Situs of Tax (Sec. 150) – Where to pay business tax?

41.
PHILIPPINE MATCH CO., LTD., plaintiff-appellant, vs.
THE CITY OF CEBU and JESUS E. ZABATE, Acting City Treasurer, defendants-
appellees.
G.R. No. L-30745 January 18, 1978

The Supreme Court held that the city can validly tax the sales of matches to customers
outside of the city as long as the orders were booked and paid for in the company's
branch office in the city. Those matches can be regarded as sold in the city, as
contemplated in the ordinance, because the matches were delivered to the carrier in
Cebu City. Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil
Code; Behn, Meyer & Co. vs. Yangco, 38 Phil. 602).

A different interpretation would defeat the tax ordinance in question or encourage tax
evasion through the simple expedient of arranging for the delivery of the matches at
the out. skirts of the city through the purchase were effected and paid for in the
company's branch office in the city.

The municipal board of Cebu City is empowered “to provide for the levy and collection
of taxes for general and special purposes in accordance with law.”

The taxing power validly delegated to cities and municipalities is defined in the Local
Autonomy Act, Republic Act No. 2264. Note that the prohibition against the imposition
of percentage taxes (formerly provided for in section 1 of Commonwealth Act No. 472)
refers to municipalities and municipal districts but not to chartered cities. Note further
that the taxing power of cities, municipalities and municipal districts may be used (1)
"upon any person engaged in any occupation or business, or exercising any privilege"
therein; (2) for services rendered by those political subdivisions or rendered in
connection with any business, profession or occupation being conducted therein, and
(3) to levy, for public purposes, just and uniform taxes, licenses or fees.

Applying that jurisdictional test to the instant case, it is at once obvious that sales of
matches to customers outside oil Cebu City, which sales were booked and paid for in
the company's branch office in the city, are subject to the city's taxing power. The
instant case is easily distinguishable from the Shell Company case where the price of
the oil sold was paid outside of the municipality of Sipocot, the entity imposing the tax.
42.
ILOILO BOTTLERS, INC., Plaintiff-Appellee, vs.
CITY OF ILOILO, Defendant-Appellant.
[G.R. No. L-52019. August 19, 1988.]

The Supreme Court has always recognized that the right to manufacture implies the
right to sell/distribute the manufactured products. Hence, for tax purposes, a
manufacturer does not necessarily become engaged in the separate business of selling
simply because it sells the products it manufactures. In certain cases, however, a
manufacturer may also be considered as engaged in the separate business of selling its
products.

To determine whether an entity engaged in the principal business of manufacturing, is

likewise engaged in the separate business of selling, its marketing system or sales
operations must be looked into.

In several cases this Court had occasion to distinguish two marketing systems:

Under the first system, the manufacturer enters into sales transactions and invoices the
sales at its main office where purchase orders are received and approved before
delivery orders are sent to the company’s warehouses, where in turn actual deliveries
are made. No warehouse sales are made; nor are separate stores maintained where
products may be sold independently from the main office. The warehouses only serve
as storage sites and delivery points of the products earlier sold at the main

Under the second system, sales transactions are entered into and perfected at stores or
warehouses maintained by the company. Anyone who desires to purchase the product
may go to the store or warehouse and there purchase the merchandise The stores and
warehouses serve as selling centers.

Entities operating under the first system are NOT considered engaged in the separate
business of selling or dealing in their products, independent of their manufacturing
business. Entities operating under the second system are considered engaged in the
separate business of selling.

In the case at bar, the company distributed its softdrinks by means of a fleet of delivery
trucks which went directly to customers in the different places in Iloilo province. Sales
transactions with customers were entered into and sales were perfected and
consummated by route salesmen. Truck sales were made independently of transactions
in the main office. The delivery trucks were not used solely for the purpose of delivering
softdrinks previously sold at Pavia. They served as selling units. They were what were
called, until recently, "rolling stores." The delivery trucks were therefore much the same
as the stores and warehouses under the second marketing system Iloilo Bottlers, Inc.
thus falls under the second category above. That is, the corporation was engaged in the
separate business of selling or distributing soft-drinks, independently of its business of
bottling them.

