Local Taxes

2014 Notes on Local Taxes for Jurists Bar Review Center by Atty. Eric Recalde Page 1 of 10

JURISTS BAR REVIEW CENTER™ Local Taxes

By: Eric R. Recalde

(The Philippine Local Tax and Tariff and Customs Laws)

Local Taxes

• Source of authority • Principles, guidelines and limitations

– Fundamental principles

– Common limitations

– Allocation of taxes among LGUs

– Procedure for enactment of a revenue ordinance

Source of Authority

• Constitution “SECTION 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.


Local Government Code “SECTION 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue under this Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance.” • Fundamental Principles “SECTION 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units: (a) Taxation shall be uniform in each local government unit; (b) Taxes, fees, charges and other impositions shall: (1) be equitable and based as far as practicable on the taxpayer's ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in the restraint of trade; (c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person;


(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless otherwise specifically provided herein; and, (e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.” • Common limitations • Common limitations • Common limitations • Common limitations • Common limitations

Cases to Note

• First Philippine Industrial Corporation v. CA, et.al. (1998) – an operator of oil pipelines is a common carrier

• Petron Corporation v. Tiangco, et.al. (2008) – while taxes on petroleum products are also considered as excise taxes under Section

148 of the NIRC, they are given special treatment under the Local Government Code

• Province of Bulacan, et.al. v. CA, et.al (1998) – an LGU cannot impose tax on quarry resources extracted from private lands

pursuant to Section 186 • Batangas Power Corporation v. Batangas City (2004)

– the 6-year tax holiday should commence not on the date of actual commercial operations but on the date of BOI registration

• Palma Development Corporation v. Municipality of Malangas, Zamboanga Del Sur (2003) – While the LGU has the authority to levy fees on vehicles using its roads, it has no

authority to levy fees on goods that are being transported by vehicles • Land Transportation Office v. City of Butuan (2000)


– the delegated powers to LGUs under Section 458 of the Local Government Code pertained to the franchising and regulatory powers exercised by the Land Transportation Franchising and Regulatory Board. They did not include LTO’s functions relative to the registration of, and issuance of licenses to drive, motor vehicles.

• National Power Corporation vs Provincial Government of Bataan, et.al. (2014) – By virtue of the EPIRA, the NPC has ceased to operate a franchise in Bataan that has

been subject to the tax in issue; a local franchise tax is imposed on the privilege of operating a franchise, not a tax on the ownership of transmissions facilities

– The Province cannot levy on the transmission facilities to satisfy the tax assessment against the NPC since, per Section 8 of the EPIRA, the same have ceased to be owned by the NPC and now owned by Transco; the tax is solely collectible from PSALM corporation

Allocation of Taxes Among LGUs

• Provinces/Cities (LGC, Secs. 135-141, 151)

– Tax on transfer of real property ownership

– Tax on business of printing and publication

– Franchise tax

– Tax on the extraction of sand, gravel and other quarry resources

– Professional tax

– Amusement tax

– Fixed tax on delivery trucks/vans

Allocation of Taxes Among LGUs

• Municipalities/Cities (LGC, Secs. 143, 147, 148, 149, 151)

– Business tax

– License fees and charges


– Fees for the sealing and licensing of weights and measures

– Rentals, fees or charges on the grant of fishery privileges in the municipal waters

– Community tax

• Barangays (LGC, Sec. 152)

– Taxes on stores or retailers

– Service fees or charges

– Fees for issuance of barangay clearances

• Common Revenue-Raising powers (LGC, Secs. 153-155)

– Service fees and charges

– Public utility charges

– Toll fees or charges

• Community Tax(LGC, Secs. 156-159)

Residual Taxing Power of LGUs

• Constitutional limitations • Common limitations • Fundamental principles • Prior public hearing requirement (LGC, Sec. 186) • Publication requirement • Authority to adjust rates of tax ordinances (once every 5

years; maximum of 10% limit)


Cases to Note

• National Power Corporation v. City of Cabanatuan (2003); National Power Corporation v. Province of Isabela (2006)

– GOCCs exercising their respective franchises are subject to local franchise tax

• City Government of San Pablo, Laguna, et.al., v. Reyes, et.al. (1999); Manila Electric Company v. Province of Laguna, et.al., (1999)

– the “in lieu of all taxes” clause in legislative franchises granted prior to the effectivity of the Local Government Code has been impliedly repealed by Section 137 in conjunction with Section 193 of the Local Government Code

• Philippine Long Distance Telephone Company, Inc. v. City of Davao, et.al. (2001)(2003); Philippine Long Distance Telephone Company v. City of Bacolod (2005); Philippine Long Distance Telephone Company v. Province of Laguna (2005); Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan (2007); Digital Telecommunications Philippines, Inc., (Digitel) v. City Government of Batangas, et al, (2008); SMART v. City of Davao, (2008)(2009); City of Iloilo v. Smart Communications, Inc., 2009)

– The equality clause under Section 23 of the Public Telecoms Act pertains merely to an exemption from regulatory or reporting requirements and not to an exemption from the grantee's tax liability

– The “in lieu of all taxes” clause in a legislative franchise must provide a categorical and encompassing grant of tax exemption from both national and local taxes. Any uncertainty as to the coverage of such “in lieu of all taxes must be construed strictly against the franchise holder which claims the exemption.

