TAXATION defined as

STATE POWER (an inherent powers of the state: Police power, Taxa!on power, power of eminent
domain)

LEGISLATIVE PROCESS (a process of levying taxes by legislature; senate and house of

representa!ves)

MODE OF GOVERNMENT COST DISTRIBUTION (allocates its costs to its subjects who are
benefited by its spending)

THEORY OF TAXATION – government necessity for funding.

BASIS OF TAXATION – mutuality of support.

- Receipt of benefits is conclusively presumed.

THEORY OF COST ALLOCATION

Benefit Received Theory – the more benefit one receives from the government, the more taxes
he should pay.

Ability to pay theory – taxpayers should be required to contribute based on their rela!ve
capacity to sacrifice for the support of the government.

Lifeblood Doctrine – taxes are essen!al and indispensable to the con!nued subsistence of the
government.

IMPLICATIONS:

1. Tax is imposed even in the absence of a cons!tu!onal grant.

2. Claim for tax exemp!ons are construed against taxpayers.
3. The government reserves the right to choose the objects of taxa!on.
4. The courts are not allowed to interfere with the collec!on of taxes.
5. a. Income received in advance is taxable upon receipt.
b. Deduc!on for capital expenditures and prepayments is not allowed as it effec!vely defers the
collec!on of income tax.
c. A lower amount of deduc!on is preferred when claimable expense is subject to limit.
d. A higher tax base is preferred when the tax is subject to mul!ple tax base.

INHERENT LIMITATIONS OF TAXATION

TERRITORIALITY OF TAXATION

INTERNATIONAL COMITY

PUBLIC PURPOSE

EXEMPTION OF THE GOVERNMENT

NON-DELEGATION OF TAXING POWER

CONSTITUTIONAL LIMITATIONS

a. Observance of due process of law (substan!ve and procedural due process)

b. Equal protec!on of law
c. Uniformity rule of taxa!on
d. Progressive system of taxa!on
e. Non- imprisonment for non-payment of debt or poll tax
f. Non-impairment of obliga!on and contract
g. Free worship rule – proper!es and revenues of religious ins!tu!ons such as !thes or offerings
are not subject to tax. This exemp!on, however, does not extend to income from proper!es or
ac!vi!es of religious ins!tu!ons that are proprietary or commercial in nature.
h. Exemp!on of religious, charitable, or educa!onal en!!es, non-profit cemeteries, churches,
mosques, lands, buildings, and improvements from property taxes.
DOCTRINE OF USE: proper!es actually, directly and exclusively used.
i. Non-appropria!on of public funds or property for the benefit of any church, sect or system of
religion.
j. Exemp!on from taxes of the revenues and assets of non-profit, non-stock educa!onal
ins!tu!ons including grants, endowments, dona!ons or contribu!ons for educa!onal purposes.
- This exemp!on applies only on revenues and assets that are actually, directly and exclusively
devoted for educa!onal purposes.
- It exempts government educa!onal ins!tu!ons from Income tax and subjects private
educa!onal ins!tu!ons to a minimal 10% Income tax.
k. Concurrence of a majority of all members of congress for the passage of law gran!ng tax
exemp!ons.
l. Non-diversifica!on of tax collec!ons
m. Non-delega!on of the power of taxa!on
n. Non-impairment of the jurisdic!on of the supreme court to review tax cases.
o. Appropria!ons, revenue, or tariff bills shall originate exclusively in the House of Representa!ves
but senate may propose or concur with amendments.
p. Each local government unit shall exercise the power to create its own sources of revenue and
shall have a just share in the Na!onal taxes.

STAGES OF THE EXERCISE OF TAXATION POWER

Levy or Imposi!on: enactment of tax law by Congress (Impact of taxa!on or Legisla!ve Act)

Assessment and collec!on: implemented by the administra!ve branch of the government

(Incidence of taxa!on)

SITUS OF TAXATION – place of taxa!on.

1. Business tax – where the business is conducted.

2. Services – where they are rendered.
3. Sales of goods – place of sale
4. Property tax – loca!on of proper!es.
 5. Personal tax – place of residence.

Other fundamental doctrines in taxa!on

1. Marshall Doctrine – “Power to tax involves the power to destroy.”

2. Holmes Doctrine “Taxa!on power is not the power to destroy while the court sits.”
3. Prospec!vity of tax laws
4. Non-compensa!on or set offs
5. Non- assignment of taxes
6. Imprescrip!bility in taxa!on
7. Doctrine of estoppel
8. Judicial Interference
9. Strict Construc!on of laws “taxa!on is the rule, exemp!on is the excep!on.”

Double taxa!on – same taxpayer is taxed twice by the same tax jurisdic!on for the same thing.

ESCAPES FROM TAXATION

a. Tax evasion (tax dodging) – illegally reduce or avoid the payment of tax. Undue understatement
of income and overstatement of expenses.
b. Tax avoidance (tax minimiza!on) – legally permissible means: careful planning.
c. Tax exemp!ons granted by the cons!tu!on, law, or contract.

Does not result to loss of government revenue

a. SHIFTING – transferring of tax burden to other taxpayers. (forward shiKing, backward shiKing,
onward shiKing)
b. CAPITALIZATION: adjustment of the value of asset
c. TRANSFORMATION: elimina!on of wastes.

TAX AMNESTY vs. TAX CONDONATION

- General pardon of past obliga!ons - forgiveness of tax obliga!on

- Civil and criminal liabili!es - civil liabili!es
- Retrospec!ve - prospec!ve
- With payment - no payment