SMART COMMUNICATIONS v.

CITY OF MAKATI FACTS: Smart Communications filed an action for declaratory relief at the RTC of Davao to determine its rights and obligations under the Tax Code of Davao City, Article 10, Sec. 1 of which states that local franchise tax is imposed equivalent to 75% of the 1% of the gross annual receipts of Smart within the territorial jurisdiction of Davao City. Smart contends that its telecenter in Davao City is exempt from franchise tax because of: 1. The issuance of its franchise under RA 7294 subsequent to RA 7160 which shows the clear legislative intent to exempt it from the provisions of RA 7160, 2. Sec. 137 of RA 7160 can only apply to exemptions already existing at the time of its effectivity and not to future exemptions, 3. Davao Citys power to impose local franchise tax is statutory limitations such as the in lieu of all taxes clause in RA 7160, and the imposition of franchise tax will amount to a violation of the constitutional provision against impairment of contracts. ISSUE: Whether or not Smart Communications is liable to pay the franchise tax imposed by Davao City? RATIO: Yes. SC held the following points: a. that the withdrawal of tax exemptions or incentives provided in RA 7160 can only affect those franchises granted prior to the effectivity of RA 7160. The intent of Congress to remove all tax exemptions or incentives granted prior to the effectivity of the law is evident of Sec 183 of RA 7160 b. that despite Smarts contention that the in lieu of all taxes clause in Sec. 9 of the LGC exempts it from local franchise tax, the uncertainty in the "in lieu of all taxes" clause in R.A. No. 7294 on whether Smart is exempted from both local and national franchise tax must be construed strictly against Smart which claims the exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all kinds of franchise taxes - whether local or national. However, Smart failed in this regard; Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. They can only be given force when the grant is clear and categorical. The surrender of the power to tax, when claimed, must be clearly shown by a language that will admit of no reasonable construction consistent with the reservation of the power. If the intention of the legislature is open to doubt, then the intention of the legislature must be resolved in favor of the State. In this case, the doubt must be resolved in favor of the City of Davao. The "in lieu of all taxes" clause applies only to national internal revenue taxes and not to local taxes. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause does not apply to income tax. If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. As to Sec. 23 of RA 7925, the SC held that Sec 23, RA 7925, does not grant a blanket exemption to all telecom companies. As to Smarts claim that the imposition of local franchise tax is a prohibition against impairment of contracts, SC held that the Smart franchise does not expressly provide for exemption of local taxes and in case of doubt, it must be resolved against the grant of tax exemption and finally, the Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a tax exemption has been granted for a valid consideration. Petition denied. NPC v. PROVINCE OF ISABELA FACTS: Respondent Province of Isabela filed an action for sum of money against petitioner NPC, a government-owned and controlled corporation engaged in the generation and sale of electric power. Respondent alleged in the complaint that petitioners Magat River Hydro-Electric Plant is located within its territory and that, for this reason, it imposed a franchise tax on petitioner pursuant to Section 137 of the Local Government Code of 1991. It averred that petitioner paid the franchise tax for the years 1992 and 1993 in the amount of P9,473,275.00 but refuses the franchise tax for the year 1994 in the amount of P7,116,949.00. Respondent likewise sought the payment of legal interest and damages. NPC averred that the Magat River Hydro-Electric Plant is constructed on the land owned by the National Irrigation Administration, which is situated in Ifugao. It admitted that it paid franchise tax to the respondent for the years 1992 and 1993, but that it did so only upon respondents representation that the Magat Hydro-Electric Plant is located within its territorial jurisdiction. It alleged that, due to the boundary dispute between the respondent and the Province of Ifugao, it is in a quandary as to whom it should pay the franchise tax. The Province of Ifugao filed a Complaint-in-Intervention against both petitioner and respondent, claiming that the Magat Hydro-Electric Power Plant is situated within its territory. All the principal structures of the power plant are within its jurisdiction; only those incidental structures which have nothing to do with the production of hydroelectric power are located within the respondents territory. It alleged that it is the one actually maintaining the power plant, as it maintains the watershed that ensures the continuous flow of water to plants reservoir. It claimed that through misrepresentation, Isabela succeeded in claiming and receiving payment of franchise tax from the NPC for the years 1992 and 1993. Respondent argued that petitioner and the intervenor are guilty of laches and estoppel because if they have known way back in 1976, when the dam was being constructed, that the location of the power plant is within respondents territory then they should have raised objections. Petitioner, on the other hand, claims that according to Section 13 of Rep. Act No. 6395 (its charter), it is not covered by the Local Government Code, and therefore not obliged to pay franchise tax. The RTC ruled in favor of respondent and the intervenor, Petitioner then filed an appeal with the CA. CA affirmed the RTC citing the case of National Power Corporation v. City of Cabanatuan. ISSUE: Whether or not petitioner NPC should pay franchise tax? RATIO: The petition has no merit. The case is on all fours with the case of National Power Corporation v. City of Cabanatuan. In the Cabanatuan case, petitioner likewise refused to pay franchise tax to the City of Cabanatuan by invoking the tax exemption provided under its charter. It argued that Section 137 of the LGC does not apply to it because its stocks are wholly owned by the National Government, and its charter characterizes it as a "non-profit" organization. The Court, however, declared that petitioner is not exempt from paying franchise tax.

