PELIZLOY REALTY CORPORATION v.

Province of tourist spots are encompassed by the phrase other

BENGUET places of amusement in Section 140 of the LGC.
Province of Benguet, erroneously citing Section 40
Facts: of the LGC, argued that Section 59, Article X of the
Tax Ordinance does not levy a percentage tax
Petitioner Pelizloy Realty Corporation ("Pelizloy")
"because the imposition is not based on the total
owns Palm Grove Resort. On December 8, 2005, the
gross receipts of services of the petitioner but
Provincial Board of the Province of Benguet
solely and actually limited on the gross receipts of
approved Provincial Tax Ordinance No. 05-107,
the admission fees collected." In addition, it
otherwise known as the Benguet Revenue Code of
argued that provinces can validly impose
2005 ("Tax Ordinance"). Section 59, Article X of the
amusement taxes on resorts, swimming pools, bath
Tax Ordinance levied a ten percent (10%)
houses, hot springs, and tourist spots, these being
amusement tax on gross receipts from admissions to
amusement places.
"resorts, swimming pools, bath houses, hot springs
and tourist spots." Issues:
It was Pelizloy's position that the Tax Ordinance's
imposition of a 10% amusement tax on gross Whether Section 59, Article X of the Ordinance
receipts from admission fees for resorts, swimming levies a percentage tax. (YES.)
pools, bath houses, hot springs, and tourist spots is Whether provinces are authorized to impose
an ultra vires act on the part of the Province of amusement taxes on admission fees to resorts,
Benguet. Thus, it filed an appeal/petition before the swimming pools, bath houses, hot springs, and
SoJ. tourist spots for being "amusement places"
o appeal/petition was filed within the (30)-day under the Local Government Code. (NO.)
period from the effectivity of a tax ordinance
allowed by Section 187 of Republic Act No. Held:
7160 (LGC)
The power to tax "is an attribute of sovereignty," and
o Under Section 187 of the LGC, the SoJ has
as such, inheres in the State. Such, however, is not
60 days from receipt of the appeal to render
true for provinces, cities, municipalities and
a decision. After the lapse of which, the
barangays as they are not the sovereign; rather, they
aggrieved party may file appropriate
are mere "territorial and political subdivisions of the
proceedings with a court of competent
Republic of the Philippines".
jurisdiction.
It is settled that a municipal corporation unlike a
o Pelizloy filed a Petition for Declaratory
sovereign state is clothed with no inherent power of
Relief and Injunction before the Regional
taxation. The charter or statute must plainly show an
Trial Court, Branch 62, La Trinidad,
intent to confer that power or the municipality, cannot
Benguet. (Since SoJ did not act upon it).
assume it. And the power when granted is to be
Pelizloy: argued that Section 59, Article X of the Tax
construed in strictissimi juris. Any doubt or ambiguity
Ordinance imposed a percentage tax in violation of
arising out of the term used in granting that power
the limitation on the taxing powers of local
must be resolved against the municipality.
government units (LGUs) under Section 133 (i) of the
Inferences, implications, deductions all these
LGC.1
have no place in the interpretation of the taxing
The Province of Benguet: argued that the phrase
power of a municipal corporation. (Icard v. City of
other places of amusement in Section 140 (a) of the
Baguio)
LGC encompasses resorts, swimming pools, bath
Limitation is Section 5, Article X of 1987 Consti: Each
houses, hot springs, and tourist spots since "Article
local government unit shall have the power to create
220 (b) (sic)" of the LGC defines "amusement" as
its own sources of revenues and to levy taxes, fees
"pleasurable diversion and entertainment
and charges subject to such guidelines and
synonymous to relaxation, avocation, pastime, or
limitations as the Congress may provide, consistent
fun.
with the basic policy of local autonomy. Such taxes,
RTC: while Section 59, Article X of the Ordinance
fees, and charges shall accrue exclusively to the
imposes a percentage tax, Section 133 (i) of the LGC
local governments.
itself allowed for exceptions. It noted that what the
Limitations under LGC:
LGC prohibits is not the imposition by LGUs of
Sec 130 Sec 133
percentage taxes in general but the "imposition and
1. Taxation shall be Common limitations on
levy of percentage tax on sales, barters, etc., on uniform in each LGU. the taxing powers of
goods and services only." It further gave credence to 2. Taxes, fees, charges LGUs. Specifically,
the Province of Benguet's assertion that resorts, and other impositions Section 133 (i) prohibits
swimming pools, bath houses, hot springs, and shall: the levy by LGUs of
percentage or value-

