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Q1.2. Enumerate the fundamental principles that shall govern the exercise of the taxing power of the LGUs?
1. Taxation shall be uniform in each LGU 2. Taxes, fees, charges and other imposition shall: a. Be equitable and based as far as practicable on the taxpayers ability to pay b. Be levied and collected only for public purposes c. Not be unjust, excessive, oppressive, or confiscatory d. Not be contrary to law, public policy, national economic policy or in restraint of trade 3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person 4. The revenue collected shall inure solely to the benefit of and be subject to disposition by the LGU levying the tax, fee, charge, or other imposition unless otherwise specifically provided; 5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
It is only granted by the Constitution and is not inherent in the Local Government. In MERALCO V. PROVINCE OF LAGUNA [MAY 5, 1999], the Supreme Court explained that prior to the 1987 Constitution; the taxing power of LGUs was exercised under limited statutory authority. Under the present Constitution, the taxing power of LGUs is deemed to exist, subject only to specific exceptions that the law may prescribe. Otherwise stated, the taxing power of LGUs is a direct grant of the Constitution, and is not a delegated power of Congress.
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It is exercised by the Sanggunian through the passage of local ordinance (see SECTION 132, LGC) Q1.1.1. What is the significance of a local tax ordinance?
What determines tax liability is the tax ordinance. The LGC is simply the enabling law for the local legislative body. In YAMANE V. BA LEPANTO CONDOMINIUM CORP [OCTOBER 25, 2005], at issue was whether the City Government of Makati can hold condominium corporations liable to pay business taxes. The Supreme Court noted that the City Treasurer did not make any reference to any provision of the Makati City Revenue Code which would serve as legal authority for the collection of business taxes from condominiums in the city. The Supreme Court pointed out that in issuing a notice of assessment, reference to the local tax ordinance is vital because the power of LGUs to impose local
PM REYES NOTES ON TAXATION II: LOCAL TAXATION BY PIERRE M ARTIN DE LEON REYES
This reviewer is a compilation of personal notes in Taxation Two and notes and lectures from Atty. Gruba and Atty. Montero. References have also been made to the following books: DE LEON & DE LEON, J R. THE FUNDAMENTALS OF TAXATION (2012); DE LEON & DE LEON, JR. COMPREHENSIVE REVIEW OF TAXATION (2010); VITUG & ACOSTA. TAX LAW AND JURISPRUDENCE (2006); DOMONDON, TAXATION VOLUME II: INCOME TAX (2009); CO-UNTIAN, JR. TAX DIGEST (2009); MAMALATEO , REVIEWER ON TAXATION (2008). This reviewer is best used with SACDALANCASASOLA, NIRC AND OTHER LAWS (2012). Possessors are granted the right to reproduce and distribute this reviewer as well as the right to convert the work to any medium for the purpose of preservation and/or continued distribution provided that the authors name remains clearly associated with the wor k and that no alterations of the form and content are made.
Q1.3.3.
Petron maintains a depot or bulk plant at the Navotas Fishport Complex where it engages in the selling of diesel fuels to vessels used in commercial fishing. Navotas City levied business taxes on its sale of petroleum products. Can the LGU levy the business tax on the sale of petroleum?
Section 133(e)
Q1.3.1. Is a municipal ordinance imposing fees on goods (corn) that pass through a municipalitys territory valid?
No. As held in PALMA DEVELOPMENT CORP V. ZAMBOANGA DEL SUR [OCTOBER 16, 2003], LGUs, through their Sanggunian, may impose taxes for the use of any public road such as a service fee imposed on vehicles using municipal roads to a wharf. However, Section 133(e) prohibits the imposition in the guise of wharfage, of fees as well as other taxes or charges in any form whatsoever on goods or merchandise. In this case, the LGU cannot tax the goods even in the guise of police surveillance fees.
No, the LGU cannot impose any local tax on petroleum products. As held in PETRON CORP. V. T IANGCO [APRIL 16, 2008], the prohibition with respect to petroleum products extends not only to excise taxes but all taxes, fees, and charges. Section 133(h) provides for two possible bases for exemption: (1) excise tax on articles enumerated under the Tax Code; and (2) taxes, fees, and charges on petroleum products. In the latter, the exemption refers not only to direct or excise taxes to be levied by the LGUs on petroleum products but on all types of taxes on petroleum products including business taxes.
Section 133(j)
Q1.3.4. What is the rationale for the exemption of common carriers from local taxes?
Section 133(h)
Q1.3.2. The Province of Bulacan passed an ordinance imposing tax on minerals extracted from public lands but went on to collect tax on minerals extracted from private lands. Since the LGC only provides for tax on public lands, is the action of the Province of Bulacan valid?
