ATTRIBUTES OF THE STATE

REAGAN v. COMMISSIONER OF INTERNAL REVENUE

December 27, 1969 L-26379 FERNANDO, J.

Relevant Provisions/Concepts/Doctrines

*Relate to Art.1, and Art. 2, sec 1 of 1987 Constitution.

Extent Philippine Territory and personal jurisdiction – The Philippines is an independent and
sovereign state, it’s authority may be exercised over its entire domain. No portion thereof is beyond its
power. Within its limits, its decrees are supreme, its commands paramount. Its laws govern therein, and
everyone to whom it applies must submit to its terms.

Sovereignty as Auto-limitation (Also a Consti outline topic p.11)

- Any state may by its consent, express or implied, submit to a restriction of its sovereign rights.
- The property of a state-force due to which it has the exclusive capacity of legal self-
determination and self-restriction. (Jellinek)

Art. 12, Military Bases Agreement of 1947, - exemption clause from income tax – a national of the US
serving in or employed in the PH in connection with the construction, maintenance, operation or defense of
the bases and residing in the Philippines only by reason of such employment unless derived from
Philippine sources or other sources than the US sources”

FACTS
• Petitioner William C. Reagan is a US citizen and a civilian employee of Bendix Radio, Division of
Bendix Aviation Corporation. The corporation provides technical assistance to the US Airforce,
where petitioner is assigned to at the Clark Air Base.
• Petitioner was assessed by the respondent Commissioner of Internal Revenue of income tax on
an amount realized by him on a sale of his automobile to a member of the US Marine Corps.
• The transaction took place at the Clark Field Air Base at Pampanga. He sold it to Willie
Johnson, Jr, a Private of the US Marine Corps in Cavite, for P66,000. It was also sold on the same
day to Fred Meneses for P32,000.
• Before he was able to transact, he asked the Base Commander of Clark Air Base for a permit to
sell. It was granted provided that the sale br made to a member of the US Armed Force or a US
Citizen employed in the US Military bases in the PH.
• He was taxed by respondent for the amount of P2,979. (Taxable price was originally at P17,912,
but CIR deducted first the landed cost of the car as well as the personal exemption to which
petitioner was entitled).
• Petitioner initially paid the sum but sought a refund insisting that the sale, in legal
contemplation, was made outside the Philippine Territory (Clark Air Base) and therefore
beyond our jurisdictional power to tax.
• Petitioner filed a case with the Court of Tax Appeals to recover the tax paid plus interest.
• CTA: Denied refund to the payment of income tax. Found nothing objectionable in the
assessment of respondent.

ISSUE

Is petitioner exempt from paying income tax arising from the transaction of selling his car at the
Clark Air Base?
 RULING

No. The Court held that the petitioner is not exempt from paying income tax since the Clark Air Base is under
Philippine territory. That there is no provision in the Military Bases Agreement of 1947 that lends support to
such assertion that the Clark Air Base is of foreign territory. The jurisdictional rights of the Philippines have
been preserved.

Sovereignty – supreme power to affect legal interests either by legislative, executive or judicial action.
Lodged in the people, but is normally exercised by state agencies.

Element of State: Territory

The Court stated in its decision the extent of the country’s territorial and personal jurisdiction.
“The Philippines is an independent and sovereign state, it’s authority may be exercised over its
entire domain. No portion thereof is beyond its power. Within its limits, its decrees are supreme, its
commands paramount. Its laws govern therein, and everyone to whom it applies must submit to its terms.
That is the extent of its jurisdiction, both territorial and personal.”

Sovereignty as auto-limitation (another syllabus topic p.11)

The state may by its consent, express or implied, submit to a restriction of its sovereign rights.
Sovereignty as auto-limitation is the property of a state-force due to which it has the exclusive capacity of
legal self-determination and self-restriction. (Jellinek)

A state may choose to refrain from the exercise of what otherwise is illimitable competence.

Therefore, the US military bases are still part of Philippine territory. The reason why the Philippine
government could cede part of its authority over these bases to the US is the fact that they are part of the
Philippine territory over which the government exercises sovereign control.

Petitioner’s contention
Petitioner’s contention mainly relied on an obiter dictum from Justice Tuason in the case of Saura Import v
Meer. Justice Tuason: "While in army bases or installations within the Philippines those goods were in
contemplation of law on foreign soil."

Other relevant foreign jurisprudence:

Schooner v. McFaddon
“The jurisdiction of the nation within its own territory is necessarily exclusive and absolute. It is susceptible
of no limitation not imposed by itself. Any restriction upon it, deriving validity from an external source,
would imply a diminution of its sovereignty to the extent of the restriction, and an investment of that
sovereignty to the same extent in that power which could impose such restriction.”

Brown v. Duchesne
“The decision affirmed the fundamental principle of everyone within the territorial domain of a state being
subject to its commands”

WHEREFORE, the decision of the CTA of May 12, 1966 denying the refund of P2,979.00 as the income tax
paid by petitioner is affirmed. With costs against petitioner.