Scope of Taxing Power of LGU

Question 1

What are the scope of taxing power of the LGU?

Answer 1

1. Each LGU shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall exclusively accrue to it (Sec. 129, LGC).
2. All LGUs are granted general powers to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the NIRC or other applicable laws. The levy must not be unjust, excessive, oppressive, confiscatory or contrary to a declared national economic policy (Sec. 186, LGC).
3. No such taxes, fees or charges shall be imposed without a public hearing having been held prior to the enactment of the ordinance (Sec. 187, LGC).
4. Copies of the provincial, city, and municipal tax ordinances or revenue measures shall be published in full for three consecutive days in a newspaper of local circulation or posted in at least two conspicuous and publicly accessible places (Sec. 188, LGC).

Question 2

14 taxing power of provinces and cities

Answer 2

Taxes, fees and charges which a province or a city may levy

1. Tax on transfer of real property ownership (Sec. 135, LGC);
2. Tax on business of printing and publication (Sec. 136, LGC);
3. Franchise Tax (Sec. 137, LGC);
4. Tax on sand, gravel and other quarry resources (Sec. 138, LGC);
5. Professional tax (Sec. 139, LGC);
6. Amusement tax (Sec. 140, LGC);
7. Annual fixed tax for every delivery truck or van of manufacturers or producers, wholesalers of, dealers, or retailer in certain products (Sec. 141, LGC);
8. Annual ad valorem tax on real property such as land, building, machinery, and other improvement not specifically exempted at the rate not exceeding 1% of the assessed value of the real property (Sec. 232, LGC)
9. Special levies on real property;
10. Toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry, or telecommunication system funded and constructed by the provincial government (Sec. 155, LGC);
11. Reasonable fees and charges for services rendered (Sec. 153, LGC);
12. Charges for the operation of public utilities owned, operated, and maintained by the provincial government (Sec. 154, LGC);
13. Slaughter fees, corral fees, market fees, charges for holding benefits;
14. Tuition fees from the operation of the provincial high school, except in the public elementary grades.

Question 3

Coverage of taxes on Transfer of Real property ownership

Answer 3

Sale
Donation
Barter
or on any other mode of transferring ownership or title of real property 
Whichever

Question 4

What is the TAX BASE taxes on Transfer of Real property ownership

Answer 4

Whichever is higer between

1. Total consideration
2. Fair market value

Question 5

What is the TAX RATE taxes on Transfer of Real property ownership

Answer 5

Not more that 50% of 1%

Question 6

Exception to taxes on Transfer of Real property ownership

Answer 6

1. Transfers under CARP

2. BUYER US A FOREIGN GOVERNMENT

Question 7

Who pays RP tax?

Answer 7

Seller, Dono, transferor, executor, administrator

Question 8

When to pay RP Tax

Answer 8

within 60 days from

1. the date of the execution of the deed or
2. from the date of the decedent’s death

Question 9

COVERAGE OF TAX ON THE BUSINESS OF PRINTING AND PUBLICATION

Answer 9

Business of printing and publication of books, cards, poster, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature

Question 10

TAX BASE AND RATE OF TAX ON THE BUSINESS OF PRINTING AND PUBLICATION

Answer 10

1. Gross annual receipts for the preceding calendar year - Not exceeding 50% of 1%
2. Capital Investment - If newly started, tax shall not exceed 1/20 of 1%

Question 11

EXCEPTION TO TAX ON THE BUSINESS OF PRINTING AND PUBLICATION

Answer 11

School texts or references, prescribed by the DepEd shall be exempt from tax

Question 12

COVERAGE OF FRANCHISE TAX

Answer 12

Businesses enjoying a franchise

Question 13

TAX BASE AND RATE OF FRANCHISE TAX

Answer 13

1. Gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. - Not exceeding 50% of 1%
2. Capital investment - In the case of a newly started business, the tax shall not exceed 1/20 of 1%

Question 14

COVERAGE OF TAX ON SAND, GRAVEL AND OTHER QUARRY SERVICES

Answer 14

Sand, gravel and other resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction

Question 15

TAX BASE AND RATE OF TAX ON SAND, GRAVEL AND OTHER QUARRY SERVICES

Answer 15

Fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources - not more that 10%

Question 16

WHO ISSUES PERMIT ON SAND, GRAVEL AND OTHER QUARRY SERVICES

Answer 16

1. issued exclusively by the provincial governor pursuant to the ordinance of the Sangguniang Panlalawigan

NOTE: the authority to impose taxes and fees for extraction of sand and gravel belongs to the province, and not to the municipality where they are found (Municipality of San Fernando La Union vs. Sta. Romana, G.R. No. L-30159, March 31, 1998).

Question 17

How tax proceeds on SAND, GRAVEL AND OTHER QUARRY SERVICES are distributed

Answer 17

Distribution of Tax Proceeds:

a. Province – 30%
b. Component city or municipality – 30%
c. Barangay where resources were extracted 40

Question 18

Can Regalian Doctrine be invoked by the Province to extend coverage to mining in private lands?

