01 Digests - Local Taxation

DRILON (Sec. of Justice) v. LIM (City Mayor of MNL) ..................................... 23

CONTENTS

Figuerres v. ca ........................................................................................................ 24

Philippine Petroleum Corp. v. Municipality of Pililla, Rizal (represented by Mayor Nicomedes Patenia) [1991] ........................................................................ 2

Province of misamis oriental v cagayan ............................................................. 25 manila electrIc company v province of laguna ................................................... 25

MCIAA v. Marcos ..................................................................................................... 3

pldt v city of davao ................................................................................................. 26

NPC VS. CITY OF CABANATUAN [2003] ........................................................... 4

palma development v municipality of malangas ................................................ 27

City of San Pablo vs. Reyes [1999] ....................................................................... 5

PLDT v Province of Laguna .................................................................................. 28

Iloilo Bottlers Inc. vs City of Iloilo ........................................................................... 6

SMART Communications v City of Davao .......................................................... 29

Pepsi-Cola Bottling Co. v. City of Butuan ............................................................. 7

NPC v Province of Isabela .................................................................................... 30

CITY OF BAGUIO vs. DE LEON ........................................................................... 8

PBA v CA................................................................................................................. 32

ASSOCIATION OF CUSTOMS BROKERS, INC and MANLAPIT v. MUNICIPAL BOARD OF MANILA ......................................................................... 8

Luz Yamane v BA Lepanto ................................................................................... 32

Ormoc Sugar Company v Ormoc City................................................................... 9

Petron vs Mayor TIangco ...................................................................................... 34

Gaston v. Republic Planters Bank ....................................................................... 10

Manila Trading & Supply Co. v City of Manila.................................................... 35

Progressive Development Corporation vs. Quezon City .................................. 10

Central Azucarera Don Pedro v City of Manila .................................................. 36

Ancheta v Sison (1984) ......................................................................................... 11

Caltex Philippines v City of Manila ...................................................................... 37

Matalin v. Mun. Council of Malabang (1986) ..................................................... 12

Manila City v Manila Remnant.............................................................................. 37

14 Villanueva v. City of Iloilo................................................................................. 13

PHILIPPINE MATCH CO., LTD.
vs.
THE CITY OF CEBU ............................ 38

Ericsson Telecommunications, Inc v. City of Pasig .......................................... 14

Jesus Estanislao vs. Amado Costales ................................................................ 39

Ormoc Sugar Company v. Municipal Board of Ormoc ..................................... 15

Mobil Philippines vs City Treasurer of Makati .................................................... 39

HON. RAMON D. BAGATSING vs. HON. PEDRO A. RAMIREZ ....... 15

Hongkong & Shanghai Banking Corporation v. Rafferty .................................. 40

Asiatic Integrated v. Alikpala ................................................................................. 16

Serfino v. CA ........................................................................................................... 40

Pepsi-Cola Bottling Company of the Philippines v. Municipality of Tanuan, Leyte, The Municipal Mayor, etc. ......................................................................... 18

Estate of late mercedes v. CA .............................................................................. 41 MERALCO v BARLIS ............................................................................................ 42

People vs Nazario .................................................................................................. 19

LOPEZ v. City of Manila ........................................................................................ 43

First Philippine Industrial Corp vs. CA (1998) .................................................... 20 LTO v. Butuan - missing ........................................................................................ 21 MIAA v. Court of Appeals ...................................................................................... 22 1

ISSUE before SC: WON PPC whose oil products are subject to specific tax under a National Law is still liable to be pay local business taxes and fees. (Business taxes – yes, but prescriptive period; storage fees – no; Mayor’s Fees - yes).

PHILIPPINE PETROLEUM CORP. V. MUNICIPALI TY OF PILILLA, RIZAL (REPRESENTED BY MAYOR NICOMEDES PATENIA) [1991] FACTS

SIDE ISSUE: Mayor’s permit fees were waived by the Mayor.

(1) Philippine Petroluem Corp (PPC) a. Private corporation b. Manufactures lubricated oil base stock which is a petroleum product c. Refinery and storage tanks based in Pililla, Rizal (2) National Laws and SOF Circulars governing taxation of petroleum products a. P.D. 231 (Local Tax Code, June 28 1973): Section 19(a) “Municipality may impose taxes on business, EXCEPT on those for which fixed taxes are provided, as follows: (a) Manufacturers, importers, or producers of any article of commerce of whatever kind or nature including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits, or wines in accordance with the schedule listed therein..” b. SOF Provincial Circular No. 26-73 (December 1973) and SOF Circular No 26A-73: orders all City Treasurers to refrain from collecting local taxes imposed in tax ordinances before or after the effectivity of the Local Tax Code on business of manufacturers, wholesalers, retailers, dealers of petroleum products subject to specific tax… c. P.D. 426 (April 1974) was passed amending portions of P.D. 231 BUT RETAINING Section 19(a) with adjusted rates. d. SOF Provincial Circular 6-77 (March 1977). Ordering municipalities to refrain from collecting storage fees on petroleum products. e. P.D. 1158 (June 1977). Specific tax imposed on manufactured mineral oils and motor fuels. (3) Local Ordinances a. Tax Ordinance 1-S1974 (Pililla Tax Code) imposing business taxes on all businesses except for those on which fixed taxes are provided, as well as mayor’s permit, sanitary inspection fee, and storage permit for flammable or combustible substances. (4) From 1974 to 1986, the municipality of Pililla did not collect taxes or fees. (5) ACTION: In 1986, Pililla filed the present civil action against PPC to collect the following: a. Business Taxes from 1979 to 1986 b. Storage Permit Fees from 1975 to 1986 c. Mayor’s and Sanitary Inspection Fees from 1975 to 1984. d. Side issue: Mayor’s permit fees were waived by the Mayor.

SC: RE Business Taxes (1) P.D. 426 which amended P.D. 231 but which did not expressly provided an exemption for BUSINESSES in the petroleum industry is deemed to have repealed all prior SOF Circulars. (2) An administrative regulation must be in harmony with provisions of law. In case of discrepancy, the law prevails over the administrative regulation. (3) A tax on business is different from a tax on the article or product. While a fixed tax is provided on the petroleum products itself, this does not prevent local government units from imposing taxes on the business. (4) Power of LGUs to tax is ordained in Article X, Section 5 of the 1987 Constitution. Only Congress may provide guidelines and limitations on such power, and in this case, P.D. 231 as amended expressly provides LGUs the power to tax businesses. (5) HOWEVER: Local Tax Code does not provide the prescriptive period of local taxes so Article 1143 of Civil Code applies. Action upon obligation created by law prescribes within 10 years from time right of action accrues. In this case, action filed 1986 so can only collect business taxes from 1976 to 1986. RE storage fees (1) According to the ordinance, the fee being imposed is a fee for installation and keeping in storage flammable, combustible, or explosive materials. As such it is a service fee, and since PPC owns and maintains its own tanks, it is not subject to storage fee. RE mayor’s permit fees (1) Imposition of Mayor’s permit fee is provided for in the Pililla Tax Code AND it does not provide authority to the Mayor to unilaterally withdraw the requirement to pay such fees. (2) Waiver provided by the Mayor is a form of exemption. Exemptions from taxation are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. (3) Only the legislative has the power to grant exemptions and not the executive like the mayor.

PPC Defense (1) SOF Circulars prohibited the imposition of taxes and fees on manufacturers of petroleum products. (2) P.D. 1158 imposed a fixed tax on petroleum products which places manufacturers of such under the exception provided for in P.D. 231.

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MCIAA V. MARCOS

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DOCTRINE The power to tax is primarily vested in the Congress; however, in our jurisdictions, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Sec 5, Article X of the Consti. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. The LGC, enacted pursuant to Sec 3, Article X of the Consti, provides for the exercise by LGUs of their power to tax, the scope thereof or its limitations, and the exemptions from taxation. Sec 133 of the LGC prescribes the common limitations on the taxing powers of LGUs.

ISSUE #1. WHETHER MCIAA CAN INVOKE SEC 133 LGC PAR (O) TO CLAIM TAX EXEMPTION. NO. 

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including GOCCs, Sec 193 of the LGC prescribes the general rule: they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC.  The latter proviso could refer to Sec 234 which enumerates the properties exempt from RPT. But the last par. of Sec 234 further qualifies the retention of the exemption insofar as RPTs are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Even as to real property owned by the RP or any of its political subdivisions covered by item (a) of the first par. of Sec 234, the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for consideration or otherwise.  Since the last par. of Sec 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of RPTs granted to natural or juridical persons, including GOCCs, except as provided in the said Sec, and the petitioner is, undoubtedly, a GOCC., it necessarily follows that its exemption from such tax granted it in Sec 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Sec 234, but not under Sec 133, as it now asserts, since, as shown above, the said Sec is qualified by Secs 232 and 234. congress removed the phrase “and any gocc so exempt by its charter”

FACTS   

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MCIAA enjoyed the privilege of exemption from payment of realty taxes [Sec 14 of RA 6958] Oct 11, 1994, the City Treasurer demanded payment for realty taxes on several parcels of land belonging to the petitioner located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City [P2,229,078.79] Petitioner invoked: o Sec 14 of RA 6958 which exempts it from payment of realty taxes. o it is an instrumentality of the gov’t performing governmental functions (LGC 133) As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, petitioner o Paid under protest o Filed a Petition for Declaratory Relief before the RTC RTC: LGC 1991 revoked the tax exemption of MCIAA.

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MCIAA 

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While it may be true that under its Charter the petitioner was exempt from the payment of realty taxes, this exemption was withdrawn by Sec 234 of the LGC. MCIAA is a FOCC, and Sec 234 thereof does not distinguish between GOCCs performing governmental and purely proprietary functions.

Although it is a GOCC, it is mandated to perform functions in the same category as an instrumentality of Gov’t. An instrumentality of Gov’t is one created to perform governmental functions primarily to promote certain aspects of the economic life of the people. Considering its task "not merely to operate the Airport, but more importantly, to carry out the Gov’t policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism," and that it is an attached agency of the DOTC, the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the Nat’l gov’t." Its tax exemption privilege under Sec 14 of its Charter "cannot be considered withdrawn by the LGC of 1991 because Sec 133 thereof specifically states that the 'taxing powers of LGUs shall not extend to the levy of taxes or fees or charges of any kind on the Nat’l gov’t, its agencies and instrumentalities.'" Being an instrumentality of the Nat’l Gov’t, City of Cebu has no power nor authority to impose realty taxes.

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CITY OF CEBU

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The old law includes “any GOCC so exempt by its charter” [Sec 40(a) of P.D. No. 464 -RPT Code] But it was deleted in LGC. The justification for this restricted exemption is to limit further tax exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges in Sec 193 and the special provision on withdrawal of exemption from payment of RPTs in the last par. of Sec 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of nat’l goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of LGUs for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. The original reasons for the withdrawal of tax exemption privileges granted to GOCCs and all other units of gov’t were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises,

(c) Usage exemptions. Exempted from RPTs on the basis of the actual, direct and exclusive use to which they are devoted are: a. all lands, buildings and improvements which are actually directly and exclusively used for religious, charitable or educational purposes; b. all machineries and equipment actually, directly and exclusively used by local water districts or by GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power; and c. all machinery and equipment used for pollution control and environmental protection. EXEMPTION FROM PAYMENT OF TAX MAY BE WITHDRAWN AT THE PLEASURE OF THE TAXING AUTHORITY; EXCEPTION.

and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. ISSUE #2: WHETHER THE PETITIONER IS A "TAXABLE PERSON." NO. 

The petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the payment of RPTs. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except RPT.  Even if the petitioner was originally not a taxable person for purposes of RPT, it had already become, even if it be conceded to be an "agency" or "instrumentality" of the Gov’t, a taxable person for such purpose in view of the withdrawal in the last par. of Sec 234 of exemptions from the payment of RPTs.  Reliance on Basco vs. PAGCOR is unavailing since it was decided before the effectivity of the LGC. Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Gov’t performing governmental functions may be subject to tax. Petition DENIED. RTC AFFIRMED.

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GR: Since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority.  E: where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment claim of the Consti. RP AS DISTINGUISHED FROM NAT’L GOV’T. 

OTHER NOTES AGENCY AS DISTINGUISHED FROM INSTRUMENTALITY.  

"Agency" of the Gov’t refers to "any of the various units of the Gov’t, including a department, bureau, office, instrumentality, or GOCC, or a local gov’t or a distinct unit "Instrumentality" - "any agency of the Nat’l Gov’t, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually, through a charter. This term includes regulatory agencies, chartered institutions and GOCCs."

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RP is broader and synonymous with "Gov’t of the RP" which the Admin Code of 1987 defines as the "corporate governmental entity through which the functions of gov’t are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous regions, or LGYs. "Nat’l Gov’t" refers "to the entire machinery of the central gov’t, as distinguished from the different forms of local gov’t." It is composed of the three great departments: the executive, the legislative and the judicial.

NPC VS. CITY OF CABA NATUAN [2003]

RPT EXEMPTIONS FACTS:

(a) Ownership Exemptions. Exemptions from RPTs on the basis of ownership are real properties owned by: a. the Republic, b. a province, c. a city, d. a municipality, e. a barangay, and f. registered cooperatives. (b) Character Exemptions. a. charitable institutions, b. houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and c. non-profit or religious cemeteries.

National Power Corporation, a GOCC was assessed by the City of Cabanatuan for franchise tax pursuant to sec. 37 of Ordinance No. 165-92. NPC refused to pay the tax assessment on the grounds that the City of Cabanatuan has no authority to impose tax on government entities and also that it is exempted as a non-profit organization. For its part, the City government alleged that NPC’s exemption from local taxes has been repealed by sec. 193 of RA 7160. ISSUE: WON NPC IS LIABLE TO PAY AN ANNUAL FRANCHISE TAX TO THE CITY GOVERNMENT. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and

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Act No. 36481 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo. Escudero's franchise was transferred to MERALCO under RA 2340. PD 5512 was enacted exempting it from municipal taxes. RA 71603 (LGC) then took effect. Then the Sangguniang Panglunsod enacted Ordinance No. 56 (Revenue Code of the City of San Pablo)4 which imposes franchise tax on Meralco. The City Treasurer sent a letter demanding payment of franchise tax. Meralco paid "under protest" a total amount of P1,857,711.67. Meralco filed this action before the RTC to declare the ordinance null and void and to claim for a refund of the taxes paid. The latter decided in favor of Meralco. The city appealed directly to the SC.

instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. Hence, a corporation need not pay franchise tax from the time it ceased to do business and exercise its franchise. It is within this context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) That petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) That it is exercising its rights or privileges under this franchise within the territory of the city government.

ISSUE: WON THE CITY MAY IMPOSE A LOCAL FRANCHISE TAX PURSUANT TO THE LGC? (YES) Implied repeal— Sec. 534 (f)5, the repealing clause of the LGC partakes of the nature of a general repealing clause. Nonetheless, there’s an implied repeal by LGC of the MERALCO

NPC fulfills both requisites. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code. SC also did not find merit in the petitioner's contention that its tax exemptions under its charter subsist despite the passage of the LGC. 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." It is 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.

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. . . In consideration of the franchise and rights hereby granted, the grantee shall pay unto the municipal treasury of each municipality in which it is supplying electric current to the public under this franchise, a tax equal to two percentum of the gross earnings from electric current sold or supplied under this franchise in each said municipality. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind nature or description levied, established or collected by any authority whatsoever, municipal, provincial or insular, now or in the future, on its poles, wires, insulator, switches, transformers, and structures, installations, conductors, and accessories placed in and over and under all public property, including public streets and highways, provincial roads, bridges and public squares, and on its franchise, rights. privileges, receipts, revenues and profits from which taxes the grantee is hereby expressly exempted. 2

Sec. 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchise to generate, distribute and sell electric current for light, heat and power shall be two percent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current. Such franchise tax shall be payable to the Commissioner of Internal Revenue of his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current.

CITY OF SAN PABLO VS . REYES [1999] G.R. No. 127708. March 25, 1999 | 3rd Div. | Gonzaga-Reyes, J. FACTS:

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LGC authorizes the province/city to impose a tax on business enjoying a franchise at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year realized within its jurisdiction. 4

Sec. 2.09. Franchise Tax — There is hereby imposed a tax on business enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the cross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within the city.

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franchise insofar as the latter imposes a 2% tax "in lieu of all taxes and assessments of whatever nature”. The city correctly rely on the provisions of Sections 1376 and 193 7 of the LGC to support their position that MERALCO`s tax exemption has been withdrawn. The explicit language of Section 137 which authorizes the province to impose franchise tax "notwithstanding any exemption granted by any law or other special law" is allencompassing and clear. The franchise tax is imposable despite any exemption enjoyed under special laws. Sec. 193 buttresses the withdrawal of extant tax exemption privileges. By stating that unless otherwise provided in this Code, tax exemptions or incentives granted to or presently enjoyed by all persons whether natural or juridical, including governmentowned or controlled corporations except 1) local water districts, 2) cooperatives duly registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. 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 untus est exclusio alterius. Legislative purpose—

franchise imposed of the Internal Revenue Code, as the charter is in the nature of a private contract and the exemption is part of the inducement for the acceptance of the franchise, and that the imposition of another franchise tax by the local authority would constitute an impairment of contract between the government and the corporation. But these "magic words" contained in the phrase "shall be in lieu of all taxes'' have to give way to the peremptory language of the LGC specifically providing for the withdrawal of such exemption privileges. Power to tax— The power to tax is primarily vested in Congress. However, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution8. The important legal effect of Section 5 is that henceforth, in interpreting statutory provision on municipal fiscal powers, doubts will have to resolved in favor of municipal corporations. Constitutional Background— There is further basis for the conclusion that the non-impairment of contract clause cannot be invoked to uphold Meralco's exemption from the local tax. Escudero Electric Co. was originally given the legislative franchise under Act. 3648 to operate an electric light and power system in the City of San Pablo and nearby municipalities. The term of the franchise under Act. No. 3648 is a period of fifty years from the Act's approval in 1929. The said law provided that the franchise is granted upon the condition that it shall be subject to amendment, or repeal by the Congress of the United States. Under the 1935, the 1973, and the 1987 Constitutions, no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration or repeal by the National Assembly when the public interest so requires. With or without the reservation clause, franchises are subject to alterations through a reasonable exercise of the police power; they are also subject to alteration by the power to tax, which like police power cannot be contracted away. Future taxes— Whereas the original Escudero franchise exempted the franchise holder from all taxes levied or collected "now or in the future" this phrase is noticeably omitted in the counterpart provision of P.D. 551; that said omission is intended not to foreclose future taxes may reasonably be deduced by statutory construction.

Reading together Sections 137 and 193 of the LGC, we conclude that under the LGC the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoy under existing law or charter is clearly manifested by the language used in Sections 137 end 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. Meaning of in lieu of all taxes— It is true that the phrase "in lieu of all taxes" found in special franchises has been held in several cases to exempt the franchise holder from payment of tax on its corporate

ILOILO BOTTLERS INC. VS CITY OF ILOILO

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Sec. 534 (f) — Repealing Clause — All general and special law, acts, city charters, decrees, executive orders, proclamation and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this code are hereby repealed or modified accordingly.

FACTS Plaintiff Iloilo Bottlers Inc. is engaged in the business of bottling soft drinks (Pepsi Cola and 7-Up.) It has its bottling plant in Barrio Ungca, Municipality of Pavia, Iloilo, which is outside the jurisdiction of defendant, City of Iloilo. Previously, the plant was in

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Sec. 137 — Franchise Tax — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business enjoying a franchise, at a rate not exceeding fifty percent 50% of one percent 1% of the gross annual receipts for the preceding calendar year based on the incoming receipts, or realized, within its territorial jurisdiction. . . . 7

Sec. 193 — Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non- stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

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Sec. 5 — Each Local Government unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments.

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Muelle Loney St., Iloilo City, during which time the municipal license fees were still being paid by the former owner (Santiago Syjuco Inc.), followed by herein plaintiff. When the plant was transferred to Pavia, Iloilo Bottlers stopped paying the fees because (1) its principal business is bottling of softdrinks, to which selling is merely incidental, and (2) only bottlers with plants inside the territorial jurisdiction of the city are covered by the ordinance.

The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. (2) Sales transactions are entered into and perfected at stores/warehouses maintained by the company, with these stores/warehouses serving as selling centers. Entities adopting this marketing system are thus engaged in the separate business of selling. Iloilo Bottlers Inc. thus falls under this category.

However, defendant still demanded from the plaintiff payment of its back taxes from the time its plant was transferred, on the basis of Ordinance No. 45. The said ordinance orders those engaged in the distribution, manufacture or bottling of soft drinks within the territorial jurisdiction of the City of Iloilo to pay a municipal license tax of P0.10 for every 24 bottles, or a P0.015 per case of 24 bottles (for softdrinks sold to the public at not more than P0.05).

PEPSI-COLA BOTTLING CO. V. CITY OF BUTUA N Sourced from Internet Concepcion G.R. No. L-22814, August 28, 1968 RATIO DECIDENDI The uniformity required under the Constitution is not absolute uniformity. It only requires that people belonging to the same class be taxed uniformly. For classification to be valid, the following must concur: (1) it is based upon substantial distinctions; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies to present conditions and future ones substantially identical to those of the present; and (4) the classification applies equally to those belonging to the same class. FACTS: Pepsi-Cola Bottling Co. of the Philippines (Pepsi-Cola) has a storage facility in the City of Butuan for its soft drinks manufactured in Cebu. Products from this facility are sold to consumers in the said city. The City of Butuan (Butuan) enacted Ordinance No. 110, which imposed a tax on dealers engaged in selling soft drinks or carbonated drinks. Ordinance No. 110 was later amended by Ordinance No. 122. Consequently, the tax was now imposed on any agent and/or consignee of any person, association, partnership, company, or corporation engaged in selling x x x soft drinks or carbonated drinks. According to the Court, this obviously pertains to a situation wherein an outside dealer taps a local agent and/or consignee to sell his products in said agent’s and/or consignee’s locality. Since Pepsi-Cola has a storage facility in the city receiving soft drinks from Cebu, and since said facility sells the same carbonated beverages to the people of the city, it was assessed the tax imposed by Ordinance 110, as amended by Ordinance 122 (Ordinance 110, as amended). Pepsi-Cola paid under protest. Pepsi-Cola brought the matter of recovering the amounts paid before the lower court. It dismissed the complaint, hence this appeal. ISSUE: W/N the tax imposed by Ordinance 110, as amended, violates the uniformity requirement. HELD: YES, Ordinance 110, as amended, unfairly singles out agents and/or consignees of outside dealers.

Plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which its products are distributed. Instead, a fleet of delivery trucks is used to distribute its products from its plant to the different parts of Iloilo. ISSUE: w/n Iloilo Bottlers Inc. is liable for a municipal tax license under Iloilo City tax Ordinance No. 5 HELD: YES, Iloilo Bottlers Inc. is liable for said tax RATIO: The tax imposed under Ordinance No. 5 is an EXCISE TAX, a tax on the privilege of distributing, manufacturing, or bottling soft drinks. It can only be levied by the taxing authority when the acts, privileges or businesses are done WITHIN the jurisdiction of the said authority. In this case, the situs of the act of distributing, bottling or manufacturing soft.drinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. Since sales were made by the plaintiff in Iloilo City, by virtue of the marketing system it adopted (explained below), then it can be lawfully taxed by Iloilo City under Ordinance No. 5. The Court ruled that plaintiff's delivery trucks were not used solely for the purpose of delivering soft drinks previously sold at Pavia (the plant site). The delivery trucks themselves served as selling units or "rolling stores," wherein route salesmen perfected and consummated sales transactions. Plaintiff is thus engaged in the separate business of selling or distributing soft drinks, independently of its business of bottling them. It must be noted that there are two types of marketing systems or sales operations which determine whether or not the entity is engaged in the separate business of selling:

The Constitution (what is being referred to here is the 1935 Constitution) provides: “The rule of taxation shall be uniform and equitable. x x x” (See also par. 1, Sec. 28, Art. VI, 1987 Constitution) Ordinance 110, as amended, defines what it means by “agent” or “consignee,” to wit: “any person, association, partnership, company, or corporation who acts in the place of another x x x or one entrusted with the business

(1) Manufacturer enters into sales transactions and invoices at its main office and the orders are thereafter delivered. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office.

7

• Are the contentions of the defendant-appellant tenable?

of another or to whom is consigned or shipped x x x cases of hard liquor[s] or soft drinks every month for resale, either retail or wholesale.” For classification to be valid, the following must concur: (1) it is based upon substantial distinctions; (2) these are germane to the purpose of the legislation or ordinance; (3) the classification applies to present conditions and future ones substantially identical to those of the present; and (4) the classification applies equally to those belonging to the same class. The ordinance exempts local dealers not acting for or in behalf of outside merchants from paying the tax it imposes. It only applies to local dealers acting for or in behalf of outside merchants. Butuan did not offer any explanation as to why a distinction between the two was made. If the purpose of the tax measure was merely to create a new revenue source by levying tax upon the sale of soft drinks, there is no reason for favoring one over the other. WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so ordered.

HELD: • No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code empowering the City Council not only to impose a license fee but to levy a tax for purposes of revenue, thus the ordinance cannot be considered ultra vires for there is more than ample statury authority for the enactment thereof. • Second, an argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city, so that where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. • And third, violation of uniformity is out of place it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof.

ASSOCIATION OF CUSTO MS BROKERS, INC AND MANLAPIT V. MUNICIPAL BOARD OF MANILA

CITY OF BAGUIO VS. D E LEON

Topic: local taxation – fundamental principles

25 SCRA 938 GR No. L-24756, October 31, 1968

Facts: -

In 1950, the Association of Customs Brokers (composed of all brokers and public service operators of motor vehicles in Manila) and Manlapit, an operator-member of said association filed a petition for declaratory relief challenging the validity of Manila City Ordinance No. 3379: o While the ordinance levies a so-called property tax, it is in reality a license tax beyond the power of the Municipal Board o The ordinance is offensive against the rule of uniformity of taxation o The levy constitutes double taxation City Fiscal o Ordinance imposes a property tax within the power of the City of Manila under its Revised Charter (RA 409, se. 18(p))  The municipal board has the power “to tax motor and other vehicles operating within the City of Manila, the provisions of any existing law to the contrary notwithstanding.” o No violation of other 2 grounds CFI: petition dismissed; ordinance is valid Issue(s):

"There is no double taxation where one tax is imposed by the state and the other is imposed by the city." FACTS: • The City of Baguio passed an ordinance imposing a license fee on any person, entity or corporation doing business in the City. • The ordinance sourced its authority from RA No. 329, thereby amending the city charter empowering it to fix the license fee and regulate businesses, trades and occupations as may be established or practiced in the City. • De Leon was assessed for P50 annual fee it being shown that he was engaged in property rental and deriving income therefrom. • The latter assailed the validity of the ordinance arguing that it is ultra vires for there is no statury authority which expressly grants the City of Baguio to levy such tax, and that there it imposed double taxation, and violates the requirement of uniformity.

w/n Ordinance No. 3379 is valid SC Ratio:

ISSUE:

No, it is invalid for levying an excise tax which is not within the scope of the City’s powers and for violating the rule on uniformity.

8

Under section 70(b) of the Motor Vehicles Law (Act No. 3392): “No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. . .” This provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes, such that only property taxes may be imposed on motor vehicles operating within its territorial jurisdiction. Sec. 1 of Ordinance No. 3379 denominates the tax imposed as ad valorem (meaning tax proportional to value of the property) and while as a rule an ad valorem tax is a property tax, such rule is not absolute. Rather, the character of the tax (property v. excise) must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. Excise taxes are those imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation. The purpose of the ordinance is to raise funds for the repair, maintenance and improvement of the streets and bridges in said city, something which the Motor Vehicles Law already addresses. The prohibition under sec. 70(b) is meant to prevent municipal corporations from duplicating the levy since under sec. 73 of the same act, they already participate in the distribution of the proceeds collected under the Motor Vehicles Law. “It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to.”

o o o

ISSUE: w/n Ordinance 4 is valid by reason of: Export Tax? Yes Equal Protection? No HELD: Ordinance is unconstitutional RATIO: Doctrine: -Constitution does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where (1) it is based on substantial distinctions which make real differences; (2) these are germane to the purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are substantially identical to those of the present; (4) the classification applies only to those who belong to the same class. Export Tax Issue Though referred to as a "production tax", the imposition actually amoun ts to a tax on the export of centrifugal sugar produced at Ormoc Suga r Company, Inc. For production of sugar alone is not taxable; only time the tax applies is when the sugar produced is exported. HOWEVER, while Section 2287 of the Revised Administrative Code which denies from municipal councils the power to impose an ex port tax. Section 2 of Republic Act 2264, effective June 19, 1959, g ave chartered cities, municipalities and municipal districts authority to levy for public purposes just and uniform taxes, licenses or fees. Anent the inconsistency between Section 2287 of the Revised Admini strative Code and Section 2 of Republic Act 2264, this Court has alread y ruled that that the former to have been repealed by the latter

Moreover, the ordinance violates the rule of uniformity since “[i]t does not distinguish between a motor vehicle hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees”.

Equal Protection Clause Constitution does not bar a reasonable classification of the subject of legislat ion, and a classification is reasonable where (1) it is based on substant ial distinctions which make real differences; (2) these are germane to t he purpose of the law; (3) the classification applies not only to present conditions but also to future conditions which are substantially identical t o those of the present; (4) the classification applies only to those who belong to the same class. Here, the requisite was not met, considering: o it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. o Ormoc Sugar Company, Inc.was the only sugar central in the city of

ORMOC SUGAR COMPANY V ORMOC CITY FACTS -

-

on clause (Sec. 1[1], Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1], Art. VI, Constitution), export tax forbidden under Section 2287 of the Revised Administrati ve Code tax amounts to a customs duty, fee or charge in violation of paragra ph 1 of Section 2 of Republic Act 2264 because the tax is on both t he sale and export of sugar.

The Municipal Board of Ormoc passed Ordinance 4stating: o imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal t ax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries." Payments for said tax were made, under protest, by Ormoc Sugar Co mpany, Inc. o ordinance is unconstitutional for being violative of the equal protecti

9

-



Ormoc. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, fr om the coverage of the tax. As it is now, even if later a similar company is se t up, it cannot be subject to the tax because the ordinance expressly points o nly to Ormoc Sugar Company, Inc. as the entity to be levied upon.

The court characterized the stabilization funds as follows: the stabilization fees collected are in the nature of tax, which is within the power of the state to impose for the promotion of the sugar industry. The tax collected is not a pure exercise of the taxing powers of the state. It was also levied with a regulatory purpose, to provide the means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the state.  Relating this to the syllabus topic: SC said that the stabilization fund, having been levied for a special purpose, the revenues collected are to be treated as a special fund to be administered in trust for the purpose intended (stabilization). Once the purpose has been fulfilled or abandoned, the balance is to be transferred to the general funds of the government. Just because the fees were collected from the sugar planters does not mean the fund belongs to them. To rule in their favour is to contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons.

GASTON V. REPUBLIC P LANTERS BANK J. Melencio-Herrera Syllabus Topic: Prohibition on use of tax levied for special purpose: all money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance if any shall be transferred to the general funds of the government (Sec. 29, Art. VI, Constitution) Facts: Republic Planters Bank is a commercial banking corporation. Philippine Sugar Commission (Philsucom) is the government agency tasked with regulating the sugar industry, which was eventually abolished in favour of the Sugar Regulatory Administration (SRA). Petitioners are sugar producers who filed a writ of mandamus asking that that respondent bank be privatized and that shares of stock held by Philsucom in the bank be distributed to petitioners. Petitioners’ argument is based on Sec. 7 of PD 388 which created Philsucom. According to petitioners, Sec. 7 creates a Stabilization Fund, and that this stabilization fund is to be administered in trust by Philsucom in favour of petitioners. Respondents argue that the stabilization fees resulting from Sec. 7 are government funds under that Government Auditing Code. Issue: WON the stabilization fees collected from sugar planters and millers pursuant to Sec. 7 are funds in trust for them, or public funds? (Public Funds) WON the stocks of Philsucom in respondent bank belongs to Philsucom or petitioners? (Philsucom) Held:  Re formation of implied trust: there is no implied trust. While an element of intent to create a trust is present, a resulting trust did not happen because the intention of the parties was not reasonably ascertainable from the language of the statute itself.  Petitioner also invoked the history of respondent bank. Bank used to have difficulties in funding, so they had funds infused from a certain Benedicto group. Petitioners argued that the funds were placed in stocks just because it was convenient for the Benedicto group. The court held that this was not supported by the circumstances, because the agreement to support this was not ratified or approved by Philscuom.  Tax issue! The court approves of the COA’s opinion on the situation, i.eie, that the stabilization fees are charges/levies on sugar produced and milled which accrued to Philsucom.

PROGRESSIVE DEVELOPMENT CORPORATION VS. QUEZON CITY GR 36081, 24 April 1989 Third Division, Feliciano (J): 4 concur Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. Progressive Development Corp., owned and operator of Farmer’s Market and Shopping Center, filed a petition for prohibition against the city on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose. Issue: Whether the supervision fee / license tax is a tax on income. NO. Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax (distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged. To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulations for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental

10

c.

consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due to the city to cover the latter’s administrative expenses. The use of the gross amount of stall rentals, as basis for the determination of the collectible amount of license tax, does not by itself convert or render the license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in the privately owned market; and the higher the volume of goods sold in such market, the greater extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public

3. 4. 5.

ANCHETA V SISON (198 4) 6.

July 25, 1984 | Fernando, CJ FACTS: 

This is a suit for declaratory relief or prohibition assailing Section I of BP 135,the provision amends Section 21 of the NIRC of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, xxxx



Petitioner as taxpayer alleges "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers o section is arbitrary amounting to class legislation, oppressive and capricious in character; a transgression of both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation

7.

ISSUE: WoN Section I of BP 135 is unconstitutional (NO) / WoN the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is unconstitutional (NO) HELD: petition dismissed

8.

Justice Frankfurter: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen: 'The power to tax is not the power to destroy while this Court sits." So it is in the Philippines. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. Petitioner alleges arbitrariness. A mere allegation, as here, does not suffice. There must be a factual foundation of such unconstitutional taint. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. For equal protection, it suffices that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. a. Justice Frankfurter: The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." b. Classification if rational in character is allowable. According to the Constitution: "The rule of taxation shag be uniform and equitable." a. Requirement is met according to Philippine Trust Company v. Yatco when the tax "operates with the same force and effect in every place where the subject may be found. " b. Justice Tuason: where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." What misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. a.

RATIO: 1. It is manifest that the field of state activity has assumed a much wider scope. Hence, the need for more revenues. 2. The power to tax, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of government." a. The power to tax is not unconfined. The Constitution sets forth such limits. b. Adversely affecting as it does property rights, both the due process and equal protection clauses may properly be invoked. Otherwise, there would be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy."

b.

c.

d.

