Vi. Taxation Case Digests (Local Tax)

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COCA-COLA BOTTLERS PHILIPPINES, INC.VS.

CITY OF MANILA, LIBERTY M. TOLEDO – CITY TREASURER AND JOSEPH SANTIAGO – CHIEF, LICENSING DIVISION

FACTS:

On 25 February 2000, the City Mayor of Manila approved Tax Ordinance No. 7988, otherwise known as "Revised Revenue Code of the City of Manila" which increased the tax rates applicable to certain establishments operating within the City of Manila, including that of Coca Cola. Coca Cola then filed a petition before the Department of Justice (DOJ), against the City of Manila and its Sangguniang Panlungsod, invoking Section 1874 of the Local Government Code of 1991 and at the same time questioning the constitutionality of Section 21 of Tax Ordinance No. 7988.

Section 21 of the Old Revenue Code states that all registered businesses in the City of Manila that are already paying the aforementioned tax shall be exempted from payment thereof. This was deleted in the ordinance. In effect, it now imposed additional business tax on Coca Cola which is already subject to other business tax. It is contended that the deletion is a palpable and manifest violation of the LGC 1991. Subsequently, DOJ issued a Resolution declaring Tax Ordinance No. 7988 null and void and without legal effect due to failure to comply with mandatory publication requirements as provided for in the Local Government Code of 1991 which provides:

"Section 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 are no newspapers or local circulations the same may be posted in at least two (2) conspicuous and publicly accessible places."

Documentary evidence submitted by Coca Cola indubitably shows that subject tax ordinance was published only once, i.e., on the May 22, 2000 issue of the Philippine Post. Clearly, therefore, City of Manila failed to satisfy the requirement that said ordinance shall be published for three (3) consecutive days as required by law.

In affirming the nullification of the ordinance as per request of another taxpayer, Singer Sewing Maching, the BLGF Executive Director issued an Indorsement on 20 November 2000 ordering the City Treasurer of Manila to "cease and desist" from enforcing Tax Ordinance No. 7988. However, despite the Resolution of the DOJ and the directive of the BLGF, they still continued to assess Coca Cola business tax for the year 2001. Thus, Coca Cola filed a Complaint with the RTC of Manila praying that the City be enjoined from implementing the tax ordinance.

During the pendency of the said case, the City Mayor of Manila approved an amendment of the same tax ordinance which was again challenged by Coca Cola before the DOJ on the grounds that (1) said tax ordinance amends a tax ordinance previously declared null and void and without legal effect by the DOJ; and (2) said tax ordinance was likewise not published upon its approval.

The amendatory ordinance was likewise declared null and void by the DOJ, it being a mere amendatory ordinance of Ordinance No. 7988. The omnibus motion of petitioners for reconsideration of the resolution of April 23, 2003 which denied the motion for an extension of time to file a petition is DENIED for lack of merit.

Meanwhile, on the basis of the enactment of Tax Ordinance No. 8011, the City of Manila filed a Motion for Reconsideration with the RTC of Manila which the court a quo granted stating that considering that Ordinance No. 7988 (Amended Revenue Code of the City of Manila) has already been amended by Ordinance No. 8011 entitled "An Ordinance Amending Certain Sections of Ordinance No. 7988" approved by the City Mayor of Manila on February 22, 2001, the case must be DISMISSED.

ISSUE:

Whether or not Tax Ordinance No. 7988 is null and void and of no legal effect due to the City's failure to satisfy the requirement of publication for three consecutive days, regardless of the amendmentory ordinance issued.

SC RULING:

EH 403 (2011-2012) | TAXATION II – LOCAL TAX

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From the foregoing, it is evident that Tax Ordinance No. 7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue of the Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991.

Despite the nullity of Tax Ordinance No. 7988, RTC went on to dismiss petitioner’s case on the force of the enactment of Tax Ordinance No. 8011, amending Tax Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ Secretary in a Resolution, dated 5 July 2001, elucidating that "[I]nstead of amending Ordinance No. 7988, the City should have enacted another tax measure which strictly complies with the requirements of law, both procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects of Ordinance No. 7988 which, any way, does not legally exist."

Based on the foregoing, this Court must reverse the Order of the RTC of Manila in dismissing petitioner’s case as there is no basis in law for such dismissal. The amending law, having been declared as null and void, in legal contemplation, therefore, does not exist. Furthermore, even if Tax Ordinance No. 8011 was not declared null and void, the trial court should not have dismissed the case on the reason that said tax ordinance had already amended Tax Ordinance No. 7988. As held by this Court in the case of People v. Lim, if an order or law sought to be amended is invalid, then it does not legally exist, there should be no occasion or need to amend it.

