Progressive Development Corporation, petitioner, vs.

Quezon City, respondent.

G.R. No. 36081 April 24, 1989

Ponente: Feliciano, J.
Nature of the case: Petition to review the decision of the CFI of Rizal, Br. 18, Quezon City
Doctrine: License fee is a legal concept distinguishable from tax: the former is imposed in the exercise of
police power primarily for purposes of regulation, while the latter is imposed under the taxing power
primarily for purposes of raising revenues. If the generating of revenue is the primary purpose and
regulation is merely incidental, the imposition is a tax. If regulation is the primary purpose, the fact that
incidentally revenue is also obtained does not make the imposition a tax.

FACTS

The City Council of Quezon City passed an ordinance known as the Market Code of Quezon City, which
imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in the
City. In case of failure of the owners of the market spaces to pay the tax for 3 consecutive months, the City
shall revoke the permit of the privately-owned market to operate.

Progressive Development Corporation, owner and operator of a public market known as the "Farmers
Market & Shopping Center", filed a Petition for Prohibition with Preliminary Injunction against respondent
on the ground that the supervision fee or license tax imposed by the ordinance is in reality a tax on income
which it may not impose, the same being expressly prohibited by RA 2264, as amended. The petitioner
insists that the "supervision fee" collected from rentals, being a return from capital invested in the
construction of the Farmers Market, practically operates as a tax on income, one of those expressly
excepted from respondent's taxing authority, and thus beyond the latter's competence.

CFI of Rizal

The CFI of Rizal dismissed the petition, ruling that the questioned imposition is not a tax on income, but
rather a privilege tax or license fee which local governments, like respondent, are empowered to impose
and collect.

ISSUE

Whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax

HELD
No. License fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police
power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for
purposes of raising revenues. If the generating of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax. If regulation is the primary purpose, the fact that incidentally revenue is
also obtained does not make the imposition a tax.

To be considered a license fee, the imposition questioned must relate to an occupation or activity that so
engages the public interest in health, morals, safety and development as to require regulation for the
protection and promotion of such public interest. The imposition must also bear a reasonable relation to
the probable expenses of inspection, supervision or regulation, taking into account not only the costs of
direct regulation but also its incidental consequences. Such cost may be, as provided for by the Legislature,
at the expense of the persons engaged in the said occupation or activity. It may also be provided that no
one shall engage in the same until a fee or charge sufficient to cover such cost has been paid. Accordingly,
a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held
to be a tax rather than an exercise of the police power.

In the case at bar, the "Farmers' Market and Shopping Center" being a public market in the sense of
a market being open to and inviting the patronage of the general public even though privately
owned, It is required that the petitioner's operation thereof be issued a license issued by the
respondent in the exercise of the latter’s police power. Its operation is equivalent to or quite the
same as the operation of a government-owned market as both are established for the rendition of
service to the general public which warrants close supervision and control by the City for the
protection of the health of the public by insuring the maintenance of sanitary and hygienic
conditions in the market and compliance of all food stuffs sold therein with applicable food and
drug and related standards, among others. As such, the 5% tax imposed in the ordinance is a license
fee for the regulation of the business in which the petitioner is engaged.

While it is true that the amount imposed by the questioned ordinances may be considered in determining
whether the exaction is really one for revenue or prohibition, it will be presumed to be reasonable. Local
governments are allowed wide discretion in determining the rates of imposable license fees even in cases of
purely police power measures in the absence of proof as to particular municipal conditions and the nature
of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates. The question of reasonableness though is open to judicial
inquiry should be left to the discretion of municipal authorities. Courts will go slow in writing off an
ordinance as unreasonable unless the amount is so excessive as to be prohibitory, arbitrary, unreasonable,
oppressive, or confiscatory.

In the case at bar, petitioner has not shown that the rate of the gross receipts tax is so unreasonably large
and excessive and so grossly disproportionate. The use of the gross amount of stall rentals as basis for
determining the collectible amount of license tax, does not by itself, convert or render the license tax into a
prohibited city tax on income. Moreover, it must be noted that the higher the amount of stall rentals means
the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned
market. As such, greater should be the extent and frequency of inspection and supervision that may be
reasonably required in the interest of the buying public.

Decision of the CFI of Rizal was AFFIRMED.

Petition was DENIED for lack of merit.