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There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. The gross income taxation embodied in BP 135, the discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the

costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. CONCLUSION: There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.

3.

ABAD SANTOS, J., This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumstance does not necessarily result in lower tax payments for those receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.

4. 5.

MATALIN V. MUN. COUN CIL OF MALABANG (198 6) Yap, J. 6.

Petitioner: Matalin Coconut Co. Inc. Respondents: The Municipal Council of Malabang, Lanao Del Sur, Amir M. Balindong and Hadji Pangilamun Manalocon, Municipal Mayor and Municipal Treasurer Of Malabang, Lanao Del Sur

7.

Concept: Power to tax vis-à-vis police power

ISSUES:

Brief Facts: Municipal Council of Malabang imposed a Police Inspection Fee. Matalin claimed that the ordinance should be declared void for being unjust and confiscatory. Doctrine: The grant of power to tax is sufficiently plenary to cover "everything, excepting those which are mentioned", subject only to the limitation that the tax so levied is for public purposes, just and uniform.”

1. 2.

2.

WON TC may order tax refund in an action for declaratory relief (YES) WON Ordinance No. 45-66 is valid (NO)

RATIO: 1.YES. Under Sec. 6 of Rule 64, the action for declaratory relief may be converted into an ordinary action and the parties allowed to file such pleadings as may be necessary or proper, if before the final termination of the case "a breach or violation of an... ordinance, should take place."

FACTS: 1.

which shall be paid by the shipper before the same is transported or shipped outside the municipality b. imposed a fine of not less than P100.00, but not more than P1,000.00, and to pay P1.00 for every sack of flour being illegally shipped outside the municipality, or to suffer imprisonment of 20 days, or both, in the discretion of the court. Matalin Coconut Inc challenges the validity of the ordinance alleging that the ordinance is not only ultra vires, being violative of Republic Act No. 2264, but also unreasonable, oppressive and confiscatory. Matalin claimed for a refund and prayed for a preliminary injunction pending the resolution of the case. Application for prelim. Injunction was denied. The municipal treasurer was ordered to allow payment of taxes under protest. Purakan plantation (intervener), alleged that while its cassava flour factory was situated in another municipality ( Balabagan, Lanao del Sur), it had to transport the cassava starch and flour it produced to the seashore through the Malabang for loading in coastwise vessels. Due to the ordinance, it had to refrain from transporting its products through the Malabang in order to ship them by sea to other places. TC: declared the ordinance null and void. Mun. Treasurer ordered to refund the petitioners. Mun. Council of Malabang maintain that it was erroneous for the TC to order refund in an action for declaratory relief and contend that the municipality has the power and authority to approve the ordinance in question pursuant to Section 2 of the Local Autonomy Act (RA No. 2264).

08/24/1966: Municipal Council of Malabang, Lanao del Sur, invoking the authority of Section 2 of RA No. 2264, otherwise known as the Local Autonomy Act, enacted Municipal Ordinance No. 45-46, entitled "An Ordinance Imposing A Police Inspection Fee Of P.30 Per Sack Of Cassava Starch Produced And Shipped out of the Municipality of Malabang and Imposing Penalties for Violations Thereof." The ordinance: a. made it unlawful for any person, company or group of persons "to ship out of the Municipality of Malabang, cassava starch or flour without paying to the Municipal Treasurer or his authorized representatives the corresponding fee imposed a "police inspection fee" of P.30 per sack of cassava starch or flour,

2. NO. The tax imposed is unjust and unreasonable. It has been shown that Matalin was merely realizing a marginal profit of P.40 per bag of cassava flour. To impose P0.30 tax per bag would force Matalin to close down or stop its cassava flour starch milling business considering that it is maintaining a big labor force in its operation, including a force of security guards to guard its properties.

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Since the enactment of the Local Autonomy Act, a liberal rule has been followed by this Court in construing municipal ordinances enacted pursuant to the taxing power granted under Section 2 of said law. This Court has construed the grant of power to tax under the above-mentioned provision as sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject only to the limitation that the tax so levied is for public purposes, just and uniform.

taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. The CFI declared the ordinance illegal, saying that (a) RA 2264 does not empower cities to impose apartment taxes, (b) the same is oppressive and unreasonable, for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.

SC agreed with the finding of the trial court that the amount collected under the ordinance in question partakes of the nature of a tax, although denominated as "police inspection fee" since its undeniable purpose is to raise revenue. However, TC is incorrect in holding that the tax imposed is percentage tax hence municipalities are prohibited to impose such. The tax imposed under the ordinance in question is not a percentage tax on sales or any other form of tax based on sales. It is a fixed tax of P.30 per bag of cassava starch or flour "shipped out" of the municipality. It is not based on sales. Regardless WON it’s a percentage tax or not, it may still be stricken down for being "unjust and unreasonable. According to Section 2 of the Local Autonomy Act, the tax levied must be "for public purposes, just and uniform".

ISSUES 1. Is the City empowered by the Local Autonomy Act to impose tenement taxes? YES. 2. Is Ordinance 11 illegal because it imposes double taxation? NO. 3. Is Ordinance 11 oppressive and unreasonable because it carries a penal clause? NO. 4. Does Ordinance 11 violate the rule of uniformity of taxation? NO. HELD: The judgment is reversed, and, the ordinance in question being valid, the complaint is hereby dismissed.

DISPOSITIVE: Petition Dismissed 1. Sec. 2 of the Local Autonomy Act confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.

VILLANUEVA V. CITY OF ILOILO Castro | Dec. 28, 1968 | En banc Facts: The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees on certain tenement houses. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. The SC, in a prior case, had declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter."

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2? For this purpose, it is necessary to determine the true nature of the tax. It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax imposed by the ordinance in question does not possess the aforestated attributes. Clearly, therefore, the tax in question is not a real estate tax.

Later, the municipal board, believing that with the passage of RA 2264, the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared as ultra vires, enacted Ordinance 11. By virtue of the ordinance, the City collected from sums from the tenement owners.

2. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the NIRC as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with

The plaintiffs filed a complaint against the City in the CFI praying that Ordinance 11 be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of

13

respect to the same occupation, calling or activity by both the State and a political subdivision thereof.

1. 2.

3. The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or nonpayment of a poll tax." It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition." Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. Therefore, the tax in question is not oppressive in the manner the lower court puts it.

3.

Ericsson Telecommunications, Inc. is a corporation with principal office in Pasig. Ericsson was assessed by the Treasurer of Pasig a business tax deficiency based on its gross revenues as reported in its audited financial statements. Ericsson filed a protest claiming that the computation of local business tax should be based on gross receipts and not on gross revenue.

Issue/Held: Whether the local business tax on contractors should be based on gross receipts or gross revenues? On gross receipts. Ratio: Respondent is authorized to levy business taxes under Section 143 in relation to Section 151 of the LGC. Insofar as petitioner is concerned, the applicable provision is subsection (e), Section 143 of the same Code covering contractors and other independent contractors, to wit: SEC. 143. Tax on Business. — The municipality may impose taxes on the following businesses: xxx xxx xxx (e) On contractors and other independent contractors, in accordance with the following schedule: With gross receipts for the Amount of Tax preceding calendar year in Per Annum the amount of: The above provision specifically refers to gross receipts which is defined under Section 131 of the LGC, as follows: xxx xxx xxx (n) "Gross Sales or Receipts" include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and the deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value-added tax (VAT); xxx xxx xxx The law is clear. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received. In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually or constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's

4. This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxes are not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished.

ERICSSON TELECOMMUNICATIONS, INC V. CITY OF PAS IG 22 November 2007 Austria-Martinez, J. Doctrine: Respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported in its audited financial statements, as Section 143 of the LGC and Section 22 (e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive. In contrast, gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles sold, exchanged or leased, the payment of which is yet to be received.

Facts:

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In a number of decisions starting from City of Bacolod v. Gruet1 to Hodges v. Municipal Board2 decided early this year, such broad taxing authority has been implemented and vitalized by this Court.

right to receive the income, and the amount can be determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income. The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation — taxing of the same person twice by the same jurisdiction for the same thing — inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid.

The last mentioned-case, Hodges v. Municipal Board restated the controlling doctrine in this wise: No special difficulty attends the resolution of the main issue. Heretofore, we have announced the doctrine that the grant of the power to tax to chartered cities under Section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject only to the limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining Company vs. Municipality of Roxas, Province of Palawan, G.R. No. L-20125, July 20, 1965). There is no showing, and we do not believe it is possible to show, that the tax levied, called by any name, — percentage tax or sales tax — comes under any of the specific exceptions listed in section 2 of the Local Autonomy Act. Not being excepted, it must be regarded as coming within the purview of the general rule. As the maxim goes, "Exceptio firmat regulam in casibus non exceptis." Since its public purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained as valid.1äwphï1.ñët

ORMOC SUGAR COMPANY V. MUNICIPAL BOARD OF ORMOC Nota Bene: This is the whole case. Appeal from a decision of the Court of First Instance of Leyte, Fifth Branch, in a declaratory relief proceeding to test the validity of a Municipal Ordinance of the City of Ormoc, which as amended reads as follows: SECTION 1. City Tax. — There shall be paid to the City Treasurer on any and all productions of centrifugal sugar (B-Sugar locally sold or sold within the Philippines a city tax of Twenty Centavos (P0.20) per picul and one percentum (1%) on the gross sale of its derivatives and by-products produced by the Ormoc Sugar Company, Incorporated, or by any other sugar mills [sic] in Ormoc City.

In the light of the above, it cannot be said that the ordinance suffers from a constitutional or statutory infirmity as claimed in the first alleged error. Nor is petitioner-appellant any more successful in its claim in the second assigned error that the ordinance suffers from the taint of illegality, it being in restraint of trade. In the absence of a clear and specific showing that there was a transgression of a constitutional provision or repugnancy to a controlling statute, an objection of such a generalized character deserves but scant sympathy from this Court. Considering the indubitable policy expressly set forth in the Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid.

The above amendatory ordinance was enacted on October 28, 1964 and took effect immediately after approval. The lower court sustained its validity in its decision of January 28, 1965. The appeal must fail and the decision of the lower court affirmed. The question before this Court is one of power. From and after June 19, 1959, when the Local Autonomy Act was enacted, the sphere of autonomy of a chartered city in the enactment of taxing measures has been considerably enlarged. In the language of the statute:

HON. RAMON D. BAGATSING VS.

SECTION 2. Taxation. — Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising, privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees: Provided, That municipalities and municipal districts shall, in no case impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code x x x . .

HON.

PEDRO

A.

RAMIREZ

G.R. No. L-41631. December 17, 1976 Facts Municipal Board of Manila enacted Ordinance 7522 which regulated markets and prescribed fees for rentals of stalls Private Respondent Federation of Manila Market Vendors sought to declare the ordinance void for (1) failing to meet the publication requirement, (2) failing to allow the Market Committee to participate in its enactment, violating Art. 3 of the Anti-Graft and Corrupt Practices Act, and (4) the ordinance violated PD No. 7 which already imposed fees and charges on livestock and animal products Lower Court: petition was granted; the court declared ordinance null, for failing to follow rules on publication. Petitioners moved for reconsideration arguing that (1) only a post-publication is required by the Local Tax Code and (2) respondent failed to exhaust all administrative remedies.

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Issue/Holding/Ratio Whether or not the tax ordinance was properly published? YES, the petition is impressed with merit.

WON the ordinance should be nullified for failing to allow the Market Committee to participate in its enactment?

While the Revised Charter of the City of Manila requires publication before the enactment of the ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the Local Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government.

No, the function of the committee is purely recommendatory. Its prior acquiescence is not a condition sine qua non to enactment.