LAND TRANSPORTATION OFFICE [LTO] vs. CITY OF BUTUAN

FACTS:

The Court is asked in this instance to resolve the issue of whether under the present set up the power of the Land Registration Office ("LTO") to register, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to local government units.

The Regional Trial Court (Branch 2) of Butuan City held3 that the authority to register tricycles, the grant of the corresponding franchise, the issuance of tricycle drivers' license, and the collection of fees therefor had all been vested in the Local Government Units ("LGUs"). Accordingly, it decreed the issuance of a permanent writ of injunction against LTO, prohibiting and enjoining LTO, as well as its employees and other persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses to drivers of tricycles. The Court of Appeals, on appeal to it, sustained the trial court.

ISSUE:

Validity of the writ of injunction issued by the trial court which enjoined LTO from (1) registering tricycles-for-hire and (2) issuing licenses for the driving thereof since the Local Government Code devolved only the franchising authority of the LTFRB. Functions of the LTO were not devolved to the LGU's.8

HELD:

SC reversed lower courts. It ruled that the assailed decision which enjoins the Land Transportation Office from requiring the due registration of tricycles and a license for the driving thereof is REVERSED and SET ASIDE.

REASONS:

LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the operation thereof. "To regulate" means to fix, establish, or control; to adjust by rule, method, or established mode; to direct by rule or restriction; or to subject to governing principles or laws.12 A franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right.13 On the other hand, "to register" means to record formally and exactly, to enroll, or to enter precisely in a list or the like,14 and a "driver's license" is the certificate or license issued by the government which authorizes a person to operate a motor vehicle.15 The devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as so aptly observed by the Solicitor General, is aimed at curbing the alarming increase of accidents in national highways involving tricycles. It has been the perception that local governments are in good position to achieve the end desired by the law-making body because of their proximity to the situation that can enable them to address that serious concern better than the national government.


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It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the Local Government Code, the power of LGUs to regulate the operation of tricycles and to grant franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC.

The reliance made by respondents on the broad taxing power of local government units, specifically under Section 133 of the Local Government Code, is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare. Taxation, in its case, focuses an the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored. 20 The power over tricycles granted under Section 458(8)(3)(VI) of the Local Government Code to LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R.A. 4136. Not insignificant is the rule that a statute must not be construed in isolation but must be taken in harmony with the extant body of laws.21

PETRON CORPORATION vs. MAYOR TOBIAS M. TIANGCO, and MUNICIPAL TREASURER MANUEL T. ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METRO MANILA

[G.R. No. 158881 April 16, 2008]

FACTS:

Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas. Through that depot, it has engaged in the selling of diesel fuels to vessels used in commercial fishing in and around Manila Bay

On 1 March 2002, Petron received a letter from the office of Navotas Mayor, respondent Toby Tiangco, wherein the corporation was assessed taxes "relative to the figures covering sale of diesel declared by your Navotas Terminal from 1997 to 2001.

The stated total amount due was P6,259,087.62. The computation sheets3 that were attached to the letter made reference to Ordinance 92-03, or the New Navotas

Revenue Code (Navotas Revenue Code), though such enactment was not cited in the letter itself. Petron duly filed with Navotas a letter-protest to the notice of assessment. It argued that it was exempt from local business taxes in view of Art. 232(h) of the Implementing Rules (IRR) of the

Code, as well as a ruling of the Bureau of Local Government Finance of the Department of Finance dated 31 July 1995, the latter stating that sales of petroleum fuels are not subject to local taxation.

The letter-protest was denied by the Navotas Municipal Treasurer. This was followed by a letter from the Mayor dated 15 May 2002, captioned "Final Demand to Pay," requiring that

Petron pay the assessed amount within five (5) days from receipt thereof, with a threat of closure of Petron’s operations within Navotas should there be no payment.5 Petron, through counsel, replied to the Mayor by another letter posing objections to the threat of closure. The Mayor did not respond to this last letter.

Petron filed with the Malabon RTC a Complaint for Cancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of TRO and/or Preliminary Injunction. The TRO was not issued by the Malabon RTC upon manifestation of respondents that they would not proceed with the closure of Petron’s Navotas bulk plant until after the RTC shall have decided the case on the merits.7


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However, while the case was pending decision, respondents refused to issue a business permit to Petron. Malabon RTC rendered its Decision dismissing Petron’s complaint and ordering the payment of the assessed amount.9

Eleven days later, Petron received a Closure Order from the Mayor, directing Petron to cease and desist from operating the bulk plant. Petron sought a TRO from the Malabon RTC, but this was denied. 10 Petron also filed a motion for reconsideration of the order of denial, but this was likewise denied

ISSUE:

whether a local government unit is empowered under the Local Government Code (the LGC) to impose business taxes on persons or entities engaged in the sale of petroleum products.