1
Section 133. Common Limitations on the Taxing Powers of Local
Government Units. - Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
(i) Percentage or value-added tax (VAT) on sales, barters or
exchanges or similar transactions on goods or services except as
otherwise provided herein
 a. be equitable and based added tax (VAT) on sales, amusement encompasses resorts, swimming
as far as practicable on barters or exchanges or pools, bath houses, hot springs, and tourist
the taxpayer's ability to similar transactions on
spots.
pay; goods or services except
b. be levied and collected as otherwise provided by Section 131 (c) of the LGC already provides a clear
only for public purposes; the LGC. definition of amusement places: (c) "Amusement
c. not be unjust, Places" include theaters, cinemas, concert halls,
excessive, oppressive, or circuses and other places of amusement where one
confiscatory;
d. not be contrary to law, seeks admission to entertain oneself by seeing or
public policy, national viewing the show or performances.
economic policy, or in the Theres a common typifying characteristic in that
restraint of trade. they are all venues primarily for the staging of
3. The collection of local
taxes, fees, charges and
spectacles or the holding of public shows,
other impositions shall in exhibitions, performances, and other events meant
no case be let to any to be viewed by an audience. Accordingly, other
private person. places of amusement must be interpreted in light of
4. The revenue collected the typifying characteristic of being venues "where
pursuant to the provisions
of the LGC shall inure one seeks admission to entertain oneself by seeing
solely to the benefit of, or viewing the show or performances" or being
and be subject to the venues primarily used to stage spectacles or hold
disposition by, the LGU public shows, exhibitions, performances, and other
levying the tax, fee,
events meant to be viewed by an audience.
charge or other imposition
unless otherwise Thus, resorts, swimming pools, bath houses, hot
specifically provided by springs and tourist spots do not belong to the same
the LGC. category or class as theaters, cinemas, concert
5. Each LGU shall, as far halls, circuses, and boxing stadia. It follows that they
as practicable, evolve a
progressive system of cannot be considered as among the other places of
taxation. amusement contemplated by Section 140 of the
LGC and which may properly be subject to
The Supreme Court defined percentage tax as a amusement taxes.
"tax measured by a certain percentage of the gross
selling price or gross value in money of goods sold, WHEREFORE, the petition for review on certiorari is
bartered or imported; or of the gross receipts or GRANTED. The second paragraph of Section 59, Article X of
earnings derived by any person engaged in the sale the Benguet Provincial Revenue Code of 2005, in so far as it
of services." Also, Republic Act No. 8424, otherwise imposes amusement taxes on admission fees to resorts,
known as the National Internal Revenue Code swimming pools, bath houses, hot springs and tourist spots,
(NIRC), in Section 125, Title V,16 lists amusement is declared null and void. Respondent Province of Benguet is
taxes as among the (other) percentage taxes which permanently enjoined from enforcing the second paragraph of
are levied regardless of whether or not a taxpayer is Section 59, Article X of the Benguet Provincial Revenue Code
already liable to pay value-added tax (VAT). CIR v. of 2005 with respect to resorts, swimming pools, bath houses,
City Trust hot springs and tourist spots.
Hence, amusement taxes are percentage taxes as SO ORDERED.
correctly argued by Pelizloy.
However, provinces are not barred from levying
amusement taxes even if amusement taxes are a
form of percentage taxes. Section 133 (i) of the LGC
prohibits the levy of percentage taxes "except as
otherwise provided" by the LGC.
Evidently, Section 140 of the LGC carves a clear
exception to the general rule in Section 133 (i).
Section 140 expressly allows for the imposition by
provinces of amusement taxes on "the proprietors,
lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of
amusement."
However, resorts, swimming pools, bath houses, hot
springs, and tourist spots are not among those
places expressly mentioned by Section 140 of the
LGC as being subject to amusement taxes. Thus,
the determination of whether amusement taxes may
be levied on admissions to resorts, swimming pools,
bath houses, hot springs, and tourist spots hinges
on whether the phrase other places of
SMART COMMUNICATIONS v. City of Davao
Facts:
Smart filed a special civil action for declaratory relief
for the ascertainment of its rights and obligations
under the Tax Code of the City of Davao.2
Smart contends that its telecenter in Davao City is
exempt from payment of franchise tax to the City, on
the following grounds:
o The issuance of its franchise under
Republic Act (R.A.) No. 7294 subsequent to
R.A. No. 7160 shows the clear legislative
intent to exempt it from the provisions of
R.A. 7160;
o Section 137 of R.A. No. 7160 can only
apply to exemptions already existing at the
time of its effectivity and not to future
exemptions;
o The power of the City of Davao to impose a
franchise tax is subject to statutory
limitations such as the in lieu of all taxes
clause found in Section 9 of R.A. No. 7294;
and