WON the market stall fees are being given to a certain Asiatic Integrated Corporation for its exclusive private use under a “Management and Operating Contract”? No, the entrusting of the collection of fees does not destroy the public purpose. It does not matter whether the agency through which the money is dispensed is public or private.

There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a general law.

ASI ATIC I NTEGRATED V . ALI KPALA

[IMPORTANT] HOWEVER, where a special statute refers to a subject in general, while a general state treats a subject in particular, the general statute should prevail.

September 15, 1975 Barredo, J.

In this case, although the Revised Charter of the City of Manila is dominant as to ordinances in general, it is inferior when it approaches the realm of “ordinances levying or imposing taxes, fees or other charges” in particular. This is where the Local Tax Code controls.

FACTS: R.A. 6039 amended the Charter of the City of Manila to create the Market Committee. The Market Committee had the following functions: to “formulate, recommend and adopt, subject to the ratification of the municipal board, and approval of the mayor, policies and rules or regulation repealing or amending existing provisions of the market code as amended X X X.”

Thus, only a post-publication is required, which was accomplished in this case. There is no rule which prohibits repeal by implication. A charter provision may be impliedly modified or superseded by a later statute. A chartered city is not an independent sovereignty. A charter must yield to the constitution and general laws of the state.

Upon the recommendation of the Market Committee, the City of Manila entered into a “Management and Operating Contract” with Asiatic Integrated Corporation (Asiatic) for the conduct, management, operation, development and maintenance of the City public markets and talipapas for a period of ten (10) years. Among other terms and conditions, the contract provided that Asiatic would “appropriate a yearly amount of not less than thirty (30%) per cent of the gross income of the public markets and talipapas for the fiscal year 1971-1972 to answer for the maintenance and repair, reconstruction, development and rehabilitation of the public markets and talipapas and proof of such appropriation and minimum expenditure must be submitted to the [City of Manila, represented by then Mayor Bagatsing] or his duly authorize representative or representatives.” The 30% of gross income of public markets constituted a “sinking fund” mandated by R.A. 6039, to be “used to amortize or to finance the construction of new markets, to remodel or replace old market building, the purchase of privately-owned building utilized as public markets, and purchase of new market sites and the construction of market building and facilities thereof.”

WON respondent failed to exhaust all administrative remedies? It is unnecessary, as the controversy is deeply rooted in a pure question of law. Exhaustion is not an absolute rule. It admits of exception when the question is purely legal, and when there is no plain, speedy, and adequate remedy. WON the subject ordinance is a “revenue-raising function” and not a tax ordinance, which would make the procedure for publication inapplicable? Precisely, the raising of revenues is the principal object of taxation. Art. X, Sec. of the Constitution: “Each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be provided by law.”

Additionally, the contract provided that Asiatic would be “entitled to the annual gross income from the City public markets and talipapas in excess of Php 500,000.00 for the first year thereof,” with an increasing scale per year ending in Php 950,000.00 by Year Ten. A group of 12 out of 20 councilors, all members of the Municipal Board, signed a resolution supporting this measure.

Local Tax Code: “Local governments may collect fees for the occupancy or use of the public markets and premises” Feeble to argue that the ordinance violates PD 7 because the decree prescribes the collection of other fees “with the exception of ante-mortem and post-mortem inspection fees, as well as the delivery, stockyard, and slaughter fees…”

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(Note: The events following occurred after the petition for certiorari was filed before the SC and the issues were joined. This note will be clarified in the Issues portion.)

2) WON ) the Mayor of Manila had power to execute the contract Petitioners: The Municipal Board issued a resolution signed by 3/5 of the Board expressing concurrence with the contract with Asiatic.

Then-President Marcos sent a memorandum to then Mayor Bagatsing, enumerating several requirements that must be met. President Marcos would later issue Presidential Decree No. 345, authorizing the reversion of the 30% sinking fund to the general fund of the City of Manila. Pursuant to these, the contract with Asiatic was amended to accommodate these changes. On the other hand, the Municipal Board of Manila passed a Ordinance No. 7451 authorizing Mayor Bagatsing “to lease vacant, unused and unencumbered patrimonial properties, or other leasable patrimonial properties to reputable and highly qualified persons, firms or corporations.” Pursuant to these later developments, the contract with Asiatic was amended accordingly, extending the lease period to 25 years and restructuring the profit-sharing scheme as follows: P500,000.00 for the first year, and additional sum of P50,000.00 such that in the progression of this yearly increase, the City of Manila shall be receiving the sum of P1,700,000.00 on the 25th year .

Respondents: They Mayor’s act was never supported by any Municipal Board resolution. The purported resolution does not exist, as certified by the Assistant Secretary of the Board.

Furthermore, Mayor Bagatsing was authorized by the Market Committee, which under R.A. 6039 had sufficient power to confer authority to the Mayor, even over any authority that the Municipal Board may have. 3) WON it is violative of Republic Act No. 37 nationalizing public markets and of the existing civil service laws, rules and regulations

The contract was assailed by groups of vendors and employees of public markets, on the following grounds: (1) the Management and Operating Contract, involving as it does public markets, is ultra vires or beyond the authority of the City to enter into; (2) the Mayor of Manila had no power to execute the same and bind the City without the corresponding authority given in an ordinance duly approved by the Municipal Board; (3) it is violative of Republic Act No. 37 nationalizing public markets and of the existing civil service laws, rules and regulations; and (4) it is grossly disadvantageous to the City.

Petitioners: The contract is one for management and operation, not an award of stalls. Asiatic’s role is limited to collecting stall fees and performing maintenance, rehabilitation and repair of market facilities and structures.

Respondents: Contention is that the contract awards public market stalls to Asiatic, which violates the preference in the law to award stalls to Filipino citizens. Furthermore, the contract violates the rules and regulations on civil service on security of tenure of public market employees.

The Manila RTC, under Judge Alikpala, found for the petitioners in the original case (respondents here, along with Judge Alikpala himself) and ruled that the contract was invalid, hence this petition.

4) WON the contract is grossly disadvantageous to the city

ISSUES: Procedural – WON petitioners in the original case had standing

Petitioners: The 30% reserved amount and the annual amounts that Asiatic is required to remit to the city government of Maila constitutes income for Manila.

1) WON the Management and Operating Contract, involving as it does public markets, is ultra vires or beyond the authority of the City to enter into Petitioners: Public markets may be leased as part of the corporate functions of a municipal corporation, as the operation of a public market is not a governmental function; in fact the Charter of the City of Manila authorizes the Municipal Board to “prohibit or permit the establishment or operation within the city limits of public markets ... by any person, entity, association or corporation other than the city.”

Respondents: The City stands to lose as much as P3M from the income that would be paid to Asiatic instead of directly benefitting the constituents of Manila.

HELD: On the procedural aspect: The Court ruled that the contract, as interpreted, meant that the vendors and employees continued to be employees of the city government and not of Asiatic, and that their rights would not be prejudiced by the contract. Hence the original petitioners, respondents in this case, had NO STANDING. Still, the Court proceeded to rule on the substantial aspects of the case.

Respondents: Public markets are for public use, hence are not patrimonial property and thus cannot be the subject of lease.

On the substantive arguments: The Court saw it fit to take into account several factual events that occurred after the issues had been joined. (In the Facts above, it pertains to the narrative beginning with the memorandum of President Marcos to Mayor Bagatsing.)

Judge Alikpala, in his assailed ruling, applied by analogy the rule on the lease of public wharves, which is prohibited.

1) The Court finds for the petitioners. Aside from the arguments of the petitioners above, the Court noted that the contract provides for a continuation of the employment of public market employees, with no grant of power to Asiatic to have

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any input or control over their status as employees. Since they remain employees of the city government, it cannot be argued that the contract is invalid.

Last note: This case was decided well before the 1991 LGC. Under the LGC, Sec. 130 (c), “the collection of local taxes, fees, charges and other impositions shall in no case be left to any private person.” Under today’s law, such a contract may be void for violating the LGC, since under the contract it would be Asiatic who would collect stall rentals and fees then afterwards remit a balance to the city government.

2) The Court again finds for the petitioners. The Court ruled, first, that the Municipal Board resolution concurring with the contract is tantamount to ratification of the acts of the Mayor in entering into the contract. On the allegations that the Resolution did not exist, the court noted that a certified true copy of the Resolution was submitted and formed part of the records of the case, and that at no time were the signatures appearing ever assailed as forgeries. As to the certification of the Assistant secretary to the Board, the Court noted that there was no showing that the person issuing the certification was the same officer who should have had proper custody of the resolution.

PEPSI-COLA BOTTLING COMPANY OF THE PHILI PPINES V. MUNICIPALITY OF TANU AN, LEYTE, THE MUNIC IPAL MAYOR, ETC. [February 27, 1976, Martin, J] Doctrine: A tax on a product based on volume produced is neither a percentage (or sales) tax nor a specific tax, both of which local governments generally may not impose. The tax is levied on the produce, not on the sales. Local governments may impose a tax on Philippine products which are not exported.

Aside from the arguments of the petitioners above, the Court noted that on the basis of a memorandum sent by President Marcos, a supplementary contract was signed embodying substantially the conditions provided in the memorandum. Later, President Marcos, who also possessed legislative powers at the time, passed P.D. 345 removing the need to create the 30% sinking fund. Being an act of legislature, the P.D. virtually legalizes the contract entered into by Mayor Bagatsing, even if it had been otherwise ultra vires. With Marcos having prior knowledge of the contract, it cannot be argued that the P.D. refers only generally to the sinking fund, and not the contract itself. In fact the P.D. explicitly mentions the removal of the sinking fund precisely because Asiatic would be bearing the cost of maintenance, repair and rehabilitation. As further support, the Municipal board passed Ordinance No. 7451, which the Court interpreted as a virtual ratification of the contract with Asiatic, since it covered “any leasable property” of the City, which logically includes public markets. When the contract was amended pursuant to Ordinance 7451 and such amendment was made known to the Municipal board, no attempt was made to reject or repudiate the contract.

Facts: -

-

3) The Court once again finds for the petitioners. Aside from the arguments above, the Court noted that given the petitioners were determined to be employees of the city government, the contract does not violate any rule or regulation with regards to security of tenure, as Asiatic would have no say in their status as city employees.

On February 14, 1963, Pepsi-Cola Bottling Company of the Philippine challenged the constitutionality of RA 2264 (Local Autonomy Act) as well as two ordinances by the Municipality of Tanuan, Leyte via a complaint with preliminary injunction. Parties entered into a stipulation of facts. Municipal Ordinance (MO) No. 23 - levies and collects from soft drinks producers and manufactures a tax of 1/16 of a centavo for every bottle of soft drinks corked. Municipal Ordinance (MO) No. 27 - levies and collects on soft drinks produced or manufactured within the territorial jurisdiction a tax of one centavo on each gallon of volume capacity. Both taxes denominated as “municipal production tax.” CFI Leyte declared the law and both ordinances constitutional. Court of Appeals elevated case to SC because pure questions of law.

Issue #1 – WON RA 2264 constitutional. Yes. Power to tax may be delegated. New constitution (1973 because this case was filed in 1963 but decided in 1976) even explicitly provides the taxing powers of local governments.

4) Finally, the Court finds for the petitioners once more. Aside from the arguments raised by the petitioners, the court noted that the Municipal Board noted the benefits of the contract to the city in its resolution, and later in its Ordinance. First, in the resolution, the Board stated that the contract placed the cost burden of rehabilitation and repair on Asiatic, which admittedly the City of Manila could not shoulder at the time. This reality and the clear advantage of having Asiatic take on the expenses of rehabilitating Manila’s public markets was reiterated in Ordinance 7451. Finally, in P.D. 345, President Marcos noted that because Asiatic had taken on the cost burden of rehabilitation, the 30% sinking fund could then be returned to the general fund of the City, and reappropriated to other urgent public works projects.

