordinances levying or imposing taxes, fees or other charges. • The Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local governments. A prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception of the general; one as a general law of the land and the other as the law of a particular case. However, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute treats in particular. This is exactly the circumstance obtaining in the present case. • Section 17 of the Revised Charter of the City of Manila speaks of “ordinance” in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to “ordinances levying or imposing taxes, fees or other charges” in particular. • In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of “ordinances levying or imposing taxes, fees or other charges” in particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular provision. Special provision governs. This is especially true where the law containing the particular provision was enacted later than the one containing the general provision. The City Charter of Manila was promulgated on 18 June 1949 as against the Local Tax Code which was decreed on 1 June 1973. • The Federation of Manila Market Vendors Inc argued that the subject ordinance is not a tax ordinance because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising function. • The SC disagreed with their contention and pointed out that raising of revenues is the principal object of taxation. • The Federation also contended that the market stall fees are diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a Management and Operating Contract. The SC 17
Gian Hernal
Page 19 of 29 Tax 2 | Group A however dismissed the contention. The court held that the fees collected in the ordinance do not go direct to the private coffers of the Asiatic Integrated Corporation because Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. • The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation. ASIATIC INTEGRATED CORPORATION v ALIKPALA18 (1975; Barredo, J.) •
• •
• • • •
•
The Market Committee created by RA 6039, approved a resolution recommending that the City Mayor of Manila (Bagatsing at that time) urgently consider the immediate lease and/or assignment of the administration of the city public markets and talipapas to “a multi-million peso corporation under such terms and conditions as (would be) most advantageous to the City of Manila.” Evidently in pursuance of such recommendation, an agreement captioned "Management and Operating Contract" was executed by and between the City, represented by Mayor Bagatsing, and Asiatic covering all the 35 public markets and talipapas in Manila. Pres. Marcos sent Mayor Bagatsing a memorandum which directed that the following conditions be included in the agreement (in the interest of public welfare): 1. All market vendors should form cooperatives and should be sold shares in the market thus becoming co-owners. 2. The market cooperatives should be authorized to directly procure from producers' cooperatives and other sources, domestically or internationally, and be given allocations for imports, provided they bring down prices in accordance with the policy and the regulations set forth by the Price Control Council, through its chairman. 3. The public should be part owner of such markets by the public sale of shares. In an effort evidently to comply with the foregoing presidential memorandum, a "Supplementary Contract" was executed by the parties. In further connection with the contract at issue, Pres. Marcos issued the PD 345 which authorizing the reversion of the accumulated 30% sinking fund to the general fund of the City of Manila, for the undertaking of its public works projects Manila’s Municipal Board passed Ordinance No. 7451 which provided that Private respondents who are employees and vendors in the public markets referred to in the contract in dispute seek to annul the contract on the ground of illegality. Specifically: (1) the Management and Operating Contract, involving as it does public markets, is ultra vires or beyond the authority of the City to enter into; (2) the Mayor of Manila had no power to execute the same and bind the City without the corresponding authority given in an ordinance duly approved by the Municipal Board; (3) it is violative of RA 37 nationalizing public markets and of the existing civil service laws, rules and regulations; and (4) it is grossly disadvantageous to the City. TC sustained respondent's contention that the City has no power to enter into a contract of management and operation of its public markets under the operational arrangement and conditions stipulated in the contract in dispute.