Taxation is the rule and exemption is the exception. Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken. They cannot be extended by mere implication or inference. In this case, petitioner relies solely on the exemption granted to it by its charter, arguing that its exemption from franchise tax remained despite the enactment of the LGC. The LGC has expressly withdrawn such exemption in Sec. 193. 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, petitioner 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. It also 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. Nonetheless, petitioner seeks to avoid paying the franchise tax by arguing that it is not liable under Section 137 of the LGC because said tax applies only to a "business enjoying a franchise." It contends that it is not a private corporation or a business for profit. We do not agree. The Court also declared in the Cabanatuan case that petitioner qualifies as a "business enjoying a franchise": In section 131 (m) of the LGC, 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. 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 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. Petitioner fulfills all the requisites. Also, petitioner is characterized as a private enterprise for profit, pursuant to its mandate, petitioner generates power and sells electricity in bulk. These activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, the exemption is when specific provisions of the LGC 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. In enacting the LGC, Congress empowered the LGUs to impose certain taxes even on instrumentalities of the National Government. PHILIPPINE BASKETBALL ASSOCIATION v. CA, CTA AND COMMISSIONER OF INTERNAL REVENUE FACTS: PBA received an assessment letter from the Commissioner of Internal Revenue for the payment of deficiency amusement tax for the tickets they sold during games. Petitioner filed a protest with the Commissioner stating that it is within the power of the LGU to tax them, and not the national government. Petitioner contends that the Local Tax Code of 1973, transferred the power and authority to levy and collect amusement taxes from the sale of admission tickets to places of amusement from the national government to the local governments. Petitioner cited BIR Memorandum Circular No. 49-73 providing that the power to levy and collect amusement tax on admission tickets was transferred to the local governments by virtue of the Local Tax Code; and BIR Ruling No. 231-86 which held that "the jurisdiction to levy amusement tax on gross receipts from admission tickets to places of amusement was transferred to local governments under P.D. No. 231, as amended." Further, petitioner opined that even assuming arguendo that respondent Commissioner revoked BIR Ruling No. 231-86, the reversal, modification or revocation cannot be given retroactive effect since even as late as 1988 (BIR Memorandum Circular No. 8-88), respondent Commissioner still recognized the jurisdiction of local governments to collect amusement taxes. The Petitioner elevated the case to the CTA, and then the CA, but both upheld the ruling of the Commissioner. ISSUES: 1. Is the amusement tax on admission tickets to PBA games a national or local tax? Who between the national government and local government should petitioner pay amusement taxes? 2. Is the cession of advertising and streamer spaces to Vintage Enterprises, Inc. (VEI) subject to the payment of amusement tax? 3. If ever petitioner is liable for the payment of deficiency amusement tax, is it liable to pay a seventy-five percent (75%) surcharge on the deficiency amount due? RATIO: Held for the Commissioner. The Local Tax Code states that a province can only impose a tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement. The authority to tax professional basketball games is not therein included, as the same is expressly embraced in a different law, PD 1959. From the law it is clear that the "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. The said payment of amusement tax is in lieu of all other percentage taxes of whatever nature and description. While Section 13 of the Local Tax Code mentions "other places of amusement", professional basketball games are definitely not within its scope using the principle of ejusdem generis. Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming. Likewise, erroneous is the stance of petitioner that respondent Commissioner's issuance of BIR Ruling No. 231-86 and BIR Revenue Memorandum Circular No. 8-88 both upholding the authority of the local government to collect amusement taxes should bind the government or that, if there is any revocation or modification of said rule, the same should operate prospectively.

The government can never be in estoppel, particularly in matters involving taxes. Erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of the statute, and that the Government is never estopped by mistake or error on the part of its agents. Untenable is the contention that income from the cession of streamer and advertising spaces to VEI is not subject to amusement tax. For the purpose of the amusement tax, the term gross receipts' embraces all the receipts of the proprietor, lessee or operator of the amusement place. Said gross receipts also include income from television, radio and motion picture rights, if any. The definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. The last issue for resolution concerns the liability of petitioner for the payment of surcharge and interest on the deficiency amount due. Petitioner contends that it is not liable, as it acted in good faith, having relied upon the issuances of the respondent Commissioner. This issue must fail because it was never raised before the respondent court. Issues not raised in the court a quo cannot be raised for the first time on appeal WHEREFORE, the Petition is DENIED, and the Decisions of the Court of Appeals and Court of Tax Appeals dated are AFFIRMED. LUZ YAMANE v. BA LEPANTO CONDOMINIUM FACTS: Petitioner is the City Treasurer of Makati, Luz Yamane who wishes to claim business taxes from BA Lepanto Condominium on behalf of the City of Makati. BA Lepanto assails the collection of the City Treasurer because it claims that it is a non profit corporation. It merely collects fees from the residents of the condo to manage and preserve the common areas. Neither was the Corporation authorized, under its articles of incorporation or by-laws to engage in profit-making activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses. ISSUE: Whether or not a local government unit can, under the Local Government Code, impel a condominium corporation to pay business taxes? RATIO: The power of local government units to impose taxes within its territorial jurisdiction derives from the Constitution itself. These guidelines and limitations as provided by Congress are in main contained in the Local Government Code of 1991and in Makatis case, the Makati Revenue Code. However, in what provision of the Makati Revenue Code does the City Treasurer rely on to make the Corporation liable for business taxes? None. At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner. The notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax. Section 195 of the Local Government Code does not go as far as to expressly require that the notice of assessment specifically cite the provision of the ordinance involved but it does require that it state the nature of the tax, fee or charge, the amount of deficiency, surcharges, interests and penalties. In this case, the notice of assessment sent to the Corporation did state that the assessment was for business taxes, as well as the amount of the assessment. There may have been prima facie compliance with the requirement under Section 195. However in this case, the Revenue Code provides multiple provisions on business taxes, and at varying rates. What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body. Moreover, a careful examination of the Revenue Code shows that while Section 3A.02(m) is quite exhaustive in enumerating the class of businesses taxed under the provision, the listing, while it does not include condominium-related enterprises, ends with the abbreviation 'etc.', or et cetera. It is thus imperative that in order that the Corporation may be subjected to business taxes, its activities must fall within the definition of business as provided in the Local Government Code. And to hold that they do is to ignore the very statutory nature of a condominium corporation. Whatever capacity the Corporation may have pursuant to its power to exercise acts of ownership over personal and real property is limited by its stated corporate purposes, which are by themselves further limited by the Condominium Act. A condominium corporation, while enjoying such powers of ownership, is prohibited by law from transacting its properties for the purpose of gainful profit. Accordingly, and with a significant degree of comfort, we hold that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise Petition is DENIED. No costs. KEPCO ILIJAN CORP. v. CITY O MAKATI FACTS 1. Petitioner, Kepco Ilijan Corporation, is a domestic corporation, with principal place of business in Salcedo Village, Makati City. 2. Respondent City of Makati, is being sued in its capacity as the local government unit which classified petitioner as a "contractor" for purposes of local business tax. 3. Petitioner entered into an Energy Conversion Agreement (ECA) with the NAPOCOR, whereby the latter shall build, operate and maintain the1200 MW Ilijan Natural Gas Power Plant. Petitioner was issued a Mayor's Permit by respondent classifying it as "SEO" or special contractor for local business tax purposes. 4. Petitioner then requested that its classification be changed from contractor to that of a manufacturer since its classification as a contractor is allegedly not in accordance with the definition of said word under existing laws and relevant Department of Finance circulars. Due to the fact however that it was still under Income Tax Holiday (ITH) then, and as a consequence of which, no tax collection or assessment could then be imposed by the respondent up to February 28, 2004, petitioner still sought to have its classification reconsidered through a series of written communications and appropriate meetings with officers of the respondent.