As held in FIRST PHILIPPINE I NDUSTRIAL CORP V. CA [DECEMBER 29, 1998], the legislative intent in excluding from the taxing power of the LGU the imposition of business tax against common carriers is to prevent a duplication of the so-called common carriers tax.
Section 186
Q1.3.5. Are broadcasting and telecommunication companies liable to pay local transfer taxes?
No. As held in PROVINCE OF BULACAN V. CA [NOVEMBER 27, 1998], generally, the LGU can impose such tax even if not in LGC since Section 186 of the Code is sweeping. However, the province cannot levy
No. As held in both SMART COMMUNICATIONS V. T HE CITY OF DAVAO [SEPTEMBER 16, 2008] and QUEZON
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This applies the Preemption or Exclusionary Rule wherein the national government elects to tax a particular area, impliedly withholding from the LGU the delegated power to tax the same field.
1. Community tax Common to all LGUs 1. Service fees and charges for services rendered 2. Public utility charges 3. Toll fees or charges
No. As held by the Supreme Court in YAMANE V. BA LEPANTO CONDOMINIUM CORP [OCTOBER 25, 2005], condominium corporations are not businesses as the same is defined under the LGC which is a commercial activity regularly engaged with a view to profit. Even if a condominium corporation can levy fees, these are used merely to finance the expenses of the condominium and nothing more. Q2.1.2. What is the tax base of the local business tax?
The local business tax is imposed on gross receipts. In ERICSSON T ELECOMMUNICATIONS V. CITY OF PASIG [NOVEMBER 22, 2007], Ericsson was assessed for
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The Supreme Court ruled in both cases that the in lieu of a ll taxes clause in their franchises applies only to national internal revenue taxes and not to local taxes. As such, they would have been liable to pay local transfer taxes. However, with the advent of the VAT law, such franchise holders are instead liable to pay VAT.
DOF LOCAL FINANCE CIRCULAR 01-93 provides for the guidelines governing the power of municipalities and provinces to impose a business tax on banks and other banking institutions. DOF LOCAL FINANCE CIRCULAR 2-93 provides for the guidelines for insurance companies. DOF LOCAL FINANCE CIRCULAR 3-93 provides for guidelines for financing companies. 4 Those already subject to tax under (1) to (7) can no longer be subject to tax under (8) otherwise it will be deemed as double taxation.
(Read Section 150, LGC; Art. 243, IRR of the LGC) Q3.Give the rule on situs as stated in Section 150 of the LGC.
Section 150(a) If there is branch/sales office in the municipality or city where the sale or transaction is made, the tax shall accrue and shall be paid where such branch or sales outlet is located. If there is no branch/sales office in the city or municipality where the sale or transaction is made, the sale shall be recorded in the principal office and the taxes shall accrue and shall be paid to such city or municipality (where the principal office is located) With branch/sales office Yes No Section 150(b) The following sales allocation shall apply to manufacturers with factories, plants and plantations, etc.: If the plantation and factory are located in the same place 1. 30% of all sales recorded in the principal office shall be taxable by the city or municipality where principal office is located 2. 70% shall be taxable by the city or municipality where If the plantation and factory are not located in the same place, the 70% above shall be divided as follows 1. 60% to the city or municipality where the factory is located 2. 40% to the city or municipality where the plantation is located Recorded at Allocation
Q2.2. ABC Mining was issued a mining lease contract which granted it the right to extract and use for its purposes all mineral deposits within the boundary lines of its mining claim in Benguet. Later, the Provincial Treasurer demanded payment of sand and gravel tax for the quarry materials that ABC extracted. ABC countered that the sand and gravel tax applied only to commercial extractions. Is ABC correct?
No. In LEPANTO CONSOLIDATED MINING COMPANY V. AMBANLOC [JUNE 29, 2010], the Supreme Court found that under the Revised Benguet Revenue Code, only gratuitous permits were exempt from the sand and gravel tax, and Lepantos permit was not a gratuitous permit. Hence, Lepanto was liable to pay the provincial sand and gravel tax.
None None
Q2.3. Is the amusement tax on admission tickets to PBA games a national or local tax?
It is a national tax. In PBA v CA [AUGUST 8, 2000], the Supreme Court held that it was the National Government which could collect amusement taxes from the PBA. While Section 13 of the Local Tax Code mentions other places of amusement, professional basketball games are definitely not within its scope under the principle of ejusdem generis.