o The imposition of franchise tax by the City
of Davao would amount to a violation of the
constitutional provision against impairment
of contracts.
Respondents filed their Answer: they invoked the
power granted by the Constitution to local
government units to create their own sources of
revenue.
RTC: denying the petition. The trial court noted that
the ambiguity of the in lieu of all taxes provision in
R.A. No. 7294, on whether it covers both national
and local taxes, must be resolved against the
taxpayer.
o On the issue of violation of the non-
impairment clause of the Constitution, the
trial court cited Mactan Cebu International
Airport Authority v. Marcos, and declared
that the citys power to tax is based not
merely on a valid delegation of legislative
power but on the direct authority granted to
it by the fundamental law. It added that
while such power may be subject to
restrictions or conditions imposed by
Congress, any such legislated limitation
must be consistent with the basic policy of
local autonomy.
Issue: Whether Smart is liable to pay the franchise tax
imposed by the City of Davao (YES.)
Held:
2
Art 10, Sec 1: Notwithstanding any exemption granted by any law or
other special law, there is hereby imposed a tax on businesses
enjoying a franchise, at a rate of seventy-five percent (75%) of one
percent (1%) of the gross annual receipts for the preceding calendar
year based on the income or receipts realized within the territorial
jurisdiction of Davao City.
3
Section 137. Franchise Tax. Notwithstanding any exemption granted
by any law or other special law, the province may impose a tax on
Smart alleges that the in lieu of all taxes clause in
Section 9 of its franchise exempts it from all taxes,
both local and national, except the national franchise
tax (now VAT), income tax, and real property tax.
Two months ahead of Smarts franchise, the Local
Government Code (R.A. No. 7160) took effect.
Section 1373, in relation to Section 1514 of R.A. No.
7160, allowed the imposition of franchise tax by the
local government units; while Section 193 thereof
provided for the withdrawal of tax exemption
privileges granted prior to the issuance of R.A. No.
7160 except for those expressly mentioned therein.
The withdrawal of tax exemptions or incentives
provided in R.A. No. 7160 can only affect those
franchises granted prior to the effectivity of the law.
The intention of the legislature to remove all tax
exemptions or incentives granted prior to the said
law is evident in the language of Section 193 of R.A.
No. 7160. No interpretation is necessary.
Smart: is of the view that the only taxes it may be
made to bear under its franchise are the national
franchise tax (now VAT), income tax, and real
property tax. It claims exemption from the local
franchise tax because the in lieu of taxes clause in
its franchise does not distinguish between national
and local taxes.
It is not clear whether the in lieu of all taxes provision
in the franchise of Smart would include exemption
from local or national taxation. What is clear is that
Smart shall pay franchise tax equivalent to three
percent (3%) of all gross receipts of the business
transacted under its franchise. But whether the
franchise tax exemption would include exemption
from exactions by both the local and the national
government is not unequivocal.
The uncertainty in the in lieu of all taxes clause in
R.A. No. 7294 on whether Smart is exempted from
both local and national franchise tax must be
construed strictly against Smart which claims the
exemption.
It should be noted that the in lieu of all taxes clause
in R.A. No. 7294 has become functus officio with the
abolition of the franchise tax on telecommunications
companies. As admitted by Smart in its pleadings, it
is no longer paying the 3% franchise tax mandated
in its franchise. Currently, Smart along with other
telecommunications companies pays the uniform
10% value-added tax.
o R.A. No. 7716, specifically Section 20
thereof, expressly repealed the provisions
of all special laws relative to the rate of
franchise taxes. It also repealed, amended,
or modified all other laws, orders,
issuances, rules and regulations, or parts
businesses enjoying a franchise, at the rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
4
The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty
percent (50%) except the rates of professional and amusement taxes.
 thereof which are inconsistent with it. In
effect, the in lieu of all taxes clause in R.A.
No. 7294 was rendered ineffective by the
advent of the VAT Law.[31]
Another argument of Smart is that the imposition of
the local franchise tax by the City of Davao would
violate the constitutional prohibition against
impairment of contracts. The franchise, according to
petitioner, is in the nature of a contract between the
government and Smart.
SC: As previously discussed, the franchise of Smart
does not expressly provide for exemption from local
taxes. Absent the express provision on such
exemption under the franchise, we are constrained
to rule against it. The in lieu of all taxes clause in
Section 9 of R.A. No. 7294 leaves much room for
interpretation. Due to this ambiguity in the law, the
doubt must be resolved against the grant of tax
exemption. Moreover, Smarts franchise was granted
with the express condition that it is subject to
amendment, alteration, or repeal.