Double taxation not prohibited by constitution. In any case, only strict double taxation may be prohibited as violations of the constitutional guarantees of due process and equal protection if the tax is harsh or oppressive. Issue #2 – WON MO 23 and 27 constitute double taxation. No.

DISPOSITIVE PORTION: Petition is GRANTED, assailed decision is SET ASIDE and the contract is deemed LEGAL and BINDING.

MO 27 was legislated as an implied repeal of MO 23. When the Municipal council observed that Pepsi could avoid tax by increasing the volume contents of the bottle

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(remember: MO 23 taxed per bottle corked), it enacted MO 27 and now based the tax on volume capacity. This conclusion is supported by the admissions of the lawyers of the Municipality in their briefs.

covered by said municipal ordinances; and finally that the accused should not be taxed as fishpond operator because there is no fishpond yet being operated by him, considering that the supposed fishpond was under construction during the period covered by the taxes sought to be collected. Finally, the defendant claims that the ordinance in question is ultra vires as it is outside of the power of the municipal council of Pagbilao, Quezon, to enact; and that the defendant claims that the ordinance in question is ambiguous and uncertain. Trial court: Guilty, sentenced him to pay a fine of P50.00, with subsidiary imprisonment in case of insolvency Issues:

Issue #3 (Relevant, in Mamalateo's reviewer) – WON MO 27 imposes a percentage or a specific tax. No. MO 27 does not partake the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sale. The volume capacity of the taxpayer's production of soft-drinks is considered solely for the purposes of determining the tax rate on the products, but there is no set ratio between volume of sales and the amount of the tax.

1.) W/N the ordinances were null and void for being ambiguous and uncertain. NO. 2.) W/N the ordinances in question were unconstitutional for being ex post facto. NO. Ratio:

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches, firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified.

Insofar as pertinent to this appeal, the salient portions thereof are quoted: Section 1. Any owner or manager of fishponds in places within the territorial limits of Pagbilao, Quezon, shall pay a municipal tax in the amount of P3.00 per hectare of fishpond on part thereof per annum. xxx xxx xxx Sec. 1(a). For the convenience of those who have or owners or managers of fishponds within the territorial limits of this municipality, the date of payment of municipal tax relative thereto, shall begin after the lapse of three (3) years starting from the date said fishpond is approved by the Bureau of Fisheries. xxx xxx xxx Section 1. Any owner or manager of fishponds in places within the territorial limits of Pagbilao shall pay a municipal tax in the amount of P3.00 per hectare or any fraction thereof per annum beginning and taking effect from the year 1964, if the fishpond started operating before the year 1964.

The MOs are also not unjust and unfair, or oppressive, unjust, and confiscatory. Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. Mamalateo notes: Local governments may not tax Philippine products which are exported (except as provided by LGC). Soft-drinks are not exported so it may be taxed by local governments.

PEOPLE VS NAZARIO Sarmiento, J.Facts: Eusebio Nazario was charged with violation of certain municipal ordinances of the municipal council of Pagbilao, in Quezon province. In the years 1964, 1965 and 1966, he was the operator of a fishpond situated in the barrio of Pinagbayanan and he failed to pay the municipal taxes in the total amount of P362.62. He admints having committed the acts charged but would claim that the ordinances are unconstitutional, or, assuming their constitutionality, that they do not apply to him in any event. Prosection: The accused, as lessee or operator of a fishpond in the municipality of Pagbilao, refused, and still refuses, to pay the municipal taxes for the years 1964, 1965 and 1966, in violation of Municipal Ordinance No. 4, series of 1955. Defense: The taxes sought to be collected have already lapsed and that there is no law empowering municipalities to pass ordinances taxing fishpond operators. Furthermore, as lessee of a forest land to be converted into a fishpond, he is not

The ordinance is not ambiguous and uncertain. As a rule, a statute or act may be said to be vague when it lacks comprehensible standards that men "of common intelligence must necessarily guess at its meaning and differ as to its application." the act must be utterly vague on its face, that is to say, it cannot be clarified by either a saving clause or by construction. It is to be distinguished, however, from legislation couched in imprecise language — but which nonetheless specifies a standard though defectively phrased — in which case, it may be "saved" by proper construction. In no way may the ordinances at bar be said to be tainted with the vice of vagueness. It is unmistakable from their very provisions that the appellant falls within its coverage. As the actual operator of the fishponds, he comes within the term "manager." He does not deny the fact that he financed the construction of the fishponds, introduced fish fries into the fishponds, and had employed

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4. City Treasurer assessed a business tax on the petitioner amounting to

laborers to maintain them. To the Court, the ordinances in question set forth enough standards that clarify imagined ambiguities. The ordinance is not ex post facto

P956,076 payable in four installements based on gross receipts.

5. FPIC paid the tax under protest during the first quarter. 6. FPIC contended that their company was exempted from paying tax on gross

Municipal Ordinance No. 4 was passed on May 14, 1955. Hence, it cannot be said that the amendment (under Ordinance No. 12) is being made to apply retroactively (to 1964) since the reckoning period is 1955 (date of enactment). Essentially, Ordinances Nos. 12 and 15 are in the nature of curative measures intended to facilitate and enhance the collection of revenues the original act, Ordinance No. 4, had prescribed. Moreover, the act (of non-payment of the tax), had been, since 1955, made punishable, and it cannot be said that Ordinance No. 12 imposes a retroactive penalty. One paragraph quotable quote:

7.

While it appears that it is the National Government which owns the land where the fishpond were constructed and the defendant was a mere lessee, the Government never shared in the profits they had generated. It is therefore only logical that he shoulders the burden of tax under the said ordinances. We agree with the trial court that the ordinances are in the character of revenue measures designed to assist the coffers of the municipality of Pagbilao. And obviously, it cannot be the owner, the Government, on whom liability should attach, for one thing, upon the ancient principle that the Government is immune from taxes and for another, since it is not the Government that had been making money from the venture.

8.

9.

receipts under Section 133 of the LGC of 1991. a. FPIC is a pipeline operation with a government concession granted under the Petroleum Act. b. Transportation contractors are also not included in the enumeration of contractors under Section 131 Paragraph h of the LGC. City Treasurer contended that FPIC cannot be considered as a company engaged in the transportation business and cannot claim exemption under the LGC. a. Pipelines are not included in the term “common carrier” which refers solely to ordinary carriers such as trucks, trains, ships and the like. RTC: Complaint dismissed. FPIC is either a contractor or other independent contractor. a. Tax exemptions are construed strictly against the taxpayer. b. RA 387 does not grant such exemption. c. Exemption granted under Sec. 133(j) encompasses only common carriers. FPIC is NOT a common carrier. CA: Affirmed RTC.

ISSUES: 1. WON FPIC is a common carrier. (Yes.)

FIRST PHILIPPINE IND USTRIAL CORP VS. CA (1998) Petitioner: First Philippine Industrial Corporation (FPIC) Respondents: CA, Honorable Paterno Tac-an, Batangas City and Adoracion C. Arellano in her capacity as City Treasurer

RATIO: 1. A common carrier is one who holds himself our to the public as engaged in the business of transporting persons or property from place to place for compensation, offering his services to the public generally. 2. FPIC is engaged in the business of carrying good (ie petroleum), for hire as a public employment. 3. De Guzman vs CA: Article 1732 of the CC makes no distinction between principal business or ancillary activity. 4. Section 133(j) of the LGC does not refer only to common carriers transporting goods and passengers through moving vehicles either by land or sea. 5. FPIC is a common carrier under RA 387 (Petroleum Act of the Philippines) a. Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources. b. Article 7: “…"that everything relating to the exploration for and exploitation of petroleum x x and everything relating to the

Concept: Common Limitations Brief Facts: Responded treasurer imposed a tax under gross receipts on FPIC. FPIC contended that it was exempted form that type of tax since it was a common carrier. Lower Courts said that it was not a common carrier while SC declared that it was indeed a common carrier, thus exempting it from said tax. Doctrine: the definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. Facts:

1. FPIC is a grantee of a pipeline concession under RA 387 to contract, install and operate oil pipelines in 1967.

2. This was renewed in 1992 by the Energy Regulatory Board. 3. FPIC applied for a mayor’s permit in 1995, but the City Treasurer of Batangas required FPIC to pay a local tax based on gross receipts.

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manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility.” 6. Even the BIR considers FPIC as a common carrier: a. BIR Ruling No. 069-83: i. "x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended." 7. the legislative intent (deliberations conducted in the HoR on the LGC of 1991) in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax." Dispositive: Petition Granted

hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof, relying on Section 129 and Section 133 of the Local Government Code: a. "SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units." b. "SEC. 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: c. "(I) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles."

LTO V. BUTUAN - MISSING 2. Digest supposedly by JC Tejano. Obtained from B2017. Vitug, J. Petitioner: Land Transportation Office 3. Respondent: City of Butuan, represented by City Mayor Democrito Plaza

LTO, however, contends that while the franchising authority over tricyclesfor-hire was transferred to LGUs (from LTFRB), the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles was not transferred, as per DOTC’s “Guidelines to Implement the Devolution of LTFRBs Franchising Authority over TricyclesFor-Hire to Local Government units” pursuant to the Local Government Code. The RTC and CA ruled that the power to give registration and license for driving tricycles has been devolved to LGU's.

Concept: Comparing police power, eminent domain, and power of taxation Brief Facts:

ISSUE:

The City of Butuan passed an ordinance which, for LTO, interferes with its authority to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles, particularly tricycles, claiming that such powers remained with the LTO and has not devolved to the LGU.

WON the LGU’s power of taxation, as per Sec. 133 of the LGC, means that LTO’s authority “to register, tricycles in particular, as well as to issue licenses for the driving thereof,” has devolved to local government units? (NO)

Doctrine: The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives.

RATIO: No. The exclusionary clause contained in the tax provisions of Section 133 (1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. -The reliance made by respondents on the broad taxing power of local government units, specifically under Section 133 of the LGC, is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a

FACTS: 1.

Sangguniang Panglungsod of Butuan passed an SP Ordinance regulating the payment of franchise fees for the grant of the franchise of tricycles-for-

21

constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there.

3.

- The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended.

4.

- The power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133 (1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R.A. 4136.

5.

6.

Issue: 1. DISPOSITIVE: Reversed; set aside Held: 2. MIAA V. COURT OF APP EALS G.R. No. 155650, July 20, 2006 Carpio, J. Facts: 1. The Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903 (MIAA Charter), as amended. As such operator, it administers the land, improvements and equipment within the NAIA Complex. 2. On March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061 to the effect that the LGC of 1991 (LGC) withdrew the exemption from real estate tax granted to MIAA under Section 21of its Charter. Thus, MIAA paid some of the real estate tax already due. In June 2001, it received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. The City Treasurer subsequently issued notices of levy and warrants of levy on the airport lands and buildings.

22

At the instance of MIAA, the OGCC issued Opinion No. 147 clarifying Opinion No. 061, pointing out that Sec. 206 of the LGC requires persons exempt from real estate tax to show proof of exemption. According to the OGCC, Sec. 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA, thus, filed a petition with the Court of Appeals seeking to restrain the City of Parañaque from imposing real estate tax on, levying against, and auctioning for public sale the airport lands and buildings, but this was dismissed for having been filed out of time. Hence, MIAA filed this petition for review, pointing out that it is exempt from real estate tax under Sec. 21 of its charter and Sec. 234 of the LGC. It invokes the principle that the government cannot tax itself as a justification for exemption, since the airport lands and buildings, being devoted to public use and public service, are owned by the Republic of the Philippines. On the other hand, the City of Parañaque invokes Sec. 193 of the LGC, which expressly withdrew the tax exemption privileges of governmentowned and controlled corporations (GOCC) upon the effectivity of the LGC. It asserts that an international airport is not among the exceptions mentioned in the said law. Meanwhile, the City of Parañaque posted and published notices announcing the public auction sale of the airport lands and buildings. In the afternoon before the scheduled public auction, MIAA applied with the Court for the issuance of a TRO to restrain the auction sale. The Court issued a TRO on the day of the auction sale, however, the same was received only by the City of Parañaque three hours after the sale. Whether or not the airport lands and buildings of MIAA are exempt from real estate tax? The airport lands and buildings of MIAA are exempt from real estate tax imposed by local governments. Sec. 243(a) of the LGC exempts from real estate tax any real property owned by the Republic of the Philippines. This exemption should be read in relation with Sec.133(o) of the LGC, which provides that the exercise of the taxing powers of local governments shall not extend to the levy of taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities.