5. Upon the expiration of its ITH, petitioner requested for a computation of its local business taxes from the respondent. Respondent issued the requested computation classifying petitioner as a contractor and not a manufacturer and assessed petitioner for the amount of P3,358,711.75, representing its local business tax. 6. Despite its objections, petitioner paid the said assessment but subsequently filed its protest. City of Makati: denied petitioners protest. RTC: (1) dismissed petitioners appeal for lack of merit; (2) held that petitioner was properly classified as a contractor and not as a manufacturer, pursuant to Section 131 (h) of the LGC of 1991; (3) denied petitioners Motion for Reconsideration SC: dismissed the petition; affirmed the RTC decision ISSUE: Whether petitioner, in selling electricity, is considered a contractor or a manufacturer, as defined under the Local Government Code and Makati City Tax Code RATIO: Petitioner is a CONTRACTOR. Petitioner operates the power station principally for NAPOCOR. NAPOCOR is obligated to supply and shoulder the cost of the fuel requirements of the power plant used by petitioner in converting the natural gas or diesel fuel into electricity. NAPOCOR then pays the "fees" for the conversion of such fuel. A "fee" is a recompense for an official or professional service or a charge or emolument or compensation for a particular act or service. It is a fixed charge or perquisite charged as recompense for labor, reward, compensation, or wage given to a person for performance of services or something done or to be done. These activities of petitioner come in the form of services. Sections 131 (h) and (o) of the LGC of 1991 (h) 'Contractor' includes persons, natural or juridical, not subject to professional tax under Section 139 of this Code, whose activity consists essentially of the sale of all kinds of services for a fee, regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractor or his employees... (o) 'Manufacturer' includes every person who, by physical or chemical process, alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any raw material or manufactured or partially manufactured products so as to reduce it to marketable shape or prepare it for any of the use of the industry, or who by any such process, combines any such raw materials or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished products of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition, alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption." Based on the foregoing definition, petitioner's act of converting the natural gas or diesel fuel into electricity falls under Section 131 (h) of the LGC of 1991. It is quite unusual that NAPOCOR supplies the fuel needed by petitioner to generate fuel, as well as, receives all the electricity generated, and still conclude that petitioner is a "manufacturer". The fact that petitioner merely operates, maintains, and manages the power plant for the conversion of fuel supplied by NAPOCOR for the eventual transmission of electricity only to NAPOCOR show that the same all come in the nature of the rendition of service for a fee. All these lead to the conclusion that petitioner is a "contractor" as defined under the LGC of 1991. HONEST SERVICE PROVIDERS v. CITY OF MAKATI 1. Honest Service Providers, Inc. (petitioner) is a domestic corporation with principal office Legazpi Village, Makati City. It is engaged in providing janitorial and messengerial services to clients within Metro Manila and nationwide. In January of 2005, when petitioner applied for a renewal of their business permit, the amount due was P817,248.48 which was far different from the previous years' business tax of around P50,000.00. Hence, petitioner was not able to renew its business permit. 2. Due to the above assessment, petitioner's Accountant and Vice President visited the office of respondent City Treasurer and they were informed that an examiner will be sent to petitioner's office for the verification of the records. Thereafter, a Letter of Authority No. LA-2006-001 was issued, authorizing Revenue Examiner Felito A. Manrique to verify the records of petitioner. But instead of conducting an actual examination or verification of records, the Revenue Examiner requested copies of petitioner's Audited Financial Statements for years 2002 up to 2005. 3. Petitioner then received a copy of the Notice of Assessment dated February 22, 2006 demanding payment of P2,415,509.42 representing deficiency city business taxes, fees and charges for taxable period 2003-2005. Petitioner responded with a written protest requesting for a reconsideration of the assessment. City of Makati: denied petitioner's request for reconsideration RTC Makati: found the subject assessments valid; dismissed appeal for lack of merit SC: dismissed the petition for review ISSUE: Whether the subject assessment is valid? RATIO YES. A review of the Notice of Assessment sent to petitioner shows that petitioner is being assessed of tax as a service contractor. Section 143 (e) LGC, in relation to its Section 151, and Sec. 3A.02 (f) of the Makati Revenue Code, covering contractor's tax: Sec. 143: Tax on Business. The municipality may impose taxes on the following businesses: (e) On contractors and other independent contractors, in accordance with the following schedule...

With gross receipts for the preceding calendar year Amount of Tax in the amount of: Per Annum Sec. 151: Scope of Taxing Power. 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. Sec. 3A.02: Imposition of Tax. There is hereby levied an annual tax on the following businesses at rates prescribed therefore: (f) On Contractors and other independent contractors defined in SEC. 3A-01 (q) of Chapter III of this Code; and on owners or operators of business establishments rendering or offering services such as; . . . janitorial services. . . With gross sales or receipts for Amount of Tax the preceding calendar year Per Annum in the amount of... Apparently, contractors are subject to business tax and the amount thereof is based on the business' gross sales or receipts of the preceding calendar year. Contractor is referred in the LGC of 1991 as to include persons, natural or juridical, not subject to professional tax under Section 139 of this Code whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractor or his employees. The definition includes any person whether natural or juridical as long as the activity of such person consists essentially of the sale of services for a fee. Since petitioner is engaged in the business of providing janitorial and messengerial services to its clients in consideration of a service fee; therefore, it is engaged in rendering services for a fee, which is well within the scope of the above definition. Accordingly, petitioner is subject to a contractor's tax based on its gross sales or receipts. Re: Petitioners contention that the payment for salaries and wages of the janitors and messengers employed by petitioner and the cleaning materials used in the client's premises should not be included in the computation of gross receipts: Under the LGC, 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 with the services and deposits or advance payments actually or constructively received during the taxable year 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) paid by the taxpayer. The definition is clear and unambiguous. Gross sales or receipts include the total amount of money representing the service fee, undiminished by costs or expenses and excluding discounts if determinable at the time of sales, sales return, excise tax, and valueadded tax (VAT). In other words, "gross receipts" refer to the total, as opposed to the net. These are, therefore, the total receipts before any deduction for the expenses of management.

PETRON v. MAYOR TIANGCO FACTS: 1. 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. 2. 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 (AMOUNT DUE: P6,259,087.62). 3. The computation sheets 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. 4. Petron duly filed with Navotas a letter-protest to the notice of assessment pursuant to Section 195 of the Code. 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. Navotas Municipal Treasurer : Denied Petrons letter-protest. 5. Petron filed with the Malabon RTC a Complaint for Cancellation of Assessment for Deficiency Taxes with Prayer for the Issuance of a Temporary Restraining Order (TRO) and/or Preliminary Injunction. RTC: Dismissed petitioners complaint for cancellation of assessment made by Navotas for deficiency taxes; ordered the payment of P10,204,916.17 pesos in business taxes to Navotas. SC: Granted the petitio; reversed and set aside the RTC decision; cancelled the assessment for deficiency taxe on petitioner. ISSUE: Whether a local government unit is empowered under the Local Government Code to impose business taxes on persons or entities engaged in the sale of petroleum products RATIO: NO. Sec. 133, LGC: 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...

