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Memory Aid - Taxation

Memory Aid - Taxation

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11/18/2012

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San Beda College of Law2001 Centralized Bar Operations
Memory Aid
Taxation Law
TABLE OF CONTENTS
I. GENERAL PRINCIPLES .....................................................................2A. Power of Taxation.............................................................................2B. Situs of Taxation...............................................................................4C. Limitations on the Power of Taxation...............................................4D. Double Taxation...............................................................................6E. Forms of Escape from Taxation.......................................................6F. Tax Enforcement and Administration................................................7II. NATIONAL TAXATION........................................................................9A. Income Tax......................................................................................9B. Transfer Taxes..............................................................................14C. Expanded Value Added Tax..........................................................17III. LOCAL TAXATION...........................................................................19IV. REAL PROPERTY TAXATION........................................................19V. TARIFF AND CUSTOMS LAWS.......................................................20VI. TAX REMEDIES...............................................................................22A. Under the National Internal Revenue Code..................................22B. Under the Local Government Code..............................................29C. Under the Tariff and Customs Code.............................................30VII. COURT OF TAX APPEALS............................................................33VIII. ANNEX A: COMPARATIVE TABLE OF TAX REMEDIES............A-1IX. ANNEX B: INCOME TAX TABLES...............................................B-1
 
I.GENERAL PRINCIPLES
THE POWER OF TAXATION
 
Definitions:
1.
Taxation:
Power by which the sovereignraises revenue to defray the necessaryexpenses of the government from amongthose who in some measure are privilegedto enjoy its benefits and must bear itsburden.2.
Taxes:
Enforced proportional contributionfrom properties and persons levied by theState by virtue of its sovereignty for thesupport of government and for publicneeds.
 
Characteristics of Taxes:
1.forced charge;2.generally payable in money;3.levied by the legislature;4.assessed with some reasonable rule of apportionment;5.imposed by the State within its jurisdiction;6.levied for public purpose.
 
Theories or bases of taxation:
1.
Lifeblood Theory
Taxes are the lifeblood of the nation.Without revenue raised from taxation, thegovernment will not survive, resulting indetriment to society. Without taxes, thegovernment would be paralyzed for lack of motive power to activate and operate it.
(CIR vs Algue, Inc., et. al.)
Illustrations of Lifeblood Theory:
 
a.Collection of taxes may not be enjoinedby injunction.b.Taxes could not be the subject ocompensation and set-off.c.A valid tax may result in destruction of the taxpayer's property.2.
Necessity Theory
 
Existence of a government is anecessity and cannot continue without anymeans to pay for expenses.a.
Marshall Dictum
Power to tax is the power todestroy”
– describes the unlimitednessof the power and the degree of vigor with which the taxing power may beemployed in order to raise revenue.b.
Oliver Wendell Holmes Dictum
“Power to tax is not the power todestroy while this court (US SupremeCourt)
 
sits”
– power to tax knows nolimits except those expressly stated inthe Constitution.
Marshall and Holmes Dictums Reconciled: 
Although the power to tax is almostunlimited, it must not be exercised in an arbitrarymanner. We have courts to which people mayseek redress in case of irregularities.3.
Benefits-Protection Theory
There exist reciprocal duties oprotection and support between State and itsinhabitants. Inhabitants pay taxes and in returnreceive benefits and protection from the State.
 
Importance of Taxes
Taxes are the lifeblood of thegovernment and so should be calculatedwithout unnecessary hindrance; therefore, their prompt and imperious availability is animperious need.
 
General Rule: Taxes are personal to thetaxpayer. Illustrations:
1.Corporation’s tax delinquency cannot beenforced against the stockholder (CorporateEntity Doctrine).
Exception:
Stockholdersmay be held liable for unpaid taxes of adissolved corporation if the corporate assetshave passed into their hands.2.Transfer tax on the estate cannot beassessed against the heirs.
Exception:
Heirsmay be held liable for the transfer tax on theestate, if prior to the payment of the same,the properties of the decedent have beendistributed to the heirs.
 