3.

These provisions recognize the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax.

4.

The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. This rule applies with greater force when local governments seek to tax national government instrumentalities.

5.

Moreover, a tax exemption is construed liberally in favor of national government instrumentalities. MIAA is not a GOCC, but an instrumentality of the government. The Republic remains the beneficial owner of the

The City of Manila filed a petition for certiorari of the SOJ’s decision with the RTC, which (1) held the LGC provision unconstitutional and (2) held that the Ordinance was valid according to the procedure. Judge Palattao of the RTC held the provision unconstitutional insofar as the SOJ’s power to annul and review tax ordinances, holding it was an exercise of the power of control rather than supervision of local government units.

properties. MIAA itself is owned solely by the Republic. At any time, the President can transfer back to the Republic title to the airport lands and buildings without the Republic paying MIAA any consideration. As long as the airport lands and buildings are reserved for public use, their ownership remains with the State. Unless the President issues a proclamation withdrawing these properties from public use, they remain properties of public dominion. As such, they are inalienable, hence, they are not subject to levy on execution or foreclosure sale, and they are exempt from real estate tax. However, portions of the airport lands and buildings that MIAA leases to private entities are not exempt from real estate tax. In such a case, MIAA has granted the beneficial use of such portions for a consideration to a taxable person.

ISSUE(S): Whether or not the lower court had the jurisdiction to decide on the constitutionality of Sec. 187 of the LGC (YES) 1.

BP 129 vests jurisdiction over civil cases in which the subject is incapable of pecuniary estimation to regional trial courts. 2. Art.X Sec. 5(2) of the Constitution vests in the SC appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. Whether or not the provision was constitutional (YES)

DRILON (SEC. OF JUSTICE) V. LIM (CITY MA YOR OF MNL) Aug. 4, 1994 || J. Cruz DOCTRINE(S): 1. 2. 3.

RTCs have jurisdiction to decide on legality of a tax measure by virtue of BP 129.19 and by inference from Art. X Sec. 5(2) of the 1987 Constitution The Secretary of Justice may set aside an ordinance on the grounds of illegality, but he may not substitute or amend the ordinance. Local tax ordinances, to take effect, must have had a hearing held for its purpose, must have been published in newspapers of general circulation on three consecutive days to satisfy, and must have had the minutes of the hearing taken down to satisfy due process.

1.

Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure. a. Secretary Drilon set aside the Manila Revenue Code, but he did not replace it with his own version of what the Code should be. b. His concern was the legality and NOT the wisdom of the ordinance 2. An officer in control lays down the rules in the doing of an act. It they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. If the rules are not observed, he may order the work done or re-done but only to conform to the prescribed rules. Whether or not the Ordinance was valid (YES)

FACTS: Four oil companies – Petron and Caltex included – and a taxpayer appealed the decision of the Secretary of Justice (SOJ) declaring Ordinance No. 7794 for being null and void for (1) non-compliance with the prescribed procedure in the enactment of tax ordinances and (2) for containing certain provisions contrary to law and public policy. Also assailed is the constitutionality of Sec. 187 of the LGC9 prescribing said procedure.

9

Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. — The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, 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 receipt of the appeal: Provided, however, 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: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction.

1. 2. 3. 4.

23

Notices of the public hearings were sent to interested parties Minutes of the hearings were taken The ordinance was published in Balita and Manila Standard and the ordinance was published in three consecutive days in Balita Though the notice was not posted, this omission does not affect the validity of the Ordinance considering it was published in three successive issues of newspapers of general circulation

property assessments pursuant to Secs 201 and 219 of the LGC of 1991.

FIGUERRES V. CA [G.R. No. 119172. March 25, 1999] BELEN C. FIGUERRES, petitioner, vs. CA, CITY OF ASSESSORS OF MANDALUYONG, CITY TREASURER OF MANDALUYONG, and SANGGUNIANG BAYAN OF MANDALUYONG, respondents. 

Belen C. Figuerres is the owner of a parcel of land at Amarillo Street, Barangay Mauway, City of Mandaluyong. In 1993, she received a notice of assessment, dated October 20, 1993, from the municipal assessor:

Type Residential 





Area 530 sq.m.

Base Value P 2,500

Market Value P1,325,000

Assessment P265,000

Ord. 119-1993 contains a schedule of FMVs of the diff classes of real property in the municipality.

o

Ord. 125-1993 fixes the assessment levels applicable to such classes of real property.

o

Ord. 135-1994 amended Ord. 119, by providing that only 1/3 of the increase in the market values applicable to residential lands pursuant to the said ordinance shall be implemented in the years 1994, 1995, and 1996.

Petitioner brought a prohibition suit in the CA against the Assessor, the Treasurer, and the Sangguniang Bayan to stop them from enforcing the ordinances in question on the ground that the ordinances were invalid for having been adopted allegedly o

without public hearings and prior publication or posting

o

and without complying with the implementing rules yet to be issued by the Department of Finance.

o

The approval and determination by the DOF is not needed under the LGC of 1991, since it is now the city council of Mandaluyong that is empowered to determine and approve the ordinances.

o

The Department of Finance has not promulgated the necessary rules and regulations for the classification, appraisal and assessment of real property as prescribed by the 1991 LGC



o

Petitioner failed to exhaust the administrative remedies available to him 

filing an appeal to the Secretary of Justice (Sec 187 of RA 7160)



Local Board of Assessment Appeals, the decision of which is in turn appealable to the Central Board of Assessment Appeals as provided under Secs 226 and 230 of the said law.

The petitioners action in the CA was premature, and the appellate court correctly dismissed her action on the ground that she failed to exhaust available administrative remedies as above stated.  Although cases raising purely legal questions are excepted from the rule requiring exhaustion of administrative remedies before a party may resort to the courts, in the case at bar, the legal questions raised by petitioner require proof of facts for their resolution. Issue #2: WON Public hearings are required for the validity of a tax ordinance. Yes, but the petitioner failed to prove that hearings were not in fact conducted.  Public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes.  But apart from her bare assertions, Figuerres has not presented any evidence to show that no public hearings were conducted prior to the enactment of the ordinances in question  The lack of a public hearing is a negative allegation essential to petitioners cause of action in the present case. As petitioner is the party asserting it, she has the burden of proof. Since petitioner failed to rebut the presumption of validity in

CA:



No need to publish in the Official Gazette.

Remedies Available to the taxpayer  With regard to questions on the legality of a tax ordinance, the remedies available to the taxpayer are provided under Secs 187, 226, and 252 of R.A. 7160. o Sec 187 of R.A. 7160: the taxpayer may question the constitutionality or legality of a tax ordinance on appeal within thirty (30) days from effectivity thereof, to the Secretary of Justice. o Sec 226 of R.A. 7160, an owner of real property who is not satisfied with the assessment of his property may, within sixty (60) days from notice of assessment, appeal to the Board of Assessment Appeals. o Should the taxpayer question the excessiveness of the amount of tax, he must first pay the amount due, in accordance with Sec 252 of RA 7160. Then, he must request the annotation of the phrase paid under protest and accordingly appeal to the Board of Assessment Appeals by filing a petition under oath together with copies of the tax declarations and affidavits or documents to support his appeal. Issue #1: WON petitioner failed to exhaust administrative remedies. Yes.

The assessment, effective in the year 1994, was based on Ord. Nos. 119 and 125, series of 1993, and Ord. 135, series of 1994, of the Sangguniang Bayan of Mandaluyong. o

o

DOF Local Assessment Regulation No. 1-92 concerns with the proper implementation of Sec 219 of RA 7160, provides for the rules relative to the conduct of general revisions of real

24



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. Issue #3: Publication and posting of schedule of FMVs  Petitioner is also right that publication or posting of the proposed schedule of FMVs of the diff classes of real property in a LGU is required pursuant to RA 7160, Sec 212.  An ordinance imposing real property taxes must be posted or published as required by R.A. 7160 Sec 188.  Petitioner has not presented any evidence to show that the subject ordinances were not disseminated in accordance with these provisions of RA 7160. Issue #4: Compliance with regulations issued by the DOF 

o

WON a corporation whose franchise expressly provides that the payment of the "franchise tax of 3 %of the gross earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee." is exempt from paying a provincial franchise tax. NO. 

There is no provision in P.D. No. 231 expressly or impliedly amending or repealing Section 3 of R.A. No. 6020. The perceived repugnancy between the two statutes should be very clear before the Court may hold that the prior one has been repealed by the later, since there is no express provision to that effect. The rule is that a special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of the general act are broad enough to include the cases in the special law (id.) unless there is manifest intent to repeal or alter the special law.



CEPALCO for was granted a franchise on June 17, 1961 which provides that the payment of the "franchise tax of 3 %of the gross earnings shall be in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee." is exempt from paying a provincial franchise tax.

Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable only to CEPALCO, while P.D. No. 231 is a general tax law. The presumption is that the special statutes are exceptions to the general law (P.D. No. 231) because they pertain to a special charter granted to meet a particular set of conditions and circumstances.



The franchise of respondent CEPALCO expressly exempts it from payment of "all taxes of whatever authority" except the three per centum (3%) tax on its gross earnings.

On June 28, 1973, the Local Tax Code (P.D. No. 231) was promulgated, Section 9 of which provides:



Such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. As a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation by the local authority would constitute an impairment of the contract between the government and the corporation.

Petitioner has not shown that the ordinances in this case were not enacted in accordance with the applicable regulations of the DOF. Mandaluyong claims that, although the regulations are merely directory, it has complied with them.

PROVINCE OF MISAMIS ORIENTAL V CAGAYAN FACTS:



Sec. 9. Franchise Tax.—Any provision of special laws to the contrary notwithstanding, the province may impose a tax on businesses enjoying franchise, based on the gross receipts realized within its territorial jurisdiction, at the rate of not exceeding one-half of one per cent of the gross annual receipts for the preceding calendar year…. 

MANILA ELECTRIC COMPANY V PROVINCE OF LAGUNA FACTS:

Province of Misamis Oriental enacted Provincial Revenue Ordinance No. 19, whose Section 12 reads:

MERALCO was granted a franchise by several municipal councils and the National Electrification Administration to operate an electric light and power service in the Laguna. Upon enactment of Local Government Code, the provincial government issued ordinance imposing franchise tax. MERALCO paid under protest and later claims for refund because of the duplicity with Section 1 of P.D. No. 551. This was denied by the governor (Joey Lina) relying on a more recent law (LGC). MERALCO filed with the RTC a complaint for refund, but was dismissed. Hence, this petition.

Sec. 12. Franchise Tax.—There shall be levied, collected and paid on businesses enjoying franchise tax of one-half of one per cent of their gross annual receipts … 

CFI dismissed the complaint and ordered the Province to return to CEPALCO the money it paid under protest.

ISSUE:

CA is AFFIRMED.



The Province filed in the CFI of Misamis Oriental a complaint for declaratory relief to declare the franchise as having been amended by P.D. No. 231.