The tax imposed under Ordinance No. 5 is an excise tax It is a tax on the privilege of
distributing, manufacturing or bottling softdrinks Being an excise tax, it can be levied by
the taxing authority only when the acts, privileges or businesses are done or performed
within the jurisdiction of said authority [Commissioner of Internal Revenue v. British
Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149
SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits, before an entity engaged in any of
the activities may be taxed in Iloilo City.

As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have
no option but to declare the company liable under the tax ordinance.

Necessity of Public Hearings (Sec. 187)

43.
BELEN C. FIGUERRES, Petitioner, vs.
COURT OF APPEALS, CITY OF ASSESSORS OF MANDALUYONG, CITY
TREASURER OF MANDALUYONG, and SANGGUNIANG BAYAN OF
MANDALUYONG, Respondents.
G.R. No. 119172. March 25, 1999

Petitioner is right in contending that public hearings are required to be conducted prior
to the enactment of an ordinance imposing real property taxes. R.A. No. 7160, §186
provides that an ordinance levying taxes, fees, or charges "shall not be enacted without
any prior public hearing conducted for the purpose."cralaw virtua1aw library

However, it is noteworthy that apart from her bare assertions, petitioner has not
presented any evidence to show that no public hearings were conducted prior to the
enactment of the ordinances in question. On the other hand, the Municipality of
Mandaluyong claims that public hearings were indeed conducted before the subject
ordinances were adopted, although it likewise failed to submit any evidence to establish
this allegation. However, in accordance with the presumption of validity in favor of an
ordinance, their constitutionality or legality should be upheld in the absence of evidence
showing that the procedure prescribed by law was not observed in their enactment.

The lack of a public hearing is a negative allegation to which the party asserting has the
burden of proof. It is essential to petitioner’s cause of action in the present case.
Hence, as petitioner is the party asserting it, she has the burden of proof. Since
petitioner failed to rebut the presumption of validity in favor of the subject ordinances
and to discharge the burden of proving that no public hearings were conducted prior to
the enactment thereof, we are constrained to uphold their constitutionality or legality.
44.
ALABANG SUPERMARKET CORPORATION, Petitioner, vs.
CITY OF MUNTINLUPA, Respondents.
CTA EB Case No. 386 February 12, 2009

It should be noted that two reckoning periods are provided by law for the filing of a
case or proceeding, that is from the date of payment of the tax, and from the date the
taxpayer becomes entitled to the refund. However, petitioner's interpretation of the
phrase "from the date the taxpayer becomes entitled to the refund" is not inconsonance
with the intent of the law since Section 196 should not be read in isolation, but in
relation with other provisions of the LGC. As exhaustively discussed by the Court in
Division in its Resolution dated April 4, 2008, it held that:

Section 187 of the Local Government Code dictates the procedure for questioning the
constitutionality or legality of tax ordinances. It provides in part that: 'any question on
the constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice
who shall render a decision within sixty (60) days from the date of the receipt of the
appeal'. It further provides that 'such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the tax, fee or charge levied
therein.

A reading of Section 187 of the Local Government Code would show that the law
intends that questions on the legality or constitutionality of an ordinance or tax measure
be threshed out the soonest possible time. It should be raised within thirty (30) days
from approval and such appeal should be resolved within sixty (60) days from receipt
thereof. Section 187 states that any appeal on the legality or constitutionality of the
ordinance does not suspend its effectivity. Thus, before any final declaration of its
nullity, taxes accrue and should be paid accordingly.