While Section 133(h) does not generally bar the imposition of business taxes on articles burdened by excise taxes under the NIRC, it specifically prohibits local government units from extending the levy of any kind of "taxes, fees or charges on petroleum products." Accordingly, the subject tax assessment is ultra vires and void. BATANGAS CITY vs. PILIPINAS SHELL FACTS: 1. Pilipinas Shell Petroleum Corporation (PSPC), operates an oil refinery and depot in Tabangao, Batangas City, which manufactures and produces petroleum products that are distributed nationwide. 2. During the years that the PSPC was operating, particularly in 2002, it was only paying the amount of P98,964.71 for fees and other charges which include the amount of P1,180.34 as Mayor's Permit Fee. On February 20, 2002, respondent, Batangas City, through its City Legal Officer, sent a notice of assessment to petitioner demanding the payment of P92,373,720.50 and P312,656,253.04 as business taxes for its manufacture and distribution of petroleum products. In addition, PSPC was also required and assessed to pay the amount of P4,299,851.00 as Mayor's Permit Fee based on the gross sales of its Tabangao Refinery. The assessment was pursuant to Section 143(h) of the LGC of 1991 and Section 23 of its Batangas City Tax Code of 2002. 3. On the belief that respondents have no authority to impose the subject taxes and fees, Pilipinas Shell filed its protest on April 17, 2002 contending among others that it is not liable for the payment of the local business tax either as manufacturer or distributor of petroleum products. It further argued that the Mayor's Permit Fees are exorbitant, confiscatory, arbitrary, unreasonable and not commensurate with the cost of issuing a license. Batangas City: denied Pilipinas Shells protest RTC: denied Pilipinas Shells petition for review CTA 2. Division: held that Pilipinas Shells is not subject to the business taxes on the manufacture and distribution of petroleum products 4. Batangas City files Petition for Review. ISSUE: Whether Pilipinas Shells is subject to the business taxes on the manufacture and distribution of petroleum products? RATIO: NO. The mandate to impose taxes granted to local government units (LGUs), in furtherance of the state policy on local autonomy, is categorical and long-established in the 1987 Philippine Constitution and the Local Government Code. However, such power to impose tax is not all-encompassing. It is subject to limitations as explicitly stated in Art. X Sec. 5 of the 1987 Constitution, as follows: Art. X Sec. 5: Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. The "Common Limitations on the Taxing Powers of Local Government Units" provided by Congress is found under Section 133 of the LGC. Pertinent to this case Sec. 133: Common Limitations on the Taxing Powers of LGUs. 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: (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products... Based on the opening phrase "Unless otherwise provided herein", it is clear that the enumerated limitations are absolute, unless exceptions are specifically provided. A reading of Section 133(h) reveals that there are two subject matters included in this section because of the word "and" which connects them. The following subject matters are covered: 1. Excise taxes on articles enumerated under the National Internal Revenue Code, as amended; and 2. taxes, fees, and charges on petroleum products. Although petroleum products are subject to excise tax, it was taken out of that context by putting it after the word "and". Clearly, this is to emphasize the point that it was excluded in Sec. 143(h) of the LGC which allows the imposition of business taxes on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended. Moreover, there is no qualification as to what "taxes, fees, or charges" to be imposed on the petroleum products. Where the law does not distinguish, courts should not distinguish. Ubi lex non distinguit nec nos distinguere debemos. In other words, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even the activity or privilege related to the petroleum products e.g., manufacturing and distribution of the said products, it is covered by the said limitation and thus, no levy can be imposed. Thus, We agree with petitioner that this second limitation does not only refer to taxes, charges or fees on the petroleum products per se, but to any business or transaction dealing with petroleum products. Sec. 143: Tax on Business. The municipality may impose taxes on the following businesses: (h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed herein. Because of the express limitation of Section 133(h), the above-quoted provision cannot be used as basis for the imposition of business taxes on manufacturing and distributing petroleum products. Hence, the argument that the LGC has vested LGUs the authority to collect business taxes on manufacturers and distributors of any article of commerce of whatever kind or nature is not applicable in this case. 'Petroleum products' should not be interpreted to be included in 'any article of kind and nature'.

LINDBERG PHILIPPINES v. CITY OF MAKATI FACTS: - Petitioner Lindberg Philippines, Inc. seeks a review of the decision and resolution rendered by the First Division of the CTA where it was held that the tax due against Lindberg was reduced to P993,901.29 representing unpaid deficiency tax as contractor for the years 2000, 2001, 2002 including surcharges and interest under Sec. 168 of the Local Government Code. - Lindberg argues that: (1) Sec. 150 LGC and Art. 243 of its IRR provide that if a sale is made in a locality where the taxpayer maintains a branch or sales office, the tax shall accrue and be paid to the city or municipality where such branch or sales office is located. (2) it is not a contractor because it does not perform services to its customers for a fee as it merely finances the construction of the power plants for its customers through BOT arrangements. - Respondents counter-argue that: (1) the existence of Lindbergs principal office in Makati City and the admission thereof, constitutes prima facie evidence that it is conducting business in its territorial jurisdiction and thus, respondent Makati City has jurisdiction to tax Lindberg. (2) uncollected sales should be deducted from the tax base. (3) Lindbergs nature of business falls under the definition of contractor in Secs 3A.01(q) and 3A.02(f) of the Makati Revenue Code and under Sec. 131 LGC. (4) Lindberg was never in good faith in representing itself as a financing/holding company and thus for its willful neglect to file a correct return for the proper evaluation of the taxing authority, the taxpayer should pay a deficiency tax, and if payment has been made before discovery, a surcharge of the tax should be collected. ISSUES: 1. Whether or not respondent City of Makati has jurisdiction to tax petitioner Lindberg? YES 2. Whether or not the uncollected sales should be deducted from the tax base? YES 3. Whether or not petitioner Lindberg is a contractor? YES HELD: 1. The City of Makati, where Lindbergs principal office is found, has the power to tax its business, but only as much as 30% of Lindbergs gross sales/receipts. Lindberg admitted that its principal office is in Makati City. Its principal office is also in charge of reviewing and approving the correctness of the invoices issued by the branch offices. Such activities in the principal office are evident of business transactions that should be recorded. Lindberg also failed to prove that there are no recorded sales or business transactions in its office in Makati City and that it paid its business taxes to the municipalities where it has its branch offices. Lindbergs business involves financing the construction and operation of private power plants through a Build-Operate-Transfer (BOT) arrangements with its customers. Under this arrangement, Lindberg advances the necessary capital by employing and paying for the services of a contractor which will build the powerplant. These transactions, before the completion of the power plants and branch offices of Lindberg, are activities doing business, which are taxable in its principal office. Moreover, even if the powerplants under the BOT are in different localities, the act of financing the construction and operation are still considered doing business. 2. The uncollected sales should be deducted from the tax base. However, Lindberg failed to prove which part of the tax base was uncollected and which part should be deducted. 3. Lindberg is a contractor and not a financing or holding company. Under the LGC, contractor includes persons, natural or juridical, not subject to professional tax under Sec. 139 of the Code whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractor or employees. The same definition is provided under Sec. 3A.01(t) of the Revised Makati Revenue Code. Thus, the term contractor includes any person, natural or juridical, as long the persons activity consists essentially of the sale of services for a fee. In this case, Lindberg is a contractor engaged in financing/investment activities and sale of services as shown by the following facts: a. Its Amended Articles of Incorporation provides that Lindbergs primary purpose is to carry on the business of managing and operating power plants. Based on this, it is apparent that the business it is supposed to carry on is within the ambit of performing some kind of service. b. Its financial statements show that the nature of Lindbergs business can be categorized as contractor based on the Makati Revenue Code. c. In Tatad vs Garcia, under the BOT arrangement, there is not only the financing of the project that is involved but also its construction, maintenance and operation. CITY OF LAS PIAS v. SEALED AIR FACTS - Sealed Air received letters from the City Treasurer requiring the former to settle the assessment made of the alleged local business tax deficiencies. Based on the letters, the assessment was based on Sealed Airs failure to pay the correct amount of business taxes during the covered period. - According to the City Treasurer, the business tax classification of Sealed Air should be that of retailer under Art. 8, Sec. 31(d) of the Revenue Code of Las Pinas. Prior to the issuance of the protested assessment, Sealed Air was classified as a wholesaler and thus, the tax reclassification gave rise to its alleged tax deficiencies. - Sealed Air argues that: (1) it is a wholesaler and not a retailer (2) its sales activities were purely made on wholesale basis (3) the tax deficiency assessment for local business tax should be withdrawn