Nature of the Taxing Power 
1.attribute of sovereignty and emanates fromnecessity, relinquishment of which is never presumed;2.legislative in character; and3.subject to inherent and constitutionallimitations.
 
Purpose and Objectives of Taxation
:
1.
Revenue
2.
Non-Revenue
(still a tax but imposed under its non-revenue objective)
KEY: PR
2
EP
a.
R
egulation;b.
P
romotion of general welfare;c.
R
eduction of social inequity;d.
E
ncouragement of economic growth;ande.
P
rotectionism.
 
Scope of legislative taxing power (MSSAPAK):
1.
S
ubject to be taxed, provided it is within its jurisdiction;2.
A
mount or rate of the tax;3.
P
urposes for its levy, provided it be fopublic purpose;4.
K
ind of tax to be collected;5.
A
pportionment of the tax;6.
S
itus of taxation; and7.
M
ethod of collection.
 
 
Aspects of Taxation:
1.Levy or imposition of the tax; and2.Enforcement or tax administration
 
Basic Principles of a sound tax system:
A sound tax system must be:
1.sufficient to meet governmentalexpenditures
(fiscal adequacy)
;2.capable of being effectively enforced
(administrative feasibility)
; and3.based on the taxpayers ability to pay
(theoretical justice).
 
TAXATION, POLICE POWER ANDEMINENT DOMAIN DISTINGUISHED
TAXATIONPOLICEPOWEREMINENTDOMAIN
 
Purpose:
 To raiserevenueTo promotepublic welfarethroughregulationsTo facilitatethe State’sneed of property for public use
 
 Amount of exaction:
 
Not limited
 
LimitedNo exaction; justcompensationis paid by theGovernment
 
Benefits:
No special or directbenefits arereceived bythe taxpayer No directbenefits arereceived;
damnumabsque injuria
is attainedDirect benefitsresult in theform of justcompensation
 
Non-impairment of contracts:
 
Contractsmay not beimpairedContracts maybe impairedContracts maybe impaired
 
Effect of transfer:
 
Taxes paidbecome partof the publicfundsNo transfer but onlyrestrain on theexercise of property rightsProperty istaken by theState uponpayment o justcompensation
 
Scope:
 
It affects allpersons,property, andexcisesIt affects allpersons,property,privileges, andeven rightsIt affects onlythe particulapropertycompre-hended
 
Basis:
 
PublicnecessityPublicnecessity andright of Stateand of publicNecessity of the public for privatepropertyTAXATIONPOLICEPOWEREMINENTDOMAINto self-protection andself-preservation
 
Impositions not strictly considered astaxes:
1.
Toll
amount charged for the cost andmaintenance of property used;
 
2.
Compromise penalty
– amount collected inlieu of criminal prosecution in cases of taxviolations;3.
Special assessment
– levied only on landbased wholly on the benefit accruingthereon as a result of improvements or public works undertaken by governmentwithin the vicinity;4.
License fee
– regulatory imposition in theexercise of the police power of the State;5.
Margin fee
– exaction designed to stabilizethe currency;6.
Custom duties and fees
– duties chargedupon commodities
 
on their being importedinto or exported from a country;7.
Debt
a tax is not a debt but is anobligation imposed by law.
 
LICENSE FEE VS. TAX 
LICENSE FEETAX
 
Basis:
 Police power Power of taxation.
 
Purpose:
To regulateTo raise revenue.
 
Limitation:
 
Limited to costs of (1)issuing the license;and (2) necessaryinspection or policesurveillanceInherent andconstitutionallimitations.
 
Effect of non- payment:
Makes the businessillegal.Does not make thebusiness illegal.
 
Classification of Taxes:
 As to subject matter 
1.
Personal tax
 
 – also known as capitalizationor poll tax.2.
Property tax
 
 – assessed on property of acertain class.3.
Excise tax
– imposed on the exercise of aprivilege.4.
Custom duties
duties charged uponcommodities on being imported into or exported from a country;5.
Local taxes
 
 – taxes levied by localgovernment units pursuant to validlydelegated power to tax;
 As to burden

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