Answer 18

Regalian Doctrine is not applicable. Province may not invoke the doctrine to extend the coverage of its ordinance to quarry resources extracted from private lands. Such tax is a tax upon the performance, carrying on, or exercises of an activity, hence an excise tax upon an activity already being taxed under the NIRC. Rationale: Tax statutes are construed strictissimi juris against the government (Province of Bulacan v. CA, G.R. No. 126232). PROFESSIONAL

Question 19

Coverage of Professional Tax

Answer 19

Exercise or practice of profession requiring government licensure examination

Question 20

Tax Rate and Base of Professional Tax

Answer 20

At such amount and reasonable classification as the sanggunian panlalawigan may impose
- Not to exceed P300

Question 21

Exceptions to Professional Tax

Answer 21

Professionals exclusively employed in the government shall be exempt from the payment of this tax.

Question 22

Payment of Professional tax

Answer 22

Date of Payment: Payable annually on or before January 31 or before beginning the practice of the profession. Place of Payment: Province where he practices his profession or where the principal office is located.

Question 23

How many times can Professional tax be collected

Answer 23

NOTE: TAX TO BE PAID ONLY ONCE. Person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such profession. AMUSEMENT

Question 24

COVERAGE OF AMUSEMENT TAX

Answer 24

Ownership, lease or operation of theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement

Question 25

Tax base and Rate of AMUSEMENT TAX

Answer 25

Gross receipts from admission fees. not more than 10% of gross receipts from admission fees.

In case of theaters or cinemas, the tax shall first be deducted and withheld by their proprietors, lessees, or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors, lessees, or operators and the distributors of the cinematographic films.

Question 26

Exceptions to Amusement tax

Answer 26

GR: The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical presentation shall be exempt from the payment of amusement tax.

XPN: Holding of pop, rock, or similar concerts shall be subject to amusement tax.
NOTE

Question 27

Amusement tax n relation to VAT

Answer 27

Amendments to the VAT law have been consistent in exempting persons subject to amusement tax under the NIRC from the coverage of VAT. Only lessor or distributors of cinematographic films are included in the coverage of VAT. This reveals the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true even in the case of cinema/theater operators taxed under the LGC precisely because the VAT law was intended to replace the percentage tax on certain services (CIR v. SM Prime Holdings, Inc. etc., G.R. No. 183505, February 26, 2010).

Question 28

How are Amusement tax proceeds distributed?

Answer 28

Distribution of Proceeds: Tax shall be shared equally by the province and municipality where such amusement places are located.

Question 29

“Other places of amusement”

Answer 29

Resorts, swimming pools, bath houses, hot springs, and tourist spots do not belong to the same category or class as theaters, cinemas, concert halls, and boxing stadia because the latter class are venues primarily “where one seeks admission to entertain oneself by seeing or viewing the show or performances”. It follows that they cannot be considered as among the ‘other places of amusement’ contemplated by Sec. 140 of LGU and which may properly be subject to amusement taxes (Pelizloy Realty Corporation v. Province of Benguet, G.R. No. 183137, April 10, 2013).

Question 30

Coverage of Tax on Delivery/Truck/Van

Answer 30

Use by manufacturers, producers, wholesalers, dealers or retailers of truck, van or any vehicle in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the Sangguniang Panlalawigan, to sales outlets or consumers, whether directly or indirectly.
Every

Question 31

Tax base and rate of tax on delivery truck/van

Answer 31

not exceeding 500/van/truck

Question 32

Exemptions to tax on delivery truck/van

Answer 32

Exempt from tax on peddlers imposed by municipalities

Question 33

“Franchise Tax”

Answer 33

The word “franchise” in the phrase “tax on business enjoying a franchise under Sec. 137 of the LGC:

The Congress defined it in the sense of a secondary or special franchise. It is not levied on the corporation simply for existing as a corporation, upon its property or income, but on its exercise of the rights or privileges granted to it by the government.

Question 34

Q: Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal office in Cubao, Quezon City. It has branches/sales offices in Cebu and Davao. Its factory is located in Marikina City where most of its workers live. Its principal office in Quezon City is also a sales office.

Sales of finished products for calendar year 2009 in the amount of P10 million were made at the following locations: Cebu branch 25% Davao branch 15% Quezon City branch 60% Total 100%

Where should the applicable local taxes on the shoes be paid? Explain. (2010 Bar)

Answer 34

A: Under the LGC, the manufacturers maintaining a branch or sales outlet shall record the sale in the branch or sales outlet making the sale and pay the tax in the city or municipality where the branch or sales outlet is located. Since Ferremaro, Inc., maintains one factory, the sales recorded in the principal office shall be allocated and 30% of said sales are taxable in the place where the principal office is located while the 70% is taxable in the place where the factory is located.