ISSUES/HELD: 1. Do the employees and vendors possess the requisite interest to prosecute these cases? No. 2. WON the contract is ultra vires? No. RATIO: First issue: Under the contract, Asiatic has not been given any power of supervision or control 18
Karichi Santos
Page 20 of 29 Tax 2 | Group A over the employees of the markets. Their civil service status is not affected, nay, it is expressly respected and protected. Ergo, for all intents and purposes, the employees in the markets remain to be in the employment of the City. In other words, they continue as employees of the city government, subject to the pertinent civil service laws, rules and regulations, albeit the application of the these insofar as supervision of their work is concerned would have to be reconciled with the degree of control over operation and management given to Asiatic under the contract. Of course, when it comes to appointment, transfer, discipline and dismissal, the civil service laws prevail, but in the matter of collection of the stall fees and the proper upkeep of the markets, it is but natural and logical that Asiatic should have a say in their supervision, and its recommendations regarding the selection, transfer, discipline and dismissal of the corresponding employees should have due weight. Indeed, if it is considered that the markets can be wholly leased to effect economy, it should not be difficult to see that the consequent lay-off of the employees therein is legally tenable, provided the rules applicable to such a situation are observed. Second issue: • There can be hardly any doubt that public markets owned by a municipality or city may be leased. (Salgado vs. de la Fuente, 87 Phil. 343.) • Municipal corporations have both governmental and corporate or business functions, and to the latter belongs the construction and maintenance of markets. (Mendoza vs. de Leon). • Sec 2318 of the Revised Administrative Code expressly authorizes that markets be "let for a stipulated return to private parties." In Chamber of Filipino Retailers, Inc. vs. Villegas, We held that "it is idle ... to contend that public markets (in Manila) are for public use, hence not patrimonial property susceptible of lease." • Citing Esteban vs. City of Cabanatuan, We made it clear in Guillergan vs. Ganzon, that the operation of a market is not strictly a governmental function, albeit in Aprueba vs. Ganzon, it was held that the leasing of a market stall is subject to police power and in Co Chiong vs. Mayor of Manila, Co Chiong vs. Cuaderno and Salgado vs. de la Fuente, the Court ruled that for purposes of excluding aliens from the public markets, the establishment, maintenance and operation thereof are part of the functions of government in which aliens may not take part. It is obvious then that since markets can be leased, the management and operation thereof may by contract be given to private parties. • In fact, one of the powers expressly granted to the Municipal Board by Section 17 of the Charter of Manila is to "prohibit or permit the establishment or operation within the city limits of public markets ... by any person, entity, association or corporation other than the city." (Par. cc). • It would indeed seem immaterial, from the legal point of view, that as a consequence of leasing a market, the government employees and workers therein are retained or laid-off. And so, that the contract at issue provides specifically for their continuation, including their respective civil service status and their existing conditions of work subject to no control at all by Asiatic, including as to their salaries and benefits, which are reserved for determination by the city authorities, is certainly not prejudicial to said employees, much less a valid ground for annulling the same. Progressive Dev’t v QC (1989) – SUPRA Phil Petroleum v Pililia (1991) – SUPRA Pepsi Cola Bottling Co. of the Phils. V Municipality of Tanauan (1976, J. Martin)19 Facts: • Plaintiff-appellant, filed a complaint with preliminary injunction before the CFI of Leyte to declare Sec 2 of RA 2264 or the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority AND to declare Ordinances Nos. 23 and 27, series of 1962, of the said municipality, null and void. • Ordinance No. 23 - levies "from soft drinks producers and manufacturers one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." • Ordinance No. 27- levies "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid 19
Nathan Marasigan
Page 21 of 29 Tax 2 | Group A
•
ounces, U.S.) of volume capacity." CFI and CA affirmed the validity of said ordinances.
Issues: Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? (Relevant to Lesson) Held: NO Double taxation. • In Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. • Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27. The aforementioned admission shows that only Ordinance No. 27 is being enforced by defendants-appellees. • Specific or percentage tax? The imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax.
•