HELD:

Particularly, the controversy hinges on the correct interpretation of Section 133(h) of the LGC, and the applicability of Article 232 (h) of the IRR.

Section 133(h) of the LGC reads as follows: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(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products;

Evidently, Section 133 prescribes the limitations on the capacity of local government units to exercise their taxing powers otherwise granted to them under the LGC. Apparently, paragraph (h) of the Section mentions two kinds of taxes which cannot be imposed by local government units, namely: "excise taxes on articles enumerated under the National Internal Revenue Code [(NIRC)], as amended;" and "taxes, fees or charges on petroleum products."

The power of a municipality to impose business taxes is provided for in Section 143 of the LGC. Under the provision, a municipality is authorized to impose business taxes on a whole host of business activities. Suffice it to say, unless there is another provision of law which states otherwise, Section 143, broad in scope as it is, would undoubtedly cover the business of selling diesel fuels, or any other petroleum product for that matter.

Nonetheless, Article 232 of the IRR defines with more particularity the capacity of a municipality to impose taxes on businesses. The enumeration that follows is generally a positive list of businesses which may be subjected to business taxes, and paragraph (h) of Article 232 does allow the imposition of local business taxes "on any business not otherwise specified in the preceding paragraphs which the sanggunian concerned may deem proper to tax," but subject to this important qualification, thus:

"xxx provided further, that in line with existing national policy, any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local tax imposed on this article.

As earlier observed, Section 133(h) provides two kinds of taxes which cannot be imposed by local government units: "excise taxes on articles enumerated" under the NIRC, as amended; and "taxes, fees or charges on petroleum products." There is no doubt that among the excise taxes on articles enumerated under the NIRC are those levied on petroleum products, per Section 148 of the NIRC.

We first consider Petron’s argument that the "business taxes" on its sale of diesel fuels partakes of an excise tax, which if true, could invalidate the challenged tax solely on the basis of the phrase "excise taxes on articles enumerated under the [NIRC]."

Petron’s argument is fraught with far-reaching implications, for if it were sustained, it would mean that local government units are barred from imposing business taxes on any of the articles subject to excise taxes under the NIRC. These would include alcohol products,20 tobacco products,21 mineral products22 automobiles,23 and such non-essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports








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Beginning with the National Internal Revenue Code of 1986, as amended, the term "excise taxes" was used and defined as applicable "to goods manufactured or produced in the Philippines… and to things imported."29 This definition was carried over into the present NIRC of 1997.30 Further, these two latest codes categorize two different kinds of excise taxes: "specific tax" which is imposed and based on weight or volume capacity or any other physical unit of measurement; and "ad valorem tax" which is imposed and based on the selling price or other specified value of the goods.

The current definition of an excise tax is that of a tax levied on a specific article, rather than one "upon the performance, carrying on, or the exercise of an activity."

It is quite apparent, therefore, that our current body of taxation law does not explicitly accommodate the traditional definition of excise tax offered by Petron.

Thus, Petron’s argument concerning excise taxes is founded not on what the NIRC or the Code actually provides, but on a non-statutory definition sourced from a legal paradigm that is no longer applicable in this jurisdiction.

We next consider whether the clause "taxes, fees or charges on petroleum products" in Section 133(h) precludes local government units from imposing business taxes based on the sale of petroleum products.

The power of a municipality to impose business taxes derives from Section 143 of the Code that specifically enumerates several types of business on which it may impose taxes, including manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature;38 those engaged in the export or commerce of essential commodities;39

retailers;40 contractors and other independent contractors;41 banks and financial institutions;42 and peddlers engaged in the sale of any merchandise or article of commerce.43 This obviously broad power is further supplemented by paragraph (h) of Section 143 which authorizes the sanggunian to impose taxes on any other businesses not otherwise specified under Section 143 which the sanggunian concerned may deem proper to tax.

This ability of local government units to impose business or other local taxes is ultimately rooted in the 1987 Constitution. Section 5, Article X assures that "[e]ach local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges," though the power is "subject to such guidelines and limitations as the Congress may provide."

Congress has the constitutional authority to impose limitations on the power to tax of local government units, and Section 133 of the Code is one such limitation. Indeed, the provision is the explicit statutory impediment to the enjoyment of absolute taxing power by local government units, not to mention the reality that such power is a delegated power.

Section 133(h) states that local government units "shall not extend to the levy of xxx taxes, fees or charges on petroleum products." Respondents assert that the phrase "taxes, fees or charges on petroleum products" pertains to the imposition of direct or excise taxes on petroleum products, and not business taxes. If the phrase actually pertains to excise taxes, then it would be an exercise in utter redundancy, since the preceding phrase already prohibits the imposition of excise taxes on articles already subject to such taxes under the NIRC, such as petroleum products. There would be no sense on the part of the legislature to twice emphasize in the same sentence that excise taxes on petroleum products are beyond the pale of local government taxation.