Plantation factory
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Allocation principal
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Pasig where all transactions are made. However, MI also maintains a warehouse in Mandaluying which serves as its storage area and no transactions are made therein. What is the situs of taxation of the sale of MIs books? As held in BUREAU
DATED OF LOCAL GOVERNMENT OPINION MARCH 29, 1993, Mi should be liable for gross sales tax to the then Municipality of Pasig. On the other hand, Mandaluyong, where the warehouse is located but where no transactions are made, may only collect Mayors permit fee and other regulatory fees.
Q3.3. How are the sales of route trucks and vans taxed?
If the sale is made in a place with a branch office, the sale is reported in the LGU where the branch office is located. However, if the sale is made in a place without a branch office, the sale is reported in the LGU where the sales are withdrawn. Q3.3.1. The City of Cebu imposed a gross sales tax on sales of matches stored by Philippine Match Co. in Cebu City but delivered to customers outside the city. Id the imposition valid?
Q3.1. ABC is engaged in manufacturing household products. It secured the services of an independent contractor XYZ to provide local physical distribution facilities within the specified places in the Philippines. XYZ has a warehouse in Tacloban City and makes deliveries to ABCs customers outside the city. Under the contract, ABC can also make deliveries of its products in other places of the country from its own warehouse in Makati. What is the situs of taxation of the sales made by ABC and XYZ?
As held in BUREAU OF LOCAL GOVERNMENT OPINION DATED MARCH 7, 1994, the products taken from the warehouse of PBE in Tacloban City and delivered to CPI's customers outside the city should be recorded and the tax thereon paid in Tacloban City where said warehouse is situated. As to the deliveries or sales made by CPI of products taken from its warehouse in Makati to places where it does not have any branch, sales office, or another warehouse, the same should be recorded in Makati where its principal office is located and the taxes due thereon should likewise be paid to said municipality.
Yes. As held in PHILIPPINE MATCH CO. V. CITY OF CEBU [JANUARY 18, 1978], the city can validly tax the sales of matches to customers outside of the city as long as the orders were booked and paid for in the companys branch office in the city. Those matches can be regarded as sold in the city because the matches were delivered to the carrier in Cebu City. Generally, delivery to the carrier is delivery to the buyer. A different interpretation would defeat the tax ordinance and encourage tax evasion. Q3.3.2. ABC Bottlers Inc. maintained a bottling plant in Pavia, Iloilo but sold softdrinks in Iloilo City by means of a fleet of delivery trucks called rolling stores which went directly to customers. Iloilo City passed an ordinance imposing a municipal license tax on distributors/sellers in the area.
Q7.1. Are the local tax payments paid for the privilege of carrying on business in the year paid or for having engaged in business the previous year?
It is paid for the privilege of carrying on business in the year paid. In MOBIL PHILIPPINES V. T HE CITY T REASURER OF MAKATI [JULY 14, 2005], for the year 1998, Mobil paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on Mobils gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on Mobils actual gross sales for 1998, Mobile upon its retirement is not liable for additional taxes to the City of Makati. The Supreme Court found that the City Treasurer erroneously reated the assessment and collection of tax as if it were an income tax by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998.5
5. Retirement of Business
(Read Sections 145, LGC and Article 241, IRR of the LGC)
Another example: A corporation whose gross sales was 10 million in 2008 and 20 million in 2009, the local business tax payable in January 2009 is based on 10 million (gross receipts for 2008) but the same is payment for the right to do business in 2009. Thus, on the year of retirement, the company will only be liable if the actual local business tax on the basis of current year sales is more than the local business tax paid based on previous years sales. To continue the example, if the sales of the company are also P10 million as of the date of retirement in 2010, this means that the payment made in January 2010 based on the 2009 gross receipts is sufficient to cover the local business tax due upon retirement. 6 Note that under Section 185, there are certain persona lroperties that are exempt from distraint or levy.
Q10.1. Can an ordinance with has been declared void for failure to publish for 3 weeks be remedied by passing another ordinance with purports to amend the ordinance that has been declared null and void? No. The new ordinance is still void since it cannot cure something which had never existed in the first place as the same was void ab initio (see COCA-COLA BOTTLERS V. CITY OF MANILA [JUNE 27, 2006]). Q10.2. Is publication/posting of an ordinance fixing the assessment levels for different classes of real property in an LGU necessary?
Yes. In FIGUERRES V. CA [MARCH 25, 1999], the Supreme Court held that the publication/posting requirement under Section 188 of the LGC must be complied with in case of an ordinance imposing real property taxes, as well as an ordinance fixing the assessment levels for different classes of real property. The latter is in the nature of a tax ordinance.
Q9.What is the nature of the public hearings under Section 187 of the LGC?