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified. N.B. – The taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, excepting those which are mentioned therein." Sales and Percentage taxes are expressly excepted in RA 2264. Under the LGC, Sec 133 (i) now contains this exception. People vs Nazario (1988)20 Facts: • Petitioner Eusebio Nazario was charged with violation of certain municipal ordinances of the Pagbilao, Quezon. These ordinances are Ordinance No. 4, series of 1955, Ordinance No. 15, series of 1965, and Ordinance No. 12, series of 1966, requiring owners or managers of fishponds in the said municipality to pay a municipal tax in the amount of P3.00 per hectare of fishpond or any fraction thereof per annum. • Petitioner failed to pay the taxes amounting to P362.62. He admits to having committed the acts charged but claims that the ordinances are unconstitutional for being vague and for being ex post facto measures. He also assails the power of the municipal council to tax “public forest land”. • Nazario contends that being a mere lessee of the fishpond, he is not covered since the said ordinances speak of "owner or manager". He likewise argues that they are ex post facto because "Amendment No. 12 passed on September 19, 1966, clearly provides that the payment of the imposed tax shall "beginning and taking effect from the year 1964, if the fishpond started operating before the year 1964.' In other words, it penalizes acts or events occurring before its passage, that is to say, 1964 and even prior thereto." Issues: 1. WON the subject ordinances are unconstitutional 2. WON the municipal council has the authority to impose taxes pursuant to the ordinances 20
Princess Ramirez
Page 22 of 29 Tax 2 | Group A in question Held: The petition has no merit. • As a rule, a statute or act may be said to be vague when it lacks comprehensible standards that men "of common intelligence must necessarily guess at its meaning and differ as to its application." It is repugnant to the Constitution in two respects: (1) it violates due process for failure to accord persons fair notice of the conduct to avoid; and (2) it leaves law enforcers unbridled discretion in carrying out its provisions and becomes an arbitrary flexing of the Government muscle. • In no way may the ordinances at bar be said to be tainted with the vice of vagueness. It is unmistakable from their very provisions that the appellant falls within its coverage. As the actual operator of the fishponds, he comes within the term "manager." He does not deny the fact that he financed the construction of the fishponds, introduced fish fries into the fishponds, and had employed laborers to maintain them. While it appears that it is the National Government which owns them (it was the Undersecretary of Agriculture and Natural Resources who signed the lease contract), the Government never shared in the profits they had generated. It is therefore only logical that he shoulders the burden of tax under the said ordinances. The ordinances are in the character of revenue measures designed to assist the coffers of the municipality. And obviously, it cannot be the owner, the Government, on whom liability should attach, for one thing, upon the ancient principle that the Government is immune from taxes and for another, since it is not the Government that had been making money from the venture. • There is likewise no merit in petitioner’s argument that the ordinances are ex post facto measures. Municipal Ordinance No. 4 was passed on May 14, 1955. Hence, it cannot be said that the amendment (under Ordinance No. 12) is being made to apply retroactively to 1964 since the reckoning period is 1955, the date of enactment. Essentially, Ordinances Nos. 12 and 15 are in the nature of curative measures intended to facilitate and enhance the collection of revenues the original act, Ordinance No. 4, had prescribed. Moreover, the act of non-payment of the tax had been, since 1955, made punishable, and it cannot be said that Ordinance No. 12 imposes a retroactive penalty. It operates to grant amnesty to operators who had been delinquent between 1955 and 1964. It does not mete out a penalty, much less, a retrospective one. • As to the question of a municipality’s power to tax, the SC held that its ruling in the case of Golden Ribbon Lumber Co., Inc. v. City of Butuan where it was held that local governments' taxing power does not extend to forest products or concessions under Republic Act No. 2264 (the Local Autonomy Act then in force), does not apply to the case at bar. First of all, the tax in question is not a tax on property, although the rate thereof is based on the area of fishponds ("P3.00 per hectare"). Secondly, fishponds are not forest lands, although they are agricultural lands. By definition, "forest" is "a large tract of land covered with a natural growth of trees and underbush; a large wood." Accordingly, even if the challenged taxes were directed on the fishponds, they would not have been taxes on forest products. They are, more accurately, privilege taxes on the business of fishpond maintenance. They are not charged against sales, but rather on occupation, which is allowed under Republic Act No. 2264. They are what have been classified as fixed annual taxes and this is obvious from the ordinances themselves. First Phil Industrial Corp. vs. CA (1998, Martinez J)21 FACTS: First Phil is a grantee of a pipeline concession under RA No. 387, as amended, to contract, install and operate oil pipelines. It applied for a mayor's permit in Batangas City. However, the City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to Sec 143 (e), LGC, to impose tax on “contractors and other independent contractors.” First Phil paid the tax under protest on the ground that it is exempt from paying tax on gross receipts under Sec. 133 (j), LGC, since it is a common carrier, and Sec. 141 (e), LGC, since it is a transportation contractor, both of which are exempt from taxation. The City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code. RTC denied the complaint for tax refund, which the CA affirmed. 21
Rhauline Lambino