The dicta that "[a] tax on a business is distinct from a tax on the article itself" might at first blush somehow lend support to respondents’ position, yet that dicta has not since been reprised by this Court. It is likewise worth observing that Pililla did involve a tax ordinance that imposed business taxes on an enterprise engaged in the manufacture and storage of petroleum products.

Significantly, the legal milieu governing Pililla is vastly different from that existing at bar, to the extent that the earlier case could not be presently controlling.

In view of the difference in statutory paradigm between this case and Pililla, the latter case is severely diminished as applicable precedent at bar.

We can concede that a tax on a business is distinct from a tax on the article itself, or for that matter, that a business tax is distinct from an excise tax. However, such distinction is immaterial insofar as the latter part of Section 133(h) is










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concerned, for the phrase "taxes, fees or charges on petroleum products" does not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition imposed by the provision. It would have been a different matter had Congress, in crafting Section 133(h), barred "excise taxes" or "direct taxes," or any category of taxes only, for then it would be understood that only such specified taxes on petroleum products could not be imposed under the prohibition. The absence of such a qualification leads to the conclusion that all sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h). Where the law does not distinguish, we should not distinguish.

The language of Section 133(h) makes plain that the prohibition with respect to petroleum products extends not only to excise taxes thereon, but all "taxes, fees and charges." The earlier reference in paragraph (h) to excise taxes comprehends a wider range of subjects of taxation: all articles already covered by excise taxation under the NIRC, such as alcohol products, tobacco products, mineral products, automobiles, and such non-essential goods as jewelry, goods made of precious metals, perfumes, and yachts and other vessels intended for pleasure or sports. In contrast, the later reference to "taxes, fees and charges" pertains only to one class of articles of the many subjects of excise taxes, specifically, "petroleum products". While local government units are authorized to burden all such other class of goods with "taxes, fees and charges," excepting excise taxes, a specific prohibition is imposed barring the levying of any other type of taxes with respect to petroleum products.

PLDT VS. PROVINCE OF LAGUNA(G.R. No. 151899, August 16, 2005)

FACTS:

PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local and international telecommunications services. On August 24, 1991, the terms and conditions of its franchise were consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called “in-lieu-of-all taxes” clause, whereunder PLDT shall pay a franchise tax equivalent to three percent (3%) of all its gross receipts, which franchise tax shall be “in lieu of all taxes”.

Meanwhile, or on January 1, 1992, Republic Act No. 7160, otherwise known as the Local Government Code, took effect. Section 137 of the Code, in relation to Section 151 thereof, grants provinces and other local government units the power to impose local franchise tax on businesses enjoying a franchise, thus:

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.

By Section 193 of the same Code, all tax exemption privileges then enjoyed by all persons, whether natural or juridicial, save those expressly mentioned therein, were withdrawn, necessarily including those taxes from which PLDT is exempted under the “in-lieu-of-all taxes” clause in its charter. We quote Section 193:

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.

Invoking its authority under Section 137, supra, of the Local Government Code, the Province of Laguna, enacted Provincial Ordinance No. 01-92, made effective January 1, 1993, imposing a franchise tax upon all businesses enjoying a franchise, PLDT included.

PLDT paid the said local franchise tax on Jan. 28, 1998.

Prior thereto, Congress, aiming to level the playing field among telecommunication companies, enacted Republic Act No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, which took effect on March 16, 1995. To achieve the legislative intent, Section 23 thereof, also known as the “most-favored treatment” clause, provides for an equality of treatment in the telecommunications industry, to wit:


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SEC. 23. Equality of Treatment in the Telecommunications Industry – Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of the service authorized by the franchise.

Then, on June 2, 1998, the Department of Finance, thru its Bureau of Local Government Finance (BLGF), issued a ruling to the effect that as of March 16, 1995, the effectivity date of the Public Telecommunications Policy Act of the Philippines, PLDT, among other telecommunication companies, became exempt from local franchise tax.

On the basis of the aforequoted ruling, PLDT refused to pay the Province of Laguna its local franchise tax liability for 1999. And, on December 22, 1999, it even filed with the Office of the Provincial Treasurer a written claim for refund of the amount it paid as local franchise tax for 1998.

With no refund having been made, PLDT instituted with the Regional Trial Court at Laguna a petition against the Province and its Provincial Treasurer. RTC denied the refund.

ISSUE:

WON PLDT is exempt from local franchise tax.

