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BDB Law’s “Tax Law For Business” appears in the opinion section of Business Mirror every


Situs: Local Taxation
IN countries like ours where taxes are the main sources of revenue, the exercise of the
power of taxation is necessary for the very existence of government. Without the revenue
raised from taxation, the government cannot support itself and the public needs. And so, it is
often said that taxes are the lifeblood of the government.
This is true not only for the national government but also for its smallest unit. Thus, no less
than the Constitution grants the local government units (LGUs) the power to create their own
sources of revenues. That is further amplified by the Local Government Code of 1991 (LGC).
It is not, therefore, unusual for taxes to be levied on the same subject by two taxing
authorities, i.e., the national government and the LGUs. The prohibition against double
taxation is not violated since the tax is imposed by different tax authorities. But for a local
government unit to be able to exercise such power, it needs to enact an ordinance for that
Local taxation, however, is subject to certain limitations. The exercise of the taxing power by
LGUs cannot extend to certain types of taxes as so enumerated in the LGC. Also, in local
business taxation, LGUs are governed by the “situs of the tax rule.” Some equate this rule to
the territorial principle of taxation. To a certain extent, this may be correct, but not entirely.
The territorial system of taxation follows the rule that a taxing jurisdiction may impose tax on
revenues that have arisen or have been earned within its geographical boundaries. This
does not necessarily mirror the “situs of the tax rule.” The latter specifies the rule in the
determination of the place of taxation or which jurisdiction has the authority to impose the tax
on the revenue/receipts or allocated revenue/receipts. This is especially significant if the
person/entity has presence—principal place of business, branch, sales outlet, warehouse,
factories, project offices, plants or plantations—in more than one city and/or municipality.
And it does not limit the extent of the taxing power to the revenues derived within its

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and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. the cases decided by the courts should provide the best guide for its application. taxes are the lifeblood of the government. Everybody is called to contribute his rightful share for the support of the government. The Court ruled that this is impermissible. But the assessment and collection of taxes should not be enforced arbitrarily to the detriment of the taxpaying public. In this some simply choose to ignore if it is not beneficial to their cause. * * * * The author is the senior partner of Du-Baladad and Associates Law Offices (BDB Law). Many LGUs have varying interpretations of this rule. the treasurer of the city where the head office of the taxpayer is located sought to impose local business tax on the revenue derived by the taxpayer from the operation of its branches in other cities. because to do so would be sanctioning or encroaching upon the prerogatives of another coequal and autonomous local government. legal or financial advice on any specific matter.And because of this. Thus we regularly encounter cities or municipalities imposing or attempting to impose taxes on revenues/receipts already taxed by other localities. nor should be construed as a substitute for or call 403-2001 local 310. there are still inconsistencies in its implementation by LGUs. you may email the author at fulvio. there is confusion on the application of the situs rule in local business taxation. Or even if the rule is clear. Similarly. while the situs rule in local business taxation had been existing for years. The result— payment of tax within the wrong city or municipality. this is often the cause of dispute between the taxpayer and the LGU. Whatever the cause of the differences in the implementation of the situs rule. If you have any comments or questions concerning the article. a member-firm of World Tax Services (WTS) Alliance.” Despite its clarity.dawilan@bdblaw. The “situs of the tax rule” in local taxation is provided precisely to guide both the tax authority and taxpayers for the proper allocation and distribution of taxes to the affected localities where the taxpayer does his business or part of his business. the LGC clearly provides that “businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction. In short. The article is for general information only and is not intended. there are some taxpayers who fail to follow the rule on situs. For instance. It may be because the rules are not clear. both on the part of the LGUs and taxpayers. A case in point is CTA AC Case 76 recently decided by the Court of Tax Appeals. It argued that it has the authority to assess business taxes on revenues not properly taxed by the other cities. Page 2 of 2 . Indeed.