In the same vein, the reckoning periods for the filing of a claim for refund in Section
196 of the Local Government Code should be interpreted so as to accomplish the
evident purpose, viz., the settlement of the rights of the taxpayer vis-a-vis the
government, at the earliest opportunity. The phrase "from the date the taxpayer
becomes entitled to a refund or credit" in Section 196 should not be interpreted to
mean the finality of the decision of a court declaring the tax measure void, even
without a timely claim for refund. Otherwise, claims for refund will be filed even after
several years from payment of the tax due merely because the tax ordinance was
declared void. And the filing of administrative and judicial claims for refund shall be
endless. This interpretation would give the taxpayer, who was not able to question the
legality or constitutionality of the tax measure within the period provided in Section
187, the right to instead file a claim for refund with the court under Section 196, absent
the filing of a timely administrative claim. In effect, the prescriptive periods provided by
law would be rendered naught and meaningless.
This could not have been the intention of lawmakers. A taxpayer who believes that he
has paid a tax imposed under a void ordinance should timely exhaust administrative
remedies before resorting to the filing of a judicial claim or timely question its
constitutionality and legality. Petitioner's failure to file the appropriate administrative
claim for refund for the period December 16, 2000 to September 2002, cannot be
countenanced. More so, since it has been able to file a timely administrative claim for
the 3% business tax it paid covering January 2, 1999 to December 15, 2000. It is
clearly aware of the requirements for the filing of an administrative claim set forth by
law. Its manifest error cannot be cured at this point.

45.
MINDANAO SHOPPING DESTINATION CORPORATION, ACE HARDWARE
PHILS., INC., INTERNATIONAL TOYWORLD, INC., STAR APPLIANCE CENTER,
INC., SURPLUS MARKETING CORPORATION, WATSONS PERSONAL CARE
STORES (PHILS.), INC., AND SUPERVALUE, INC., Petitioners, vs.
HON. RODRIGO R. DUTERTE, IN HIS CAPACITY AS MAYOR OF DAVAO CITY,
HON. SARA DUTERTE, VICE-MAYOR OF DAVAO CITY, IN HER CAPACITY AS
PRESIDING OFFICER OF THE SANGGUNIANG PANLUNGSOD, AND THE
SANGGUNIANG PANLUNGSOD (CITY COUNCIL) NG DAVAO, Respondents.
G.R. No. 211093, June 06, 2017

We have not overlooked the fact that this Court is a court of special jurisdiction and can
only take cognizance of such matters as are clearly within its jurisdiction provided under
Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 11 25 , otherwise known
as the Law Creating the Court of Tax Appeals. Hence, this forum is of the view that it
would be judicious to not rule on the constitutionality, validity, and/or effectivity of the
subject ordinance.

The ruling of the Second Division of this Court in Synovate, Inc. vs. Pasig City, et. al, is
worth mentioning:
XXX
This Court will not be hasty in declaring a tax ordinance invalid or illegal, as it is mindful
of the well-etched dictum by the Supreme Court in People vs. Vera that: "A becoming
modesty of inferior courts demands conscious realization of the position that they
occupy in the interrelation and operation of the integrated judicial system of the
nation." Especially so, the power to determine any question on the legality of tax
ordinances, such as the Pasig Revenue Code of 1992, is not within the province of this
Court, but is primarily lodged on the Secretary of Justice, pursuant to Section 187 of the
LGCof 1991, and under certain conditions, is vested with the courts of general
jurisdiction or the Regional Trial Courts. It must be emphasized that this Court is a court
of special jurisdiction and can only take cognizance of such matters as are clearly within
its jurisdiction.
The Pasig Revenue Code of 1992, including Section 77 (d) thereof, enjoys the
presumption of validity, unless declared otherwise. There being no contrary declaration,
respondent Mayor has the duty, inter alia, to "(e)nsure that all taxes and other
revenues of the city are collected" and "(i)ssue licenses and permits and suspend or
revoke the same for any violation of the conditions upon which said licenses or permits
had been issued, pursuant to law or ordinance".
XXX

Furthermore, emphasis must be given to a well-entrenched rule which states that in this
jurisdiction, an ordinance is presumed to be valid unless declared otherwise by a Court
in an appropriate proceeding where the validity of the ordinance is directly put in issue.

Authority to Grant Tax Exemptions (Sec 192)

46.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC., petitioner, vs.
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as the City
Treasurer of Davao, respondents.
G.R. No. 143867 March 25, 2003

The Tax Code provision withdrawing the tax exemption was not construed as
prohibiting future grants of exemptions from all taxes. The trial court held that, under
these provisions, all exemptions granted to all persons, whether natural and juridical,
including those which in the future might be granted, are withdrawn unless the law
granting the exemption expressly states that the exemption also applies to local taxes.
We disagree. Sec. 137 does not state that it covers future exemptions. In Philippine
Airlines, Inc. v. Edu, where a provision of the Tax Code enacted on June 27, 1968 (R.A.
5431) withdrew the exemption enjoyed by PAL, it was held that a subsequent
amendment of PAL’s franchise, exempting it from all other taxes except that imposed
by its franchise, again entitled PAL to exemption from the date of the enactment of
such amendment. The Tax Code provision withdrawing the tax exemption was not
construed as prohibiting future grants of exemptions from all taxes.