HELD:

Section 23 of Rep. Act No. 7925 does not operate to exempt PLDT from the payment of local franchise tax. SC reiterated its ruling PLDT vs. City of Davao and PLDT vs. City of Bacolod, et al, thus:

In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that §23 of R.A. No. 7925 cannot be considered as having amended petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes. Consequently, we hold that petitioner is liable to pay local franchise taxes in the amount of P3,681,985.72 for the period covering the first to the fourth quarter of 1999 and that it is not entitled to a refund of taxes paid by it for the period covering the first to the third quarter of 1998.

xxx

To begin with, tax exemptions are highly disfavored. The reason for this was explained by this Court in Asiatic Petroleum Co. v. Llanes, in which it was held: . . . Exemptions from taxation are highly disfavored, so much so that they may almost be said to be odious to the law. He who claims an exemption must be able to point to some positive provision of law creating the right. . . The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

xxx There is nothing in the language of §23 nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose exemptions had been withdrawn by the LGC.

xxxthe word ‘exemption’ in §23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on §23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.


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xxx

As in Davao, PLDT presently faults the trial court for not giving weight to the ruling of the BLGF which, to petitioner’s mind, is an administrative agency with technical expertise and mastery over the specialized matters assigned to it. Again, to quote from our ruling in Davao:

To be sure, the BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

WHEREFORE, and on the basis of our consistent ruling in PLDT vs. City of Davao and PLDT vs. City of Bacolod, et al., the petition is DENIED and the assailed decision of the trial court AFFIRMED.

NATIONAL POWER CORPORATION VS PROVINCE OF ISABELABy: Yin Oliveros ©

FACTS:

Before anything else, let me remind you dear reader nga this case is so libog. Before reading, please bear in mind nga the only issue settled in this case is whether or not NAPOCOR is liable to pay franchise tax. Mao ra jud na. As you read along this digest, naa cyay laing issue nga wala pa gi-settle ani nga case. There is a boundary dispute which was not settled. As to the franchise tax issue –this is the final decision of the SC. If you’ll ask me why si Province of Isabela ra ang respondent ani nga case, my answer is AMBOT, haha basta kai when NAPOCOR filed a petition for review, si Isabela ra iyang gi-implead.

National Power Corporation (NAPOCOR) is engaged in the generation & sale of electric power. NAPOCOR is a GOCC.

PROVINCE OF ISABELA’S CONTENTIONS: NAPOCOR’s Magat River Hydro-Electric Plant is located in its territory. Consequently NAPOCOR has to pay a franchise tax as provided in the Local Government Code

NAPOCOR paid franchise taxes for the years 1992 & 1993 NAPOCOR refused & failed to pay franchise tax for the year 1994

Province of Isabela filed an action for sums of money against NAPOCOR to collect the following: 1994 franchise tax Legal interest Damages

NAPOCOR’S CONTENTIONS : Magat River Hydro-Electric Plant is constructed on the land owned by National Irrigation Administration

located in Ifugao. NAPOCOR also admitted that they only paid the franchise taxes for the year 1992 & 1993 only because

of the representation of the Province of Isabela that the hydro-electric plant is within its territorial jurisdiction

That they stopped paying the franchise tax because there is a boundary dispute between the Province of Ifugao & the Province of Isabela. Because of that dispute, they are confused as to where would they pay their franchise tax. (But later they amended their answer & said nga dili na sila liable… just read on )

Province of Ifugao now joins the mess by filing a complaint-in-intervention It avers that the hydro-electric plant is located in its territory, and that only those incidental structures which have nothing to do with the production of hydroelectric power are located within the Province of Isabela’s territory. Furthermore, Province of Ifugao is the one actually maintaining the power plant, as it maintains the watershed that ensures the continuous flow of water to plant’s reservoir.

NAPOCOR’s answer to the complaint-in-intervention of Province of Ifugao:


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Under Section 13 of RA 6395 (its charter); NAPOCOR is not covered by the Local Government Code and therefore not obliged to pay franchise tax.

So basically, if naglibog naka mao nani ang situation nila: Province of Isabela and/or Province of Ifugao vs. NAPOCOR – collection of 1994 franchise tax NAPOCOR vs Province of Isabela and/or Province of Ifugao – dili daw sila liable sa franchise tax maski

kinsa pai makadaog sa boundary dispute Province of Ifugao vs Province of Isabela and/or NAPOCOR – Hydro-electric plant is within Ifugao’s

jurisdiction, ergo, NAPOCO must pay the franchise taxes to them RTC & CA ruled in favor or Province of Isabela & Ifugao

TAKE NOTE: RTC did not settle the boundary dispute between the Province of Isabela & Ifugao. What the lower courts settled is the issue on whether or not NAPOCOR is really liable for

franchise tax – and the court said YES! The lower courts merely ordered NAPOCOR to deposit the amount in escrow pending final

determination in the proper forum of which province is entitled to the franchise tax. DEPOSIT ra ang franchise tax due, not yet PAY. The boundary dispute has to be settled first. In

the meantime, deposit lang sa the amount with Land Bank of the Philippines. SC’S DECISION ON THE FRANCHISE TAX ISSUE

NAPOCOR’S CONTENTIONS SUPREME COURT’S RULINGUnder NAPOCOR’s charter, they are exempted from the payment of franchise tax and the Local Government Code did not expressly or impliedly repealed this exemption.

Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. It reads:Sec. 193. Withdrawal of Tax Exemption Privileges.— Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. 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, NAPOCOR clearly does not belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that expressly grant it exemption from local taxes. But this would be an exercise in futility. 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.

The legislative purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used in Sections 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used

NAPOCOR is a GOCC with an original charter, its shares of This contention is without merit. Although as a general


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stock is owned by the National Government – therefore they should be exempt from the payment of tax.

To support this contention, NAPOCOR cited the case of Basco vs PAGCOR which held that a GOCC whose shares of stock are owned by the national government is exempt from local taxes.

rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the Local Government Code authorize the LGUs to impose taxes, fees or charges on the aforementioned entities.

Section 137 of the LGC is one of those exceptions. It authorizes the province 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 based on the incoming receipt, or realized, within its territorial jurisdiction.

Thus, the doctrine laid down in the Basco case is no longer true. Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. In enacting the Local Government Code, Congress empowered the LGUs to impose certain taxes even on instrumentalities of the National Government.

Even assuming that the Local Government Code impliedly repealed NAPOCOR’s exemption under its charter, still it is NOT liable to pay the franchise tax because:1 st : Section 137 of the LGC is not applicable to NAPOCOR, as the said provision empowers local government units to impose franchise tax only with respect to private individuals and corporations.

Under the Local Government Code, "business" means a trade or commercial activity regularly engaged in as a means of livelihood or with a view to a profit. On the other hand, "franchise" means a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security and safety.

NAPOCOR asserts that it cannot be held liable to pay franchise tax because it is neither a private corporation nor a business created for profit.

2 nd : Section 133 (o) of the LGC states that the exercise of the taxing powers of provinces, cities, municipalities and barangays shall not extend to the levy of the following:x x x x (o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units.

NAPOCOR claims that it is an instrumentality of the National Government, which is beyond the authority of local government units to tax. It points out that it remits the profits derived from its operations to the National Government; Congress approves its yearly budget, which forms part of the General Appropriations Act; and all of its indebtedness, foreign or domestic, is guaranteed by the National Government.

In section 131 (m) of the Local Government Code, Congress unmistakably defined a franchise in the sense of a secondary or special franchise. This is to avoid any confusion when the word franchise is used in the concept of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that the phrase "tax on businesses enjoying a franchise" in Section 137 of the LGC should be interpreted and understood. Verily, to determine whether NAPOCOR 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 local city government

NAPOCOR FULFILLS THE FIRST REQUISITE. Commonwealth Act No. 120, as amended by Rep. Act No. 6395, constitutes NAPOCOR’s primary and secondary franchises. It serves as NAPOCOR’s charter, defining its composition, capitalization, the appointment and the specific duties of its corporate officers, and its corporate life span. As its secondary franchise, Commonwealth Act No. 120, as amended, vests NAPOCOR with certain powers which are not available to ordinary corporations.

PETITIONER ALSO FULFILLS THE SECOND REQUISITE. It is operating within local city government’s territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120. NAPOCOR was likewise


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3 rd : If NAPOCOR is required to pay franchise tax, such could have deleterious effects on its operations. It would compel NAPOCOR to borrow from domestic and foreign financial institutions to meet both its operational expenses and the franchise tax. Ultimately, it is the national government that will pay the tax, and the burden shouldered by the Filipino people.

characterized therein as a private enterprise for profit, on the following ratiocination:

NAPOCOR was created to "undertake the development of hydroelectric generation 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. Pursuant to this mandate, NAPOCOR 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 NAPOCOR’s activities, however, does not distract from the true nature of the petitioner as a commercial enterprise, in the same league with similar public utilities like telephone and telegraph companies, railroad companies, water supply and irrigation companies, gas, coal or light companies, power plants, ice plant among others; all of which are declared by this Court as ministrant or proprietary functions of government aimed at advancing the general interest of society.

In view of the above, NAPOCOR is ordered to immediately deposit in escrow with the Land Bank of the Philippines the franchise tax due.