Page 23 of 29 Tax 2 | Group A ISSUE: W/N Petitioner is a common carrier thus exempt from local tax under Sec. 133 (j), LGC? YES. HELD: The Supreme Court gave due course to the Petition for Review. 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: (j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code. Art. 1732, Civil Code, defines a Common Carrier as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." The test is: 1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation; 2. He must undertake to carry goods of the kind to which his business is confined; 3. He must undertake to carry by the method by which his business is conducted and over his established roads; and 4. The transportation must be for hire. HERE, First Phil is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. The term "common carrier" as used in Section 133 (j) of is not limited to common carriers transporting goods and passengers through moving vehicles or vessels, as long as the means of transporting is by land, water or air. Moreover, Art. 86 of the Petroleum Act of the Philippines (RA 387), provides that: Pipe line concessionaire as common carrier. — A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources. In BIR Ruling No. 069-83, it declared: . . . since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under RA 387, subject to withholding tax prescribed by Revenue Regulations No. 13-78. THUS, First Phil is exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, since it is clear that the legislative intent in excluding from the taxing power of the LGU the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax." Petitioner is already paying 3% common carrier's tax on its gross sales/earnings under the NIRC. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the LGC. LTO v. City of Butuan (Vitug, 2000)22 Facts: Butuan City filed an injunction case against LTO asking the court to prohibit LTO from registering tricycles and issuing licenses to drivers of tricycles in light of Sec. 129 and 133 of the Local Government Code (RA 7160). It alleged that by virtue of the said provisions, the granting of franchises to tricycle operators, the registering of tricycle cabs and the licensing of tricycle drivers has been devolved from the LTO and the LTFRB to LGUs thus it SP Ordinance No. 916-92 which granted for the payment of franchise fees for the grant of the franchise of tricycle-for-hire, fees for the registration of the vehicle and fees for the issuance of a permit for the driving thereof. 22
Angel Paglicawan
Page 24 of 29 Tax 2 | Group A
Sec. 129 Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. 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: xxx (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;
Issue: WON the registration of tricycles-for-hire and the licensing of the drivers thereof has been devolved to LGUs allowing them to collect the taxes and fees for such functions. Held and Ratio: • NO. It is only the franchising authority which is the function of the LTFRB which has been devolved to LGUs like Butuan City and not the registration of tricycles-for-hire and the licensing of the drivers. Such functions remain with the LTO which is still better equipped and capacitated in performing the said functions. If the registration function will be devolved, the incidence of theft of tricycles might to up and stolen tricycles registered in one LGU could be registered in another with ease. Moreover, such devolution would entail the hiring of addition al personnel. Revenues raised from tricycle registration may not be enough to meet the salaries of these additional personnel and the incidental costs for tools and equipment. • The reliance made by Butuan on the broad taxing power of LGUs under Sec. 133 is erroneous. To construe said provision indistinctively would result in the repeal of the LTOs regulatory power which was not intended by the legislature. Dispositive: Petition denied. Manila Int’l Airport (MIAA) vs CA, City of Paranaque23 FACTS: MIAA operates and has title to the NAIA complex under its Charter as per EO 903. In 1997, the Office of the Government Corporate Counsel opined that the LGC withdrew the real estate tax exemption granted to MIAA under its Charter. MIAA then negotiated with the City of Paranaque for the payment of these deficiency real estate taxes amounting to Php 624 million. MIAA, however, was unable to pay the entirety of the amount due. Paranaque City then issued notices of levy and public auction. MIAA sought a TRO from the SC against the public auction. MIAA argues that it is tax exempt under its Charter and that since under it, the lands are to be devoted for the operation of the airport they were lands for public service and public use and were therefore still beneficially owned by the Republic of the Philippines and thus, tax exempt under Sec. 234 of the LGC and the alleged principle that the government cannot tax itself. The City of Paranaque, on the other hand, argues that Sec. 193 of the LGC withdrew all tax exemptions and MIAA does not fall under any of the stated exceptions. They also cite an analogous case, MCIAA vs CA, where the MCIAA was not exempted from the real property taxes. Finally, MIAA has paid part of the taxes and is estopped. ISSUE: Whether or not MIAA is exempted from the payment of real property taxes in light of Sec. 193 of the LGC? HELD: MIAA is an exempt corporation on the ff grounds: • It is not a GOCC but an instrumentality of government based on the definition of GOCC under Sec. 2 of the Administrative Code. It has neither capital stocks to distribute to shareholders (a criteria for stock corporations) nor members (a criteria for non-stock corporation). Nor is it 23
April Lacson
Page 25 of 29 Tax 2 | Group A
• • • •
•
•