WHEREFORE, the instant petition is DENIED for lack of merit.

Costs against petitioner.
TATEL v. Municipality of Virac emanates from the general welfare clause5 under
the Administrative Code.
Facts: For an ordinance to be valid, it must not only be
within the corporate powers of the municipality to
This is a Petition for Prohibition with Preliminary
enact but must also be passed according to the
Injunction with the CFI of Catanduanes filed by
procedure prescribed by law, and must be in
appellant, Celestino Tatel, a businessman engaged
consonance with certain well established and basic
in the import and export of abaca and other products
principles of a substantive nature. These principles
against the Municipal Council of Virac, Catanduanes
require that a municipal ordinance
and its municipal officials enjoining them from
o Must not contravene the Constitution or any
enforcing Resolution No 29 of the Council, declaring
statute
the warehouse of petitioner in barrio Sta. Elena of
o Must not be unfair or oppressive
the said municipality a public nuisance within the
o Must not be partial or discriminatory
purview of Article 694 of the Civil Code of the
o Must not prohibit but may regulate trade
Philippines and directing the petitioner to remove
o Must be general and consistent with public
and transfer said warehouse to a more suitable place
policy, and
within 2 months from receipt of the said resolution.
o Must not be unreasonable.
Based on the complaints: it affected the peace and
Ordinance No. 13, Series of 1952, meets these
tranquillity of the neighbourhood due to the smoke,
criteria.
obnoxious odor and dust emitted by the machine.
Hence, a committee was appointed by the municipal In spite of its fractured syntax, basically, what is
council of Virac to investigate the matter. regulated by the ordinance is the construction of
warehouses wherein inflammable materials are
Committee: crowded nature of the neighbourhood
stored where such warehouses are located at a
with narrow roads and the surrounding residential
distance of 200 meters from a block of houses and
houses, so much so that an accidental fire within the
not the construction per se of a warehouse. The
warehouse of the petitioner occasioned by the
purpose is to avoid the loss of life and property in
continuance of the activity inside the warehouse and
case of fire which is one of the primordial obligation
the storing of inflammable materials created a
of the government.
danger to the lives and properties of the people
within the neighbourhood. WHEREFORE, for lack of merit, the petition is hereby
Respondent municipal officials: petitioner's DISMISSED. Costs against petitioner.
warehouse was constructed in violation of Ordinance
No. 13, series of 1952, prohibiting the construction of
warehouses near a block of houses either in the
poblacion or barrios without maintaining the
necessary distance of 200 meters from said block of
houses to avoid loss of lives and properties by
accidental fire.
Petitioner: ordinance is unconstitutional, contrary to
the due process and equal protection clause of the
Constitution and null and void for not having been
passed in accordance with law.
CFI: Ordinance valid exercise of police power.
Petitioner violated the ordinance.