Awa, DEPOSIT IN ESCROW ra jud na. Walay say if kinsa ibayad I looked up my legal dictionary and escrow is defined as:“A written agreement (or property or money) delivered to a third party or put in trust by one party to a contract to be returned after fulfillment of some condition”

CAVEAT: This is how I understood the case. If you think taka-taka ku ug sabot, basaha nalang ang full text Thank you

LEPANTO CONSOLIDATED MINING VS. AMBANLOC[CTA AC NO. 13; FEBRUARY 27, 2006]

BUT Note that this has been appealed to the SC.The two decisions are herein provided in sum:

----CTA LEVEL----

The national government issued to petitioner Lepanto Consolidated Mining Company (Lepanto) a mining lease contract covering, among others, its “TIKEM” leased mining claim at Sitio Nayak, Barrio Palasan (Suyoc), Municipality of Mankayan, Benguet. The contract granted Lepanto the right to extract and use for its purposes all mineral deposits within the boundary lines of its mining claim. Upon inquiry, the Mines and Geo-sciences Bureau of the Department of Environment and Natural Resources (DENR) advised Lepanto that, under its contract, it did not have to get a permit to extract and use sand and gravel from within the mining claim for its operational and infrastructure needs. Based on this advice, Lepanto proceeded to extract and remove sand, gravel, and other earth materials from the mining site. Lepanto used the quarried materials to back-fill stopes—portions of the earth excavated as a result of mining—replacing what had been mined to maintain the integrity of the ground. It also used sand and gravel to construct and maintain concrete structures needed in its mining operation, such as a tailings dam, access roads, and offices. Its use of quarry resources, readily available within its mining claim, was more practical and cheaper than having to outsource them.


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Respondent Mauricio Ambanloc, the provincial treasurer of Benguet, sent a demand letter to Lepanto, asking it to pay the province P1,901,893.22 as sand and gravel tax, for the quarry materials that it extracted from its mining site from 1997 to 2000. Lepanto sent a letter-protest to the provincial treasurer (June 25, 200) , but the latter denied the same, insisting on payment (July 31, 2001). Lepanto filed a petition with the Regional Trial Court (RTC) of Benguet to question the assessment.The RTC ruled that Lepanto was liable for the amount assessed, with interest at the rate of 2 percent per month from the time the tax should have been paid. Lepanto appealed the RTC decision to the Court of Tax Appeals (CTA) where it was raffled to its Second Division. The Second Division affirmed the ruling of the RTC with the modification that the interest of 2 percent per month shall not exceed 36 months. Lepanto appealed the decision of the Second Division to the CTA En Banc. Three justices of the CTA voted to affirm the decision but three justices dissented. Because the needed vote of four members could not be obtained, the En Banc dismissed the appeal, resulting in the affirmance of the decision of the Second Division.

ISSUE:

Is Lepanto liable for the tax imposed by Benguet on the sand and gravel that it extracted from within the area of its mining claim used exclusively in its mining operations?

CTA: RULING:

YES. A mining company is subject to the sand and gravel tax, imposed by a province on the stones, sand, gravel, earth and other quarry resources extracted by it from public lands. The tax applies regardless of whether the extraction was made for commercial purpose or merely incidental to its primary purpose since no distinction is made under Sections 134 and 138 of the LGC of 1991 which authorizes provinces to impose the sand and gravel tax.

Likewise, a province is entitled to impose the sand and gravel tax on mining companies, since the subject of the tax is the sand and gravel extracted from public lands, and not the extracted inerals, which arenot the same as those subject to excise tax under the NIRC. Further, a mining company is considered an independednt contractor and cannot, thereofr, claim exemption from the sand and gravel tax on the ground that it is an agent or representative of the government under Sec 133(o) of the LGC, which exempts from local taxes, fees, or charges of any kind the national government, its agencies and instrumentalities and LGUs.

----SUPREME COURT LEVEL---- JUNE 29, 2010

SC RULING:

YES. The CTA erred in applying the provision of the Local Government Code (Section 138) since the basis of Benguet province emanates from the Revised Benguet Revenue Code itself. This notwithstanding, the provincial revenue measure still did not distinguish between commercial and non-commercial extractions.

In addition, the Petitioner’s argument that when a company is taxed on its main business it can no longer be taxable for engaging in an activity that is but part of, incidental to, and necessary to such main business, was held to be inapplicable. The Court said that the cases where the above principle has been applied involved business taxes and thus the incidental activities could not be treated as separate and distinct from the main business. Here the tax being imposed was an excise tax levied on the privilege of extracting gravel and sand.