(4) the City of Las Pinas has no jurisdiction to collect taxes on the gross income of Sealed Air in 1998 since it has started business operations in Las Pinas only in January 1999 - The City Treasurer denied Sealed Airs protest so Sealed Air filed an appeal with the RTC but the RTC ruled in favour of the City Treasurer, making Sealed Air liable to its tax deficiencies. ISSUE: Whether or not Sealed Air should be classified as a retailer or wholesaler in accordance with the LGC and the Revenue Code of Las Pinas? WHOLESALER HELD Under the LGC of 1991 and Sec. 3 Ch. 1 of City Ordinance No. 104-92, the terms retail and wholesaler are defined as such: a. retail- a sale where the purchases buys the commodity for his own consumption, irrespective of the quantity of the commodity sold b. wholesale- a sale where the purchaser buys or imports the commodities for resale to persons other than the end user regardless of the quantity of the transaction. The sale is retail if the sale is made to a consumer or end-user for his own personal consumption and not for the purpose of resale. On the other hand, it is wholesale if the sale is made for the purpose of reselling. The following fact puts Sealed Air under the category of wholesaler: its products (packaging materials) are sold to its clients to serve as container for the latters own finished food products. It is only when these finished food products are sold to the ultimate end-user that the production and distribution chain are completed. Accordingly, its clients are not the end-users of the packaging materials. The sales by Sealed Air to its clients will still not fall within the definition of Retail Trade under the IRR of RA 87621 (An Act Liberalizing the Retail Trade Business). Based on such rule, the sales made by the respondent to its industrial and commercial users are not considered as retail. In applying Marsman & Co., Inc. vs First Coconut Central Co., Inc., there are 3 elements that must be present to be engaged in retail: a. that the seller should be habitually engaged in selling b. the sale must be direct to the general public and c. the object of the sale is limited to merchandise, commodities or goods for consumption The first element obviously exists. As to the second element, there may have been no prohibition to the general public in availing the packaging products from Sealed Air but it is the latter that is prohibited from engaging in retail trade. Under RA No. 8762, unless Sealed Air complies with the minimum capitalization requirement, it cannot engage in retail trade. Thus, its products are not readily available to whoever desires to avail of them for their own consumption. Moreover, the sales process between the respondent and its clientele involve the following: (1) sending of purchase orders by the customer to the respondent; (2) preparation of sales invoices and delivery receipts by the respondent; and (3) actual delivery of the packaging materials by the respondent to the customers. In contrast to the sale to the general public, there is no necessity of action from the purchaser to initiate the sale; no purchase order is required. As to the third element, Sealed Airs products are producer goods. The packaging materials are elements utilized in the production and manufacturing process of the food products, and as such, they are considered as intermediate or auxiliary goods. Although not raw materials in the production food and non-food products, the packaging materials are essential tools in the production and manufacturing of food products being sold to the general public. ILOILO BOTTLERS, INC. v. ILOILO CITY FACTS: The city of Iloilo passed Ordinance no. 5 which levies municipal license taxes to any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within its jurisdiction. On July 12,1972, Iloilo Bottlers, Inc. filed a complaint with the Court of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly constituted payments of municipal license taxes under Ordinance No. 5 that the company paid under protest. ISSUE: WoN the Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks? YES RATIO: The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of: 1) distribution of soft-drinks; 2) manufacture of soft-drinks; and 3) bottling of softdrinks within the territorial jurisdiction of the City of Iloilo. There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance. Iloilo Bottlers, Inc. disclaims liability on two grounds: FIRST, it contends that since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal
1

Section 1. For purposes of this Rules and Regulations: SEIcAD (a) "Retail Trade" shall mean any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption. xxx xxx xxx The same implementing rule enumerates the sales not considered as retail, to wit. Sec. 2. Sales Not Considered As Retail. The following sales are not considered as retail: xxx xxx xxx (e) Sales to industrial and commercial users or consumers who use the products bought by them to render service to the general public and/or produce or manufacture of goods which are in turn sold by them; or . . .