The grant of taxing powers to local government units under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy. Indeed, the grant of taxing powers to local
government units under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a declared national policy.
The legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers, doubts must be resolved
in favor of municipal corporations.
47.
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
G.R. No. 149110 April 9, 2003

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must
be shown to exist clearly and categorically, and supported by clear legal provisions. In
the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395
exempting from, among others, "all income taxes, franchise taxes and realty taxes to
be paid to the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities." However, section 193 of the LGC
withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed
by private and public corporations. Contrary to the contention of petitioner, section 193
of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions
from local taxes.

It is a basic precept of statutory construction that the express mention of one person,
thing, act, or consequence excludes all others as expressed in the familiar maxim
expressio unius est exclusio alterius. Not being a local water district, a cooperative
registered under R.A. No. 6938, or a non-stock and non-profit hospital or educational
institution, petitioner clearly does not belong to the exception. It is therefore incumbent
upon the petitioner to point to some provisions of the LGC that expressly grant it
exemption from local taxes.

It is also worth mentioning that section 192 of the LGC empowers the LGUs, through
ordinances duly approved, to grant tax exemptions, initiatives or reliefs. But in enacting
section 37 of Ordinance No. 165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or other special law," the respondent
city government clearly did not intend to exempt the petitioner from the coverage
thereof.

Surcharges and Penalties (Sec 168)

48.
NATIONAL CORPORATION, PETITIONER. POWER VS. CITY OF CABANATUAN,
REPRESENTED BY ITS CITY MAYOR, HON. HONORATO PEREZ,
RESPONDENTS.
G.R. No. 177332, October 01, 2014

Section 168 of the Local Government Code categorically provides that the local
government unit may impose a surcharge not exceeding 25% of the amount of taxes,
fees, or charges not paid on time.
The surcharge is a civil penalty imposed once for late payment of a tax. Contrast this
with the succeeding provisions on interest, which was imposable at the rate not
exceeding 2% per month of the unpaid taxes until fully paid. The fact that the interest
charge is made proportionate to the period of delay, whereas the surcharge is not,
clearly reveals the legislative intent for the different modes in their application.

Indeed, both the surcharge and interest are imposable upon failure of the taxpayer to
pay the tax on the date fixed in the law for its payment. The surcharge is imposed to
hasten tax payments and to punish for evasion or neglect of duty, while interest is
imposed to compensate the State "for the delay in paying the tax and for the
concomitant use by the taxpayer of funds that rightfully should be in the government's
hands.”

A surcharge regardless of how it is computed is already a deterrent. While it is true that

imposing a higher amount may be a more effective deterrent, it cannot be done in
violation of law and in such a way as to make it confiscatory. We find this reasoning not
compelling for us to deviate from the express provisions of Section 168 of the Local
Government Code. When a law speaks unequivocally, it is not the province of this court
to scan its wisdom or its policy.

This court has steadfastly adhered to the doctrine that its first and fundamental duty is
the application of the law according to its plain terms, interpretation being called for
only when such literal application is impossible. Neither the court nor the City has the
power to modify the penalty.

If the legislative intent was to make the 25% surcharge proportionate to the period of
delay, the law should have provided for the same in clear terms.

Generally, tax statutes are construed strictly against the government and in favor of the
taxpayer. "[Statutes levying taxes or duties [are] not to extend their provisions beyond
the clear import of the language used"; and "tax burdens are not to be imposed, nor
presumed to be imposed beyond what the statute[s] expressly and clearly
[import]. . . ." Similarly, we cannot impose a penalty for non-payment of a tax greater
than what the law provides. To do so would amount to a deprivation of property
without due process of law.