***PRINCIPLE:

The principle that when a company is taxed on its main business, it is no longer taxable for engaging in an activity that is but a part of incidental to, and necessary to such main business, applies to business taxes and not to taxes such as the sand and gravel tax imposed by the provincial government. The reasoning was that the incidental activity could not be treated as a business separate and distinct from the main business of the taxpayer. The sand and gravel tax is an excise tax imposed on the privilege of extracting sand and gravel. It is settled that provincial governments can levy excise taxes on quarry resources independently from national government.


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MOBIL PHILS, INC. VS. CITY TREASURER OF MAKATI AND THE CHIEF OF THE LICENSE DIVISION OF MAKATI CITY[G.R. 154092]

FACTS:

Prior to September 1998, Mobil’s (a domestic corp engaged in the business of selling petroleum products) principal office was at Makati City. On August 20, 1998, it filed an application with the City Treasurer of Makati for the retirement of its business within the City of Makati as it moved its principal place of business to Pasig City.

Upon evaluation of Mobil’s application, then OIC of the License Division, Ms. Jesusa E. Cuneta, issued a billing slip assessing the following taxes against Mobil: For the 4th Quarter of 1998 (based on 1997 gross sales) As Manufacturer P 14,439.54 As Wholesaler 550,778.58 Garbage Fee 1,250.00 Sub-Total P 566,468.12 For the Gross Sales made in 1998 As Manufacturer P 40,008.33 As Wholesaler 1,291,630.51 Sub-Total __1,331,638.84 TOTAL ASSESSED BUSINESS TAXES P 1,898,106.96

On September 11, 1998,Mobil paid the assessed amount of business taxes - P1,898,106.96 - under protest. And so the application for retirement of business from Makati to Pasig City was approved.

On July 21, 1999, petitioner filed a claim for P1,331,638.84 refund, which was denied on the ground that petitioner was merely transferring and not retiring its business, and that the gross sales realized while petitioner still maintained office in Makati from January 1 to August 31, 1998 should be taxed in the City of Makati.

Mobil filed a petition before the RTC seeking for refund of the business tax erroneously collected from them. RTC denied it, ruling that the pertinent law provides that a person or entity doing business in the Municipality shall be subject to business tax. The tax shall be fixed by the quarter. The initial tax for the quarter in which a business starts to operate shall be two and one-half percent (2½%) of one percent (1%) of its capital investment. Thereafter, the tax shall be computed based on the gross sales or receipts of the preceding quarter. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross sales or receipts for the preceding calendar year. That tax shall accrue on the first day of January of each year and payment shall be made within the first 20 days of January or of each subsequent quarter as the case may be.

ISSUE:

Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998?

HELD:

RTC’s decision was reversed. Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a business in the year the tax was paid. It is paid at the beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business.

Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person’s income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one taxable year. It is due on or before the 15th day of the 4th month following the close of the taxpayer’s taxable year and is generally regarded as an excise tax, levied upon the right of a person or entity to receive income or profits.

Section 3A.04 of the Makati City Revenue Code states:


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Sec.3A.04. Computation of tax for newly-started business. In the case of newly-started business under Sec. 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m) above, the tax shall be fixed by the quarter. The initial tax of the quarter in which the business starts to operate shall be two and one half percent (2 ½ %) of one percent (1%) of the capital investment.

In the succeeding quarter or quarters, in cases where the business opens before the last quarter of the year, the tax shall be based on the gross sales or receipt for the preceding quarter at one-half ( ½ ) of the rates fixed therefor by the pertinent schedule in Section 3A.02, (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), and (m).

In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross sales or receipts for the preceding calendar year, or any fraction thereof as provided in the same pertinent schedules.

Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the previous year’s figures. This is the reason for the confusion. A newly-started business is already liable for business taxes (i.e. license fees) at the start of the quarter when it commences operations. In computing the amount of tax due for the first quarter of operations, the business’ capital investment is used as the basis. For the subsequent quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. In the following year(s), the business is then taxed based on the gross sales or receipts of the previous year. The business taxes paid in the year 1998 is for the privilege of engaging in business for the same year, and not for having engaged in business for 1997.

Upon its transfer, petitioner was apparently subjected to Sec. 3A.11 par. (g) which states:XXX (g) Retirement of business. For purposes thereof, termination shall mean that business operations are stopped completely. (2) If it is found that the retirement or termination of the business is legitimate, [a]nd the tax due therefrom be less than the tax due for the current year based on the gross sales or receipts, the difference in the amount of the tax shall be paid before the business is considered officially retired or terminated.

Based on this foregoing provision, on the year an establishment retires or terminates its business within the municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous year’s gross sales or receipts, is less than the actual tax due based on the current year’s gross sales or receipts.

For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on petitioner’s gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on petitioner’s actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, we find that the respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998. Refund granted.


Documents

Vi. Taxation Case Digests (Local Tax)