business of bottling, then it is NOT liable under the city tax ordinance. SECOND, it claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance. The SECOND GROUND is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax. As to the FIRST GROUND, the SC has always recognized that the right to manufacture implies the right to sell/distribute the manufactured products. Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. To determine whether an entity engaged in the principal business of manufacturing, or is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into. In several cases this Court distinguished two marketing systems. (1) The manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. (2) Sales transactions are entered into and perfected at stores or warehouses maintained by the company. Anyone who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. In this case, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. MANILA TRADING & SUPPLY CO. v. CITY OF MANILA FACTS: On December 5, 1950, the Municipal Board of Manila approved Ordinance No. 3420 which imposed a quarterly municipal tax on wholesale dealers in general merchandise based on their quarterly sales from the preceding quarter. This ordinance was amended on May 4, 1954 by Ordinance No. 3634 by including among the wholesale dealers subject to tax wholesale dealers of automobile and other motor vehicles. On March 17, 1955, plaintiff received from the city treasurer a demand for payment of the tax imposed by Ordinance No. 3634 on the ground that it is a wholesale dealer within the purview of said ordinance. On March 22, 1955, plaintiff contested this assessment on the following grounds: (1) that it is not a wholesale dealer under Ordinance No. 3420, as amended by Ordinance No. 3634; and (2) that it is a manufacturer and not a dealer of cars and trucks and does not sell its products at a store but at its main office. The protest was denied by the city treasurer and consequently plaintiff paid the tax amended. Plaintiff thus commenced an action before the Court of First Instance of Manila for the recovery of the tax. The lower court ruled in favor of Manila Trading, ordering respondent city to refund the amount demanded in the complaint. City of Manila appealed to the SC. ISSUE: Whether or not Manila Trading is a wholesaler liable to pay the wholesalers tax levied by Ordinance no. 3420? Plaintiff is a manufacturer, not a wholesaler. RATIO: The word "manufacturer" in its plain and ordinary meaning includes "the process of assembling articles which, while complete and finished, have no independent utility, but are designed to be used in combination as parts of some other article, such as a typewriter, an automobile, or the like, but when so used the process of assembling usually, if not always, involves the exercise of manual or mechanical skill and labor and the more or less extensive use of auxiliary machinery." Under the National Internal Revenue Code, a manufacturer includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. From the foregoing authorities, it is clear that plaintiff is a manufacturer and not a dealer of the cars and trucks it assembles in its plant.

Plaintiff does not have a store independent and separate from its assembly plant wherein it displays and sells the cars and trucks it manufactures but delivers them after they had been assembled direct to its customers who had placed before hand their orders for said cars and trucks. It further appears that it does not manufacture cars and trucks to keep stock on hand for wholesale but only after receiving orders to buy them from its customers. CENTRAL AZUCARERA DON PEDRO v. CITY OF MANILA FACTS: Central Azucarera de Don Pedro is engaged in milling and manufacturing sugar from sugar cane. o It operates and maintains a sugar mill where sugar cane is processed, warehouses where manufactured sugar is stored, a main office in Manila and a branch office in the Municipality of Nasugbu, Batangas. o In 1950, Centra Azucarera agreed to sell sugar to Kim Kee, Chua Yu & Co., Inc and San Miguel Brewery. In 1951, the sugar was delivered to Kim Kee and San Miguel. The sugar sold and delivered was taken from warehouses of Central Azucarera and was delivered partly in the City of Manila, partly in Pasay City, and partly in Nasugbu, Batangas. o The City of Manila claims that Central Azucarera is a dealer in sugar in the City of Manila. o Central Azucarera claimed the refund of the amounts, which it had paid under protest, contending that it has never been engaged in the wholesale business or in the retail business in the City of Manila or elsewhere. ISSUE: Whether or not Central Azucarera is engaged in wholesale or retail business? NO RATIO: It may be admitted that the manufacturer becomes a dealer if he carries on the business of selling goods or his products manufactured by him at a store or warehouse apart from his own shop or manufactory. o But Central Azucarera did not carry on the business of selling sugar or at stores or at its warehouses. o It entered into the contracts of sale at its central office in Manila and made deliveries of the sugar sold from its warehouses. o It does not appear that Central Azucarera keeps stores at its warehouses and engages in selling sugar in said stores. o Neither does it appear that any one who desires to purchase sugar from it may go to the warehouses and there purchase sugar. o All that it does was to sell the sugar it manufactured; it does not open stores for the sale of such sugar. A dealer is defined "as a person who makes a business of buying and selling goods, especially as distinguished from a manufacturer, without altering their condition. o A dealer is a middleman between the producer and the consumer. o A dealer, in the popular acceptation or sense of the word, is one who buys to sell again. o He stands immediately between the producer and consumer, and depends for his profits not on the labor he bestows on his commodities, but on the skill and foresight with which he watches the markets. Central Azucarera receives sugar cane which it mills and converts into sugar. o In making the sale of the sugar it has manufactured, it may be liable for the manufacturer's tax, or the producer's tax. o But the mere fact that it sells the sugar it manufactures does not thereby make it a dealer in sugar. o The right to manufacture necessarily implies the right to sell the manufactured product at the manufactory. o The manufacturer is entitled to keep his goods in store at the place of manufacture for the purpose of sale when receiving orders, and in so doing is not a 'wholesaler,' within the popular or legal definition of that word. CALTEX PHILIPPINES, INC. v. CITY OF MANILA FACTS: Ordinance No. 3420 imposes a quarterly tax on wholesale dealers in general merchandise based on their quarterly gross sales or receipts during the preceding quarter. Caltex is primarily engaged in scientifically processing crude oil into different finished petroleum products such as gasoline, kerosene, diesel oil, fuel oil, airplane jet fuel and liquid petroleum gas. o For this purpose Caltex maintains a petroleum refinery in Bauan, Batangas, several warehouses in Pandacan, Manila, where manufactured petroleum products are stored, and a main office at 540 Padre Faura, Ermita, Manila. Caltex adopted a new system of merchandising whereby a customer may place his order only at Caltexs main office at Padre Faura, Manila. The sale is then invoiced in the said office, after which the order is teletyped to the Pandacan depot, where actual delivery is made. The Pandacan depot has ceased to be a selling center. o It has simply become a storage site and conveniently utilized as the delivery point of the petroleum products earlier sold. Caltex contends that it may not be considered a dealer anymore within the meaning of Ordinance No. 3420 as amended. It anchors its argument on the premise that it is principally a manufacturer, not a dealer. ISSUE: Whether or not Caltex is a dealer and is therefore liable for the tax imposed under Ordinance No. 3420? NO RATIO: In Central Azucarera, a dealer was defined as " a "person who makes a business of buying and selling goods, especially as distinguished from a manufacturer ... a middleman between the producer and the consumer ... one who buys to sell again ... (who) stands between the producer and consumer, and depends for his profit not on the labor he bestows on his commodities, but on the skill and foresight with which he watches the markets." Caltex is not a dealer under the foregoing definition, nor does it become one simply because it sells the products it manufactures, since the right to manufacture implies the right to sell the manufactured products. The exception is if the manufacturer "carries on the business of selling goods or his products manufactured by him at store or warehouse apart from his own shop or manufactory."