Hence, 25% of total sales or Php 2.5M shall be taxed in Cebu and 15% of total sales or Php 1.5M shall be taxed in Davao. For the remaining 60% sales amounting to Php 6.0M which is recorded in the principal office, 30% thereof or Php 1.8M is taxable in Quezon City where the principal office is located and 70% or Php 4.2M is taxable in Marikina City where the factory is located.

Question 35

Q: CASURECO III is an electric cooperative duly organized and existing by virtue of PD 269 and registered with the National Electrification Administration (NEA). It is engaged in the business of electric power distribution to various end-users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of Camarines Sur, otherwise known as the “Rinconada area.”

Sometime in 2003, Petitioner City of Iriga required CASURECO III to submit a report of its gross receipts for the period 1997-2002 to serve as the basis for the computation of franchise taxes, fees and other charges. The latter complied and was subsequently assessed taxes.

CASURECO III refused to pay for the assessed taxes, asserting that the computation of the petitioner was erroneous because it included gross receipts from service areas beyond the latter’s territorial jurisdiction. Is Casureco liable for the payment of the franchise tax on the Rinconada area?

Answer 35

A: YES. CASURECO III is liable for franchise tax on gross receipts within Iriga City and Rinconada area. It should be stressed that what the petitioner seeks to collect from CASURECO III is a franchise tax, which as defined, is a tax on the exercise of a privilege. As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely because it is a tax on business, rather than on persons or property. Since it partakes of the nature of an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal office and from where it operates, regardless of the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from Iriga City and the Rinconada area.

Question 36

Q: CASURECO III maintains that it is exempt from payment of franchise tax because of its nature as a non-profit cooperative, as contemplated in PD 269, and insists that only entities engaged in business, and not non-profit entities like itself, are subject to the said franchise tax. Is this correct?

Answer 36

A: NO. In National Power Corporation v. City of Cabanatuan, the Court declared that “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.”

To be liable for local franchise tax, the following requisites should concur: 1. That one 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 pertinent LGU.

There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA granted CASURECO III a franchise to operate an electric light and power service for a period of 50 years from June 6, 1979, and it is undisputed that CASURECO III operates within Iriga City and the Rinconada area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit nature (City of Iriga v. Camarines Sur III Electric Cooperative Inc. G.R. No. 192945, September 5, 2012).

Question 37

“Professional Tax”

Answer 37

Professionals who are subject to professional tax: They are those who have passed the bar examinations, or any board or examinations conducted by the Professional Regulation Commission (PRC). e.g. A lawyer who is also a Certified Public Accountant (CPA) must pay for professional tax imposed on lawyer and that fixed for CPAs, if he is to practice both professions.

Question 38

Q: Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in the practice of his two professions. He has his main office in Makati City and maintains a branch office in Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his professional tax as a lawyer in Pasig City.

a. May Makati City, where he has his main office, require him to pay his professional tax as a lawyer? Explain. b. May Quezon City, where he has his residence and where he also practices his two professions, go after him for the payment of his professional tax as a CPA and a lawyer? Explain. (2005 Bar)

Answer 38

NO. Makati City where Mr. Fermin has his main office may not require him to pay his professional tax as a lawyer. Mr. Fermin has the option of paying his professional tax as a lawyer in Pasig City where he practices law or in Makati City where he maintains his principal office (Sec. 139[b], LGC).

b. NO, the situs of the professional tax is the city where the professional practices his profession or where he maintains his principal office in case he practices his profession in several places. The local government of Quezon City has no right to collect the professional tax from Mr. Fermin as the place of residence of the taxpayer is not the proper situs in the collection of the professional tax.

Question 39

“Amusement Tax”

Answer 39

Amusement and amusement places as defined under the LGC:
1. Amusement is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation, pastime, or fun;

2. Amusement places include theaters, cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances (Sec. 131[b] and [c], LGC).

Question 40

Amusement places where provinces or cities cannot impose amusement taxes:

Answer 40

1. Cockpits
2. Cabarets
3. Night or day clubs
4. Boxing exhibitions
5. Professional basketball games
6. Jai-Alai
7. Racetracks

NOTE: There can be no imposition of amusement taxes on the above amusement places since Sec. 125 of NIRC already imposes amusement taxes on them.

Question 41

Can LGUS collect amusement tax on PBA games?

Answer 41

LGUs cannot collect amusement taxes on admission tickets to the Philippine Basketball Association (PBA) games including the income from cession of streamers and advertising spaces. (Philippine Basketball Association v. CA, G.R. No. 119122, Aug. 8, 2000).

Question 42

Is a golf course subject to amusement tax?

Answer 42

A golf course cannot be considered a place of amusement therefore beyond the power of LGU to impose amusement tax

Section 42 of the Revised Omnibus Tax Ordinance, as amended, imposing amusement tax on golf courses is null and void as it is beyond the authority of respondent Cebu City to enact under the LGC. A golf course cannot be considered a place of amusement. People do not enter a golf course to see or view a show or performance. Proprietor or operators of the golf course, do not actively display, stage, or present a show or performance. People go to a golf course to engage themselves in a physical sport activity.