established for any of the purposes of a non-stock corporation. It is instead an instrumentality endowed with some corporate powers, special functions and jurisdiction. As such, it is exempt from realty tax under Sec 133 (o) of the LGC. While the 1987 Constitution grants taxing power to the LGUs, it is still subject to limitations imposed by Congress, which includes those imposed by the LGC. As per Basco vs PAGCOR, LGUs cannot tax government instrumentalities, based on the supremacy of the National Government over LGUs – otherwise, LGUs can bring to nought National government policies. Further, while exemptions to tax statutes are strictly construed against the taxpayer, it is liberally construed when the taxpayer is a government instrumentality as in this case. Also, the MIAA properties are properties of public dominion because devoted to public use and are thus owned by the State (NCC 420-421). While MIAA holds title to the properties, said title was only transferred to facilitate the provision of public service. Beneficial ownership remains with the Republic of the Philippines. MIAA cannot convey or dispose of these properties without the President’s authorization. The President also has the power to take title from MIAA and revest it in the State. As properties of the State, the MIAA lands are exempt from real property tax as provided by Sec. 234 (a) of the LGC. These State properties become taxable only if its beneficial ownership were transferred to taxable persons. MIAA, as discussed above, is not taxable as a government instrumentality. As to the minority argument that the common limitations provision under Sec. 133(o), i.e. that LGUs can’t tax the national government, its agencies, instrumentalities and LGUs, is trumped by the withdrawal of tax exemption under Sec. 193, the SC resolves the issue by stating that Sec. 133 prevails over Sec. 193. LGUs do not have the power to tax the national government, etc.. except as otherwise provided and one such exception is Sec. 234, i.e. real properties of the national government are taxable if the beneficial use is transferred to a taxable person.
MCIAA vs MARCOS24 Facts: Mactan Cebu International Airport Authority was created under RA 6958 and granted realty tax exemption under Sec. 14 of the said law. In 1994, however, the Treasurer of Cebu assessed realty tax against the MCIAA arguing that the latter was a GOCC whose exemption had been withdrawn under Sec. 193 read with Sec. 234 of the LGC. MCIAA counter-argued that it is exempt both under its charter and under Sec. 133 of the LGC as an agency or instrumentality of government. It also cited Basco vs. PAGCOR, where the SC decided that an LGU has no power to tax a national instrumentality. MCIAA paid the tax in protest to avoid a levy on its properties and filed a petition for declaratory relief. The TC decided in favor of Cebu City Issue: Is the MCIAA still tax exempt under the provisions of the new Local Government Code? Held: No. The SC decided that the MCIAA was a GOCC (the SC did not really decide this issue. There were portions in the decision where it was stated that the MCIAA argued that although it was a GOCC it was on the same plane as an instrumentality – which may distinguish this from the MIAA vs Paranaque case). As such, its properties are taxable in light of the general withdrawal of exemption under Sec. 193 of the LGC. It cannot argue that its properties are owned by the Republic and are exempt as such under Sec. 234 of the LGC since title was transferred to MCIAA, a taxable entity. Common Limitations Quotations: In deciding the case, the SC set forth the ff principles vis. common limitations on the taxing power of LGUS - taxation should be uniform and equitable and Congress shall evolve a progressive system of taxation (Constitution) - tax statutes are construed strictly against the taxing power, since the power to tax includes the power to destroy - tax exemptions are construed strictly against the taxpayer, since taxes are the 24
April Lacson
Page 26 of 29 Tax 2 | Group A
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lifeblood of the nation, except where the taxpayer is a political subdivision or instrumentality since the effect of the exemption is to merely reduce the amount of money handled by the government the power to tax is vested in Congress, although now also granted by direct authority from the Constitution to the LGUs, but even then Sec. 133 of the LGC prescribes the common limitations on the taxing powers of local government units
Classification of Exemptions under the LGC: “(a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives. (b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non profit or religious cemeteries. (c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all lands buildings and improvements which are actually, directed and exclusively used for religious, charitable or educational purpose; (ii) all machineries and equipment actually, directly and exclusively used or by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection” - Construing Sec.232 (Realty Tax power, RPT), 234 (RPT exemption) and 193(gen. withdrawal of exemption) together, the SC stated these general rules: o LGUs cannot tax the National government, its agencies or instrumentalities o LGUs cannot impose real property tax on properties of the Republic or its political subdivisions except if beneficial ownership is transferred to a taxable person (Sec. 234) o While Sec. 193 withdraws exemptions granted prior to the LGC, the clause “unless otherwise provided in this Code” is interpreted to also refer to the exemption under Sec. 234. Only those listed under Sec. 234 are exempted Basco vs Pagcor doctrine vis. LGUs not having power to tax national government agencies does not apply since it was decided prior to the LGC DRILON, SECRETARY OF JUSTICE vs. MAYOR ALFREDO S. LIM, VICE-MAYOR JOSE L. ATIENZA, CITY TREASURER ANTHONY ACEVEDO, SANGGUNIANG PANGLUNSOD AND THE CITY OF MANILA (1994 Aug 4)25 FACTS: Section 187 of the Local Government Code: Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. ---- The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. 25
Carmencita Ambrocio