Sales transactions are entered into and perfected at the main office, where orders are received and approved before delivery orders are sent to the warehouses, where in turn actual deliveries are made. o It is company policy not to permit warehouse sales; nor do they maintain any other separate stores where they may sell their products independently from their main offices. There is no relevance in the place where the warehouse utilized as storage by the manufacturer is situated whether at its manufactory or at some other site in the case of appellee, whether at its plant in Bauan, Batangas, or in Manila. o In either alternative, delivery to customers must necessarily be made at the warehouse, and that fact is immaterial to the question of whether or not the manufacturer should be considered as a dealer. o But there is an appreciable difference between a situation in which the warehouse, situated apart from the manufactory, is utilized at the same time as a business store where sales are actually made to whoever may come to buy, and a situation where the sales transactions are entered into in the main office and the warehouse is used only as a convenient site where to make the corresponding deliveries. CITY OF MANILA v. MANILA REMNANT CO., INC. FACTS: The City of Manila, filed a complaint to collect from the Manila Remnant Co., Inc., a corporation engaged in the importance of textiles and remnants for resale to the public both on wholesale and retail, the sum of P8,709 which amount is the total accumulated license taxes provided for in a municipal ordinance which Manila Remnant failed to pay for retail sales made from 1946 to 1950, including surcharge. A stipulation of facts was entered into and they agreed that the court may take as basis the sales made in the year 1948 in in favor of different purchasers to determine the nature of the sales. Liberty Shirt Factory Bee Cuan Shirt Factory Ben Shen Shirt Factory Philippine Kapok Factory Army Shirt Factory Kok Hoa Shirt Factory Grand total 1,543 kilos 7,835 kilos 2,903 kilos 13,208 kilos 3,338 kilos 321 kilos 30,149 kilos

ISSUE: WoN the sales of textiles made by Manila Remnant to different factories in order that said factories might cut those textiles and convert them into finished suits and dresses to be sold to consumers, were wholesale or retail? RETAIL RATIO: It is the use to which the buyer puts the goods bought that determines the kind of sale. o If a buyer purchase goods to be resold at a profit in the same and unaltered form, the deal is wholesale. o If it is to be cut or made into finished products to be sold to the effect cited by the plaintiff. Since the sales of the defendant factories who converted the textiles sold into suits, pants, dresses, etc., those sales were retail. The test offered by Manila Remnant, on the basis of volume of the sale, is neither valid nor satisfactory. o It is more reasonable to consider the use and purpose for which articles are bought, whether for resale or for consumption, to determine the sale as retail or wholesale. o It should not be too difficult to determine the nature of a sale if we consider the business of the buyer, regardless of the bulk or volume of the sale. On the basis of the stipulation of facts, particularly the sales made in the year 1948, and the fact that said sales were made to shirt factories and a Kapok factory which evidently consumed and used the textiles purchased by them for conversion and manufacture into shirts, suits, etc., it is clear that the sales made by the defendant should be regarded as retail, and consequently, it should pay the license taxes due to the plaintiff. ERICSON TELECOMMUNICATIONS, INC. v. CITY OF PASIG FACTS: Ericsson Telecommunications was issued an Assessment Notice on October 2000 by the City Treasurer of Pasig City. o It was assessed a business tax deficiency for 1998 and 1999, based on its gross revenues for 1997 and 1998.

Ericsson filed a Protest, claiming that the computation of the local business tax should be based on gross receipts and not on gross revenue. The City of Pasig respondent issued another Notice of Assessment to Ericsson on November 2001, based on business tax deficiencies for 2000 and 2001, based on its gross revenues for the years 1999 and 2000. o Ericsson filed a Protest, reiterating its position that the local business tax should be based on gross receipts and not gross revenue. The City of Pasig denied Ericssons protest. Ericsson filed a petition for review with RTC of Pasig, praying for the annulment and cancellation of its deficiency local business taxes totaling P17,262,205.66. The City of Pasig and its City Treasurer filed a MTD on the grounds that the court had no jurisdiction over the subject matter and that Ericsson had no legal capacity to sue. o RTC denied the motion due to the City of Pasig failure to include a notice of hearing. o Thereafter, RTC declared The City of Pasig in default and allowed Ericsson to present evidence ex- parte. The RTC canceled and set aside the assessments made by the City of Pasig and its City Treasurer.

On appeal, the CA sustained the City of Pasigs claim that the petition filed with the RTC should have been dismissed. Its MR having been denied, Ericsson filed a Petition for Review on Certiorari. ISSUE: Whether or not the local business tax on contractors should be based on gross receipts or gross revenue? GROSS RECEIPTS RATIO: The City of Pasig assessed deficiency local business taxes on Ericsson based on the latters gross revenue as reported in its financial statements, arguing that gross receipts is synonymous with gross earnings/revenue which includes uncollected earnings. Ericsson contends that only the portion of the revenues which were actually and constructively received should be considered in determining its tax base. Section 143 of the Local Government Code provides that: The municipality may impose taxes on contractors and other independent contractors in accordance with the following schedule: with gross receipts for the preceding calendar year The provision specifically refers to gross receipts. o Under the LGC, gross receipts is defined as 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 VAT. 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. o There is 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. o This is in consonance with the International Financial Reporting Standards, which defines revenue as the gross inflow of economic benefits (cash, receivables, and other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends), which is measured at the fair value of the consideration received or receivable. In Ericssons case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. o This is because Ericsson uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayers right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income. The imposition of local business tax based on Ericssons 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 Ericssons revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, the City of Pasig committed a palpable error when it assessed Ericssons local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the Local Government Code and Section 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts. PLDT v. CITY OF DAVAO FACTS: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA 7082. The exemption from all taxes on this franchise or earnings thereof was subsequently withdrawn by RA 7160 (LGC), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The LGC took effect on January 1, 1992. The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income receipts realized within the territorial jurisdiction of Davao City. Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained in leiu of all taxes provisos. In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which provides that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises. The law took effect on March 16, 1995. In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange, it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax for the year 1997 and for the first to the third quarters of 1998. ISSUE: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart? RATIO: Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the same grant of tax exemption