Issue: Whether the warehouse is a nuisance (YES)

Whether the ordinance is unconstitutional (YES)

Held:

Ordinance No. 13, series of 1952, was passed by the

Municipal Council of Virac in the exercise of its police
power. It is a settled principle of law that municipal
corporations are agencies of the State for the
promotion and maintenance of local self-government
and as such are endowed with the police powers in
order to effectively accomplish and carry out the
declared objects of their creation. Its authority

5
The municipal council shall enact such ordinances and make such
regulations, not repugnant to law, as may be necessary to carry into
effect and discharge the powers and duties conferred upon it by law
and such as shall seem necessary and proper to provide for the health
and safety, promote the prosperity, improve the morals, peace, good
order, comfort and convenience of the municipality and the
inhabitants thereof, and for the protection of property therein
TAN v. PEREA Issue: Whether the Local Government Code has rendered
inoperative the Cockfighting Law
Facts:

In 1974, Presidential Decree (P.D.) No. 449,

otherwise known as the Cockfighting Law of 1974,
was enacted. Section 5(b)6 of the Decree provided
for limits on the number of cockpits that may be
established in cities and municipalities.
With the enactment of the Local Government Code
of 1991, the municipal sangguniang bayan were
empowered, any law to the contrary notwithstanding,
to authorize and license the establishment, operation
and maintenance of cockpits, and regulate
cockfighting and commercial breeding of
gamecocks.
In 1993, the Sangguniang Bayan of the municipality
of Daanbantayan, Cebu Province, enacted
Municipal Ordinance No. 6 (Ordinance No. 6), Series
of 1993, which served as the Revised Omnibus
Ordinance prescribing and promulgating the rules
and regulations governing cockpit operations in
Daanbantayan. Allowed not more than 3 cockpits
(based on Municipal Ordinance No. 7)
Petitioner Leonardo Tan (Tan) applied with the
Municipal Gamefowl Commission for the issuance of
a permit/license to establish and operate a cockpit in
Sitio Combado, Bagay, in Daanbantayan. At the time
of his application, there was already another cockpit
in operation in Daanbantayan, operated by
respondent Socorro Y. Perea (Perea), who was the
duly franchised and licensed cockpit operator in the
municipality since the 1970s. Pereas franchise, per
records, was valid until 2002.
Te issued a mayors permit allowing Tan to
establish/operate/conduct the business of a cockpit
in Combado.
Perea: there was no lawful basis for the
establishment of a second cockpit. She claimed that
Tan conducted his cockpit fights not in Combado, but
in Malingin, at a site less than five kilometers away
from her own cockpit. She insisted that the unlawful
operation of Tans cockpit has caused injury to her
own legitimate business.
o Claimed that the amendment authorizing
the operation of not more than three (3)
cockpits in Daanbantayan violated Section
5(b) of the Cockfighting Law of 1974, which
allowed for only one cockpit in a
municipality with a population as
Daanbantayan.
Petitioners: asserted that under the LGC, the
sangguniang bayan of each municipality now had
the power and authority to grant franchises and
enact ordinances authorizing the establishment,
licensing, operation and maintenance of cockpits. By
virtue of such authority, the Sangguniang Bayan of
Daanbantayan promulgated Ordinance Nos. 6 and
7.

6
(b) Establishment of Cockpits. Only one cockpit shall be allowed in population of over one hundred thousand, two cockpits may be
each city or municipality, except that in cities or municipalities with a established, maintained and operated.