Page 27 of 29 Tax 2 | Group A - SECRETARY OF JUSTICE had, on appeal to him of four oil companies and a taxpayer, declared Ordinance No. 7794 (Manila Revenue Code) null and void for non-compliance with the prescribed procedure in the enactment of tax ordinances and for containing certain provisions contrary to law and public policy. - In a petition for certiorari filed by the City of Manila, the RTC of Manila revoked the Secretary's resolution and sustained the ordinance and declared Section 187 of the Local Government Code as unconstitutional because of its vesture in the Secretary of Justice of the power of control over local governments in violation of the policy of local autonomy mandated in the Constitution and of the specific provision therein conferring on the President of the Philippines only the power of supervision over local governments. ISSUE/HELD: WON Sec.187 of the LGC is unconstitutional for vesting the power of control over local governments to the Secretary of Justice – NO RATIO: - Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the 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. All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law, that is, with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. That was an act not of control but of mere supervision. - An officer in control lays down the rules in the doing of an act. It they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. If the rules are not observed, he may order the work done or re-done but only to conform to the prescribed rules. He may not prescribe his own manner for the doing of the act. ISSUE/ HELD: WON the procedure for enactment was complied with – YES RATIO: - Secretary Drilon declared that there were no written notices of public hearings on the proposed Manila Revenue Code that were sent to interested parties as required by Art. 276(b) of the Implementing Rules of the Local Government Code nor were copies of the proposed ordinance published in three successive issues of a newspaper of general circulation pursuant to Art. 276(a). No minutes were submitted to show that the obligatory public hearings had been held. Neither were copies of the measure as approved posted in prominent places in the city in accordance with Sec. 511(a) of the Local Government Code. Finally, the Manila Revenue Code was not translated into Pilipino or Tagalog and disseminated among the people for their information and guidance, conformably to Sec. 59(b) of the Code. - The Court, after a careful examination of the exhibits, agrees with the trial court that the procedural requirements have indeed been observed. Notices of the public hearings were sent to interested parties as evidenced by Exhibits. The minutes of the hearingsshow that the proposed ordinances were published in the Balita and the Manila Standard on April 21 and 25, 1993, respectively, and the approved ordinance was published in the July 3, 4, 5 1993 issues of the Manila Standard and in the July 6, 1993 issue of Balita, as shown by Exhibits. - The only exceptions are the posting of the ordinance as approved but this omission does not affect its validity, considering that its publication in three successive issues of a newspaper of general circulation will satisfy due process. - It has also not been shown that the text of the ordinance has been translated and disseminated, but this requirement applies to the approval of local development plans and public investment programs of the local government unit and not to tax ordinances.
Page 28 of 29 Tax 2 | Group A Figuerres v CA26 Facts: • Petitioner Belen C. Figuerres is the owner of a parcel of land in Mandaluyong. She received a notice of assessment from the Municipality of Mandaluyong which was based on Ordinance Nos. 119 and 125, series of 1993, and Ordinance No. 135, series of 1994, of the Sangguniang Bayan of Mandaluyong. • Ordinance No. 119, series of 1993, contains a schedule of fair market values of the different classes of real property in the municipality. Ordinance No. 125, series of 1993, on the other hand, fixes the assessment levels applicable to such classes of real property. Finally, Ordinance No. 135, series of 1994, amended Ordinance No. 119, §6 by providing that only one third (1/3) of the increase in the market values applicable to residential lands pursuant to the said ordinance shall be implemented in the years 1994, 1995, and 1996. • Petitioner brought a prohibition suit in the Court of Appeals against the Assessor, the Treasurer, and the Sangguniang Bayan to stop them from enforcing the ordinances in question on the ground that the ordinances were invalid for, among others, having been adopted allegedly without public hearings and prior publication or posting. •
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CA: The CA denied her petition stating that the approval and determination the Department of Finance is not needed under the Local Government Code of 1991, since it is now the city council of Mandaluyong that is empowered to determine and approve the aforecited ordinances. Moreover, jurisprudence (Tañada v. Tuvera) and Sec 511 of the LGC states that the posting and publication in the Official Gazette of ordinances with penal sanctions is not a prerequisite for their effectivity. (S. 511, LGC: xxx xxx xxx The secretary to the Sanggunian concerned shall transmit official copies of such ordinances to the chief executive officer of the Official Gazette within seven (7) days following the approval of the said ordinances for publication purposes. The Official Gazette may publish ordinances with penal sanctions for archival and reference purposes) Petioner filed a petition for review on certiorari of the CA decision to the SC to prevent the Municipality of Mandaluyong from enforcing the ordinances revising the schedule of fair market values of the various classes of real property in that municipality and the assessment levels applicable thereto.