must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law expressed in a language too plain to be mistaken and assuming for the sake of the argument that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear and unequivocal way of communicating the legislative intent. Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment. Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken. NAPOCOR v. CITY OF CABANATUAN FACTS: NAPOCOR, the petitioner, is a government-owned and controlled corporation created under Commonwealth Act 120. It is 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. For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the formers gross receipts for the preceding year. Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended. The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest. Respondent alleged that petitioners exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing the case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the petitioner to pay the city government the tax assessment. ISSUES: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a non-profit organization? (2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)? RATIO: (1) NO. To stress, 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. To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. (2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the 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 the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used. PLDT v. PROVINCE OF LAGUNA (Note: this case is almost similar to the case of PLDT vs. City of Davao; the court simply reiterated its reasoning in the above case here) FACTS: PLDT is a holder of a legislative franchise under RA 7082. Sec. 12 of which includes the so called in lieu of all taxes clause. PLDT shall pay 3 % of all its gross receipts as franchise tax and it would be in lieu of all taxes. Meanwhile, RA 7160 (LGC 92) withdrew all exceptions granted to all franchise holders including PLDT. Sec 137 of which in relation to sec. 151 granted LGUs power to Impose local franchise tax. 193 moreover, withdrew all tax exemptions previously granted including in lieu of all taxes provisions. Laguna subsequently enacted provincial ordinance No. 01-92, effective in 1993. The Ordinance imposes franchise tax upon all business enjoying a franchise. Congress in 1995, enacted RA 7925, to level the playing field among all the telecom companies. Sec 23 of which embodies the most favored treatment clause that provides for equality of treatment in the telecom industry. By virtue of which BLGF issued a ruling that PLDT is exempt still from local franchise tax. Thus PLDT refused to pay local franchise tax and even filed a claim for refund Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart. RATIO: Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law expressed in a language too plain to be mistaken and assuming for the sake of the argument that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear and unequivocal way of communicating the legislative intent.

Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment. Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY v. MARCOS FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as may be established in the Province of Cebu. Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter. However, in 1994, the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner located at Lahug, Cebu City. MIAAs prayer: Petition for declaratory relief, claiming in its favor Section 14 of its charter which exempts it from payment of realty taxes. Cebu City: Refused to cancel and set aside Petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that took effect on January 1, 1992. RTC: Petition for declaratory relief denied. With that repealing clause in RA 7160, the tax exemption provided for in RA 6958 creating Petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991. ISSUE: Whether or not MIAA ought to pay real property tax? RATIO: YES. As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including governmentowned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to (1) local water districts, cooperatives duly registered under R.A. No. 6938, (2) non stock and nonprofit hospitals and educational institutions, and (3) unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for consideration or otherwise. Petition DENIED; challenged decision and order of the RTC of Cebu, AFFIRMED. CITY GOVERNMENT OF SAN PABLO v. REYES FACTS: MERALCO was granted a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities. Presidential Decree No. 551 was enacted on September 11, 1974, sec. 1 thereof provides the franchise tax payable by all grantees of franchise to generate, distribute and sell electric current shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be 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. On January 1, 1992, the Local Government Code of 1991 took effect. The said Code authorizes the province/city to impose a tax on business enjoying a franchise at a rate not exceeding 50% of 1% of the gross annual receipts. On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted the Revenue Code of the City of San Pablo. Sec. 2.09, Article D of said Ordinance imposes a tax on business enjoying a franchise, at a rate of 50% of 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. MERALCO: That Ordinance No. 56 be declared null and void insofar as it imposes the franchise tax upon it San Pablo, Laguna: Pursuant to Sections 137 and 193 of the LGC, the province or city now has the power to impose a franchise tax on a business enjoying a franchise. RTC: MERALCOs prayer GRANTED on the ground that the LGC did not expressly or impliedly repeal the tax exemption/incentive enjoyed by MERALCO under its charter ISSUE: Whether or not the City of San Pablo may impose a local franchise tax pursuant to the LGC upon MERALCO? RATIO: YES. Sections 137 and 193 of the LGC withdraw MERALCO`s tax exemption. The explicit language of Section 137 authorizes the province to impose franchise tax "notwithstanding any exemption granted by any law or other special law." Sec. 193 buttresses the withdrawal of extant tax exemption privileges. Unless otherwise provided in the LGC, tax exemptions or incentives granted to or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations are withdrawn upon the effectivity of the code, except 1) local water districts, 2) cooperatives duly registered under R.A. 6938, and (3) non-stock and non-profit hospitals and educational institutions. Petition GRANTED; decision of the RTC of San Pablo City, appealed from reversed and set aside. MERALCO v. PROVINCE OF LAGUNA FACTS: Certain municipalities of the Province of Laguna, by virtue of existing laws then in effect, issued resolutions through their respective municipal councils granting franchise in favor of petitioner MERALCO for the supply of electric light, heat and power within

their concerned areas. In 1983, MERALCO was likewise granted a franchise by the National Electrification Administration to operate an electric light and power service in the Municipality of Calamba, Laguna. In 1991, the Local Government Code of 1991 was enacted to take effect on 01 January 1992. Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance No. 01-92, providing, in part, as follows: Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of 50% of 1% of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within this province, including the territorial limits on any city located in the province. Respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax under protest. MERALCOs prayer: Complaint for refund on the ground that the imposition of a franchise tax under the provincial ordinance, insofar as it concerned MERALCO, contravened the provisions of its legislative franchise RTC: Petition denied; ordinance valid ISSUE: Whether or not the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non-impairment clause of the Constitution and Section 1 of Presidential Decree No. 551? RATIO: NO. While tax exemptions contained in special franchises are referred to as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires. Petition dismissed. MOBIL VS CITY TREASURER FACTS: When petitioner decided to relocate its principal office from Makati to Pasig City, it applied for a retirement of its business in the former. Upon evaluation of its application, it was assessed a total business tax of Php 1,898,106.96, which petitioner paid under protest. The following year, petitioner claimed a refund for Php 1,331,638.84 which was denied. The argument for the denial being: 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. (Note: the amount being claimed for refund represents the tax for the gross sales for the period between January-August of 1998. This is income tax, not business tax!) RTC: The assessment of the Chief of the License Division of Makati is with legal basis and does not constitute double taxation. MR: denied. ISSUE: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998? Petitioners Argument: the 1997 gross sales/revenue is merely the basis for the amount of business taxes due for the privilege of carrying on a business in the year when the tax was paid. Respondents: since local taxes, which include business taxes, are paid either within the first twenty days of January of each year or of each subsequent quarter, as the case may be, what the taxpayer actually pays during the recorded calendar year is actually its business tax for the preceding year. RATIO: The business taxes were paid for 1998. RTC erred. 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 persons income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one taxable year. It is due on or before the 15th day of the 4th month following the close of the taxpayers taxable year and is generally regarded as an excise tax, levied upon the right of a person or entity to receive income or profits. The trial court erred when it said that the payments made by petitioner in 1998 are payments for business tax incurred in 1997 which only accrued in January 1998. Likewise, it erred when it ruled that petitioner was still liable for business taxes based on its gross income/revenue for January to August 1998. Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the previous years figures. 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. 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.