Cases to Note

• Radio Communications of the Philippines, Inc.(RCPI) v. Provincial Assessor of South Cotabato, et. al., (2005); Quezon City and The City Treasurer of Quezon City, v. ABS-CBN Broadcasting Corporation (2008)

– the existing legislative policy is clearly against the revival of the "in lieu of all taxes" clause in franchises of telecommunications companies

• Lepanto Consolidated Mining Co. v. Ambanloc (2010)

– the issue on whether Lepanto was liable for the tax imposed by the Province of Benguet on the sand and gravel that it had extracted from within the area of its mining claim and used exclusively in its mining operations should be determined based on the LGU’s implementing revenue code

– Section 138 is simply the general law that delegated to provinces the power to impose taxes on the extraction of quarry resources

• Philippine Basketball Association v. CA, et.al., (2000)

– professional basketball games are not within the scope of "other places of amusement” under Section 140

• Pelizloy Realty Corporation vs. The Province of Benguet (2013)

– Resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or class as theaters, cinemas, concert halls, circuses, and boxing stadia. They cannot be considered as among the ‘other places of


amusement’ contemplated by Section 140 of the LGC and which may properly be

subject to amusement taxes.

Cases to Note

• Philippine Petroleum Corporation v. Municipality of Pililia (1991)

– A business tax is distinct from a tax on the article itself

• Ericsson Telecommunications, Inc. v. City of Pasig (2007)

– “gross receipts,” as used in the Local Government Code, included money or its equivalent

actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive

– The imposition of local business tax based on Ericsson's gross revenue would inevitably result in double taxation, inasmuch as its revenue or income for a taxable year would definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid

• Yamane v. BA Lepanto Condominium Corporation (2005)

– condominium corporations are generally exempt from local business taxation, unless the unit owners of a condominium would band together to engage in activities for profit under the shelter of the condominium corporation

• City of Manila vs. Coca-Cola Bottlers Philippines, Inc. (2009)

– There is double taxation if the taxpayer is subjected to the taxes pursuant to different provisions of an ordinance, i.e., where one provision is levied pursuant to Section 143 (a) and another provision is levied pursuant to Section 143(h) of the Local Government Code.

• Mobil Philippines, Inc. v. City Treasurer of Makati, Mobil Philippines, Inc. v. City Treasurer of Makati (2005)

– When the taxpayer retires or terminates its business within the LGU and the tax already paid based on the previous year’s gross sales or receipts be less than the tax due for the current year based on the taxpayer’s gross sales or receipts as of the date of the retirement or termination from business, the difference in the amount of the tax shall be paid before the business is considered officially retired or terminated

– If the amount paid is more than the amount computed based on the taxpayer’s actual gross

sales for prior year, the taxpayer upon its retirement is not liable for additional taxes

Cases to Note • Angeles University Foundation vs. City of Angeles (2012)

– The tax exemption under Sec. 8 of R.A. No. 6055 (an act that grants tax exemptions to educational foundations) does not cover the exemption from regulatory fees, such as building permit and related fees imposed pursuant to the National Building Code

• City of Manila vs. Coca-Cola Bottlers Philippines, Inc. (2009); Swedish Match Philippines, Inc vs. City Treasurer of Manila (2013)

– There is double taxation if the taxpayer is subjected to the taxes pursuant to different provisions of an ordinance, i.e., where one provision is levied pursuant to Section 143 (a) and another provision is levied pursuant to Section 143(h) of the Local Government Code.

• Smart Communications, Inc. vs Municipality of Malvar, Batangas (2014)

– The fees imposed under Ordinance No. 18 are not taxes since its purpose is to regulate the enumerated activities particularly related to the construction and maintenance of various structures; while the fees may contribute to the revenues of the LGU, this effect is merely incidental


– The regulation of the installation and maintenance of such physical structures is an exercise of the police power of the Municipality and does not encroach on NTC’s regulatory powers

Cases to Note • Shell Company of the Philippines, Ltd. v. Municipality of Sipocot (1959)

– the LGU which has jurisdiction over the place where the contract was perfected could not impose the corresponding tax if its consummation (i.e., delivery of its object and payment) took place at some other locality

• Philippine Match Co., Ltd. v. City of Cebu (1978)

– An LGU may tax the sale of the article if: (a) the sale was booked and paid in the branch located in such LGU; and (b) the sale was delivered to the customer’s carrier likewise in the same LGU. It is immaterial if the carrier later delivered the article to the customer outside of such LGU since “delivery to the carrier is delivery to the buyer.”