ISSUE: WON there is a need for publication for the effectivity of the tax ordinances HELD: • Yes. Since the Municipality submitted a certification proving that it posted its ordinances in compliance with the requirements of the LGC and based on the principle of the presumption of regularity of governmental acts, it was decided that the Municipality effectively complied with the publication requirements and the CA ruling was affirmed. • PUBLICATION AND POSTING OF SCHEDULE OF FAIR MARKET VALUES: publication or posting of the proposed schedule of fair market values of the difference classes of real property in a local government unit is required pursuant to R.A. No. 7160, §212 which in part states: . . . The schedule of fair market values shall be published in a newspaper of general circulation in the province, city, or municipality concerned, or in the absence thereof, shall be posted in the provincial capitol, city or municipal hall and in two other conspicuous public places therein. • In addition, an ordinance imposing real property taxes (such as Ordinance Nos. 119 and 135) must be posted or published as required by R.A. No. 7160, §188 which provides:Sec. 188. Publication of Tax Ordinances and Revenue Measures. — Within ten (10) days after their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three (3) consecutive days in a newspaper of local circulation: Provided, however, That in provinces, cities and municipalities where there no newspapers of local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible places. • Hence, after the proposed schedule of fair market values of the different classes of real property in a local government unit within Metro Manila, as prepared jointly by the local assessors of the district to which the city or municipality belongs, has been published 26
Christine Leones
Page 29 of 29 Tax 2 | Group A
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or posted in accordance with §212 of R.A. No. 7160 and enacted into ordinances by the sanggunians of the municipalities and cities concerned, the ordinances containing the schedule of fair market values must themselves be published or posted in the manner provided by §188 of R.A. No. 7160. With respect to ordinances which fix the assessment levels (such as Ordinance No. 125), being in the nature of a tax ordinance, §188 likewise applies. Moreover, as, Ordinance No. 125, §7 provides for a penal sanction for violations thereof by means of a fine of not less than P1,000.00 nor more than P5,000.00, or imprisonment of not less than one (1) month nor more than six (6) months, or both, in the discretion of the court, not only §188 but §511(a) also must be observed. In view of §§188 and 511(a) of R.A. No. 7160, an ordinance fixing the assessment levels applicable to the different classes of real property in a local government unit and imposing penal sanctions for violations thereof (such as Ordinance No. 125) should be published in full for three (3) consecutive days in a newspaper of local circulation, where available, within ten (10) days of its approval, and posted in at least two (2) prominent places in the provincial capitol, city, municipal, or barangay hall for a minimum of three (3) consecutive weeks. Apart from her allegations, petitioner has not presented any evidence to show that the subject ordinances were nor disseminated in accordance with these provisions of R.A. No. 7160. On the other hand, the Municipality of Mandaluyong presented a certificate, dated November 12, 1993, of Williard S. Wong, Sanggunian Secretary of the Municipality of Mandaluyong that "Ordinance No. 125, S-1993 . . . has been posted in accordance with §59(b) of R.A. No. 7160, otherwise known as the Local Government Code of 1991." Thus, considering the presumption of validity in favor of the ordinances and the failure of petitioner to rebut such presumption, we are constrained to dismiss the petition in this case. Public Hearings on Tax Ordinances: Public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes. R.A. No. 7160, §186 provides that an ordinance levying taxes, fees, or charges "shall not be enacted without any prior public hearing conducted for the purpose." Since thepetitioner failed to rebut the presumption of validity in favor of the subject ordinances and to discharge the burden of proving that no public hearings were conducted prior to the enactment thereof, we are constrained to uphold their constitutionality or legality.