In HAGONOY MARKET VENDOR ASSOCIATION V. MUNICIPALITY OF HAGONOY, BULACAN [FEBRUARY 2, 2002], the discussed the nature of the public hearings on proposed tax ordinances in this light: To be sure, public hearings are conducted by local legislative bodies to allow interested parties to ventilate their views on a proposed law or ordinance. These views, however, are not binding on the legislative body and it is not compelled by law to adopt the same.
Q9.1. Can a public hearing conducted after the passage of a tax ordinance cure the defect in its enactment (for failure to hold one prior to the enactment)?
No. As held in ONGSUCO V. MALONES [OCTOBER 27, 2009], the Supreme Court held that a public hearing conducted after the passage of a tax ordinance does not cure the defect in its enactment. The LGC requires that public hearings be held prior to the enactment by the LGU of the ordinance levying taxes, fees, and charges.
Q11. Outline the process on how an appeal involving questions of constitutionality or legality of tax ordinances.
1. Appeal to the Secretary of Justice within 30 days from effectivity 2. The Secretary of Justice has 60 days to decide but an appeal does not suspend the effectivity of the ordinance 3. Within 30 days from the Secretary of Justices decision or after 60 days inaction, an appeal may be filed with the RTC/
Q10. What is the effect of non-compliance with the publication/posting requirements of tax ordinances laid down in Section 188 of the LGC? Failure to follow the procedure in enactment of tax ordinances renders the same null and void.
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Note, however, that LGUs may order closure on the basis of the general welfare clause as when the entity is engaged in illegal or immoral activities.
Q11.2. Is payment under protest required before a party may appeal to the Secretary of Justice?
No. As held in JARDINE DAVIS INSURANCE V. ALIPOSA [FEBRUARY 27, 2003], prior payment under protest is not required when the taxpayer is questioning the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax (as opposed to questioning the increase or decrease in the tax to be paid).
Q11.3. What authority is given to the Secretary of Justice with respect to review of tax ordinances?
The Secretary of Justice can declare an ordinance void for not having followed the requirements of the law but he cannot replace it with his own law or he cannot say that is is unwise. In DRILON V. LIM [AUGUST 4, 1994], then Secretary of Justice Drilon set aside the Manila Revenue Code on two grounds, namely the inclusion of certain ultra vires provisions and its non-compliance with the prescribed procedure in its enactment. In ruling that the act of then Secretary Drilon was proper, the Supreme Court noted that when the Secretary alters or modifies or sets aside a tax ordinance, he is not allowed to substitute his own judgment for the judgment of the LGU that enacted the measure. In the said case, Secretary Drilon only exercised supervision and not control.
Q12.1. Give the requirements for the Sanggunian to grant exemptions from local business tax?
1. Natural calamities, civil disturbance, failure of crops 2. Through an ordinance 3. Shall similarly apply to all businesses similarly situated 4. Shall only take effect for the next calendar year and not to exceed 12 months.
Q12.2. Is the 6-year exemption from local business taxes for BOI-registered enterprises reckoned from the date of BOI registration or from start of commercial operations?
The exemption starts from registration with the BOI even if the actual operations started some time after due to force majeure. (see BATANGAS POWER CORPORATION V. BATANGAS CITY [APRIL 28, 2004])
Q11.4. Olongapo City enacted an ordinance fixing monthly rental fees for the different stalls in the new public market. A questioned the validity of the said ordinance by filing an appeal with the Secretary of Justice. The Secretary deferred rendering a decision on the appeal and advised A to file his appeal with the RTC. Is the act of the Secretary proper?
No. As held in CITY OF OLONGAPO V. STALLHOLDERS OF EAST BAJAC-BAJAC PUBLIC MARKET [OCTOBER 19, 2000], the act of the Secretary of Justice was tantamount to an abdication of his jurisdiction over
8. Taxpayers Remedies
(Read Sections 194-196, LGC; Art. 284-287, IRR of the LGC) Q14. What are the rules on assessments?
General Rule: An assessment must be made within 5 years from the date they become due. Exception: If there is fraud or intent to evade payment of the tax, the assessment may be made within 10 years from discovery of fraud or intent to evade
Q15. What is the rule on collection? Collection must assessment. be within 5 years from
Q15.1. May regular court issue an injunction to restrain LGUs from collecting taxes?
Yes. In ANGELES CITY V. ANGELES ELECTRIC CORPORATION [JUNE 29, 2010], the Supreme Court held that the LGC does not specifically prohibit an injunction enjoining the collection of local taxes (as compared to the Tax Code which has an express prohibition). Nevertheless, the Court noted that injunctions enjoining the collection of local taxes are frowned upon and should therefore be exercised with extreme caution.