• Note: Article 243(b)(1) & (2) of the IRR provide that the business tax due shall accrue and be paid to the city or municipality where the sale or transaction is recorded. Such recording, in turn, should be done:

– in the branch or sales outlet where the sale or transaction is made (i.e., consummated)

– in cases where there is no branch or sales outlet, in the principal office

• Iloilo Bottlers, Inc. v. City of Iloilo (1988)

– When the company distributes its softdrinks by means of a fleet of delivery trucks which go directly to customers in different places, sales transactions with customers are entered into and sales are perfected and consummated by the route salesmen. Truck sales are made independently of transactions in the main office. The company shall be considered engaged in the separate business of selling and distributing softdrinks independently of its business of bottling them.

– Article 243(d) of the IRR now provides the following rules with regard to the sales made by route trucks, vans or vehicles:

• For route sales made in a locality where a manufacturer, etc. has a branch or sales office or warehouse, the sales are recorded in the branch, sales office or warehouse and the tax due thereon is paid to the LGU where such branch, sales office or warehouse is located;

• For route sales made in a locality where a manufacturer, etc has no branch, sales office or warehouse the sales are recorded in the branch, sales office or warehouse from where the route trucks withdraw their products for sale, and the tax due on such sales is paid to the LGU where such branch, sales office or warehouse is located;

Remedies • Payment of Taxes

– On or before January 20 or first 20 days of each quarter

– 2% interest/month (maximum of 36 months)

– 5/10-year prescriptive period (LGC, Sec. 194)

• For questioning validity of revenue ordinance (LGC, Sec. 187)

– 30/120/30-day period

• For questioning assessment (LGC, Sec. 195)

– 60/60/30-day period

• For refund (Section 196)

– Pay under protest within 60 days, then appeal within 2-year period(LGC, Secs. 195, 196); or


– File administrative and judicial claim within 2-year period (LGC, Sec. 196)

– Reckoning date of the 2-year period: from the date of payment of the tax, or from the date the taxpayer becomes entitled to the refund or credit, whichever comes earlier

Cases to Note • Palma Development Corporation v. Municipality of Malangas, Zamboanga Del Sur (2003)

– The levy of a service fee imposed on vehicles using municipal roads leading to the wharf is valid. Any other form of imposition on goods passing through the territorial jurisdiction of the municipality is prohibited by Section 133(e)

• Drilon v. Lim, et.al. (1994)

– Under Section 187, the Secretary of Justice is only permitted to ascertain the constitutionality or legality of the tax measure. He has no right to declare that, in his opinion, the revenue measure is unjust, excessive, oppressive or confiscatory.

• Jardine Davies Insurance Brokers, Inc. v. Aliposa (2003)

– A taxpayer’s failure to appeal to the Secretary of Justice within 30 days from the effectivity

of a revenue ordinance bars the subsequent protest and/or claim for refund on the ground of its invalidity. Such failure is fatal to the taxpayer’s claim, even if other taxpayers have questioned the same ordinance with the Secretary of Justice. As long as the revenue ordinance has not been declared to be invalid with finality, the taxpayer who did not earlier question the same before the Secretary of Justice may not assail it in a subsequent protest and/or claim for refund

• Reyes v. CA (1999)

– Section 187 is given for compliance as a prerequisite before seeking redress in a competent court. The statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions.

• Estanislao v. Costales (1991)

– Compliance with the 120-day period is directory. Even if the Secretary of Finance failed to review or act on the questioned revenue ordinance within the prescribed period, it would not follow that an otherwise invalid revenue ordinance may be validated. The law did not suggest that the Secretary of Finance could no longer act by suspending and/or revoking an invalid revenue ordinance even after the lapse of the prescribed period.

Cases to Note

• Yamane v. BA Lepanto Condominium Corporation (2005)

– the review taken by the RTC over the denial of the protest by the local treasurer would fall within that court's original jurisdiction. In short, the review is the initial judicial cognizance of the matter.

– the Local Government Code does not expressly confer appellate jurisdiction on the part of regional trial courts from the denial of a tax protest by a local treasurer. Unlike in the case of the Court of Appeals, B.P. 129 does not confer appellate jurisdiction on Regional Trial Courts over rulings made by non-judicial entities

• Valley Trading Co, Inc., v CFI of Isabela, et.al (1989)

– the absence of prohibition in the Local Government Code to enjoin the collection of local taxes could not negate the procedural rules and requirements under Rule 58. The issuance of a writ of preliminary injunction was addressed to the sound discretion of the court,


conditioned on the existence of a clear and positive right of the movant which should be protected

• Angeles City v. Angeles City Electric Corporation (2010)

– A writ of injunction may be granted if the taxpayer may show that it has a clear and unmistakable legal right over the properties to be levied and that it would sustain serious damage if these properties, which were vital to its operations, would be sold at public auction

• The City Government of Quezon City, et.al., v. Bayan Telecommunications, Inc. (2006)

– if the payment of the tax would cripple the business operation of the taxpayer, the writ of injunction may be issued (assuming the other requirements for the writ’s issuance are present).

Documents

Local Taxes