CEPALCO paid under protest on May 27, 1974 the sum of P 4,276.28 and appealed the fiscal's ruling to the Secretary of Justice who reversed it and ruled in favor of CEPALCO.

ISSUE:

25

Whether or not the imposition of franchise tax under the provincial ordinance is violative of the non-impairment clause of the Constitution and of P.D. 551.

telecommunications franchise holder becomes automatically covered by the tax exemption provisions of RA 7925, which took effect on March 16, 1995.”

HELD:

City Treasurer of Davao, denied the protest citing the legal opinion of the City Legal Officer of Davao and Art. 10, §1 of Ordinance No. 230, Series of 1991, as amended by Ordinance No. 519, Series of 199212.

No. There is no violation of the non-impairment clause for the same must yield to the inherent power of the state (taxation). The provincial ordinance is valid and constitutional.

PLDT filed a petition in the Davao RTC. The trial court denied petitioner's appeal and affirmed the City Treasurer's decision. It ruled that the LGC withdrew all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on businesses enjoying a franchise notwithstanding the grant of tax exemption to them.

RATIO: The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now repealed Local Tax Code. The 1991 Code explicitly authorizes provincial governments, notwithstanding “any exemption granted by any law or other special law, . . . (to) impose a tax on businesses enjoying a franchise.” A franchise partakes the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.

ISSUES Whether PLDT, after the withdrawal of its exemption by virtue of §13713 of the LGC, has again become entitled to exemption from local franchise tax? (NO) HELD Exemption of Globe and Smart… PLDT claims that Smart and Globe enjoy exemption from the payment of the franchise tax by virtue of their legislative franchises. It argues that because Smart and

PLDT V CITY OF DAVAO FACTS:

telecommunications franchise and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise." (Italics supplied.) 12 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. 13 SECTION 137. Franchise Tax. — Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a 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. In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.8 SECTION 193. Withdrawal of Tax Exemption Privileges. — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

PLDT applied for a Mayor's Permit to operate its Davao Metro Exchange. Davao withheld action on the application pending payment by PLDT of the local franchise tax for the first to the fourth quarter of 1999. PLDT protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it. PLDT contended that it was exempt from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF), saying: “It appears that RA 708210 which granted to PLDT a franchise to install, operate and maintain a telephone system throughout the Philippine Islands contains the "in lieu of all taxes" proviso. In this connection, Section 23 of RA 792511 provides for the equality of treatment in the telecommunications industry. PLDT as a 10

"SECTION 12. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof . . ." 11 "SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted

26

Globe are exempt from the franchise tax, it follows that it must likewise be exempt from the tax being collected by the City of Davao because the grant of tax exemption to Smart and Globe ipso facto extended the same exemption to it. PLDT’s theory will leave the Government with the burden of having to keep track of all granted telecommunications franchises, lest some companies be treated unequally. It is different if Congress enacts a law specifically granting uniform advantages, favor, privilege, exemption, or immunity to all telecommunications entities.

Petitioner Palma Development Corp. is engaged in milling and selling rice and corn to wholesalers in Zamboanga City. It uses the municipal port of Malangas, Zamboanga del Sur, as transshipment point for its goods. The municipality of Malangas then passed Municipal Revenue Code No. 09: Section 5G.01. Imposition of fees. There shall be collected service fee for its use of the municipal road[s] or streets leading to the wharf and to any point along the shorelines within the jurisdiction of the municipality and for police surveillance on all goods and all equipment harbored or sheltered in the premises of the wharf and other within the jurisdiction of this municipality in the following schedule:

Exemption provision… The fact is that the term "exemption" in §2314 is too general. A cardinal rule in statutory construction is that legislative intent must be ascertained from a consideration of the statute as a whole and not merely of a particular provision. In this case, the word "exemption" in §23 of R.A. No. 7925 could contemplate exemption from certain regulatory or reporting requirements, bearing in mind the policy of the law. It is noteworthy that, in holding Smart and Globe exempt from local taxes, the BLGF did not base its opinion on §23 but on the fact that the franchises granted to them after the effectivity of the LGC exempted them from the payment of local franchise and business taxes.

a) Vehicles and Equipment:

rate of fee

1. Automatic per unit

P10.00

2. Ford Fiera

P10.00

3. Trucks

P10.00

xxx

Opinion of BLGF

xxx

xxx

b) Other Goods, Construction Material products:

BLGF is not an administrative agency whose findings on questions of fact are given weight and deference in the courts. The authorities cited by petitioner pertain to the Court of Tax Appeals, a highly specialized court which performs judicial functions as it was created for the review of tax cases. In contrast, the BLGF was created merely to provide consultative services and technical assistance to local governments and the general public on local taxation, real property assessment, and other related matters, among others. The question raised by petitioner is a legal question, to wit, the interpretation of §23 of R.A. No. 7925. There is, therefore, no basis for claiming expertise for the BLGF that administrative agencies are said to possess in their respective fields.

1. Bamboo craft

P20.00

2. Bangus/Kilo

0.30

xxx

xxx

xxx

41. Rice and corn grits/sack

0.50

Petitioner paid the service fees imposed by the ordinance under protest, invoking RA 7160 (Local Government Code) which provides that municipal governments did not have the authority to tax goods and vehicles that passed through their jurisdictions.

In sum, it does not appear that, in approving §23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities.

Issue

PALMA DEVELOPMENT V MUNICIPALITY OF MALANGAS

Held:

Facts

NO. The imposition of service fee on goods harbored or sheltered in the premises of the municipal port of Malangas is declared NULL and VOID for violating RA 7160.

w/n Section 5G.01 of Municipal Revenue Code No. 09 is valid

Ratio

14

R.A. No. 7925, otherwise known as the Public Telecommunications Policy Act of the Philippines, §23 of which reads: SECTION 23. Equality of Treatment in the Telecommunications Industry. — Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise.

In accordance with the Local Government Code of 1991, a municipal ordinance imposing fees on goods that pass through the issuing municipalitys territory is null and void.

27

Section 133 (e)15 of RA 7160 prohibits the imposition of fees on goods or merchandise passing through the municipality's territory. This prevails over Sections 15316 and 15517, which allow LGU's to impose fees for services rendered and to fix the rates for the imposition of toll fees or charges for the use of any public road or wharf funded and constructed by the LGU concerned.

-

"By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e)."

-

-

PLDT V PROVINCE OF LAGUNA Doctrine:

-

The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption.

Facts:

-

15

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: xxx xxx xxx e) Taxes, fees and charges and other impositions upon goods carried into and out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise; 16 SEC. 153. Service Fees and Charges. - Local government units may impose and collect such reasonable fees and charges for services rendered 17 SEC. 155. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use.

PLDT is a holder of a legislative franchise under Act No. 3436, as amended, to render local and international telecommunications services. The terms and conditions of its franchise were later consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called “in-lieu-of-all taxes” clause, where under PLDT shall pay a franchise tax equivalent to 3% of all its gross receipts, which franchise tax shall be “in lieu of all taxes”. Thereafter, the Local Government Code took effect. Section 137 of the Code, in relation to Section 151 thereof, grants provinces and other local government units the power to impose local franchise tax on businesses enjoying a franchise. Invoking its authority, the Province of Laguna, through its local legislative assembly, enacted a provincial ordinance imposing a franchise tax upon all businesses enjoying a franchise, which includes PLDT. In compliance with the ordinance, PLDT paid the Province of Laguna its local franchise tax liability for the year 1998 in the amount of P1,081,212.10. Prior thereto, Congress enacted the Public Telecommunications Policy Act of the Philippines. Then, the Department of Finance, thru its Bureau of Local Government Finance (BLGF), issued a ruling to the effect that PLDT, among other telecommunication companies, became exempt from local franchise tax. Accordingly, PLDT shall be exempt from the payment of franchise and business taxes imposable by LGUs under Sections 137 and 143, respectively of the Local Government Code, upon the effectivity of RA 7925. However, PLDT shall be liable to pay the franchise and business taxes on its gross receipts during the period that PLDT was not enjoying the ‘most favored clause’ provision of RA 7025. PLDT then refused to pay the Province of Laguna its local franchise tax liability for the following year and it even filed with the Office of the Provincial Treasurer a written claim for refund of the amount it paid as local franchise tax for the previous year.

Issue:

-

Does Section 23 of Rep. Act No. 7925 operate to exempt PLDT from payment of franchise tax?

Held:

-

28

No. In approving Section 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing powers, we hold that section 23 of R.A. No. 7925 cannot be considered as having amended petitioner’s franchise so as to entitle it to exemption from the imposition of local franchise taxes. The tax exemption must be expressed in the statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it

o

is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.

-

Mutatis mutandis also applies to this case: When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A wellfounded doubt is fatal to the claim. It is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.’

-

SMART COMMUNICATIONS V CITY OF DAVAO Topic: local taxing authorities and scope of taxing power – provinces Nota Bene: There’s an issue with the citation. But the one uploaded seems correct. Also, this case may involve a city, but recall under Section 151 of the LGC that cities may levy taxes, fees, and charges which the provinces or municipalities may impose, provided the rates do not exceed the provincial or municipal maximum rates by more than 50%. Facts: -

-

Smart filed a petition for declaratory relief, with respect to the Tax Code of the City of Davao, particularly section 1, article 10: o “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.” Smart contends that its telecenter in Davao is exempt from payment of franchise tax because o Under Section 918 of its franchise (RA 7294) enacted subsequent to the passage of the LGC, it was exempted

Section 137 (Provincial Franchise tax power) of the LGC 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 franchise tax is subject to statutory limitations such as the exemption granted to Smart thru the phrase “in lieu of all taxes” o Violation of the non-impairment of contracts Davao filed an Answer, arguing that the Constitution directly conferred LGU’s the power to create their own sources of revenue RTC denied the petition: o the ambiguity of the phrase “in lieu of all taxes” (i.e. whether it refers to national or local) must be resolved against the taxpayer seeking the exemption o “tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority and, thus, those who assert a tax exemption must justify it with words too plain to be mistaken and too categorical not to be misinterpreted” o There was no violation of the non-impairment clause because of the directly granted power to tax of LGU’s and the restrictions to be imposed by Congress must be consistent with the basic policy of local autonomy

Issue(s): w/n Smart is liable to pay the franchise tax SC Ratio: Yes. While it is true that the withdrawal of exemptions under the LGC can only affect those exemptions or incentives already existing at the time of its passage, the phrase “in lieu of all taxes” is not definite enough to shield Smart from payment of local taxes. RA 7294 does not expressly provide what kind of taxes Smart is exempted from. 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.

18

Section 9. Tax provisions. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate buildings and personal property, exclusive of' this franchise, as other persons or corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto.

The uncertainty in the in lieu of all taxes clause in RA 7294 on whether Smart is exempted from both local and national franchise tax must be construed strictly against Smart which claims the exemption. Smart has the burden of proving that, aside from the imposed 3% franchise tax, Congress intended it to be exempt from all

The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue.

29

kinds of franchise taxes whether local or national. However, Smart failed in this regard.

Smart posits that, since the franchise of Globe contains a provision exempting it from municipal or local franchise tax, this provision should also benefit Smart.

In this case, the doubt must be resolved in favor of the City of Davao. The in lieu of all taxes clause applies only to national internal revenue taxes and not to local taxes.

SC: Congress did not intend to for Section 23 of the Public Telecommunications Policy Act (RA 7925) to operate as a blanket tax exemption to all telecomm entities. Moreover, as decided in earlier cases, the term exemption in that provision does not mean tax exemption. The term refers to exemption from certain regulations and requirements imposed by NTC.

Why is the exemption of Smart only with regard to national taxes? “[T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes, other than income tax, imposed under the National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local taxes. The proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue Code." Also, the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code." Moreover, the same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue." Nothing is mentioned in Section 9 about local taxes. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local taxes. Even with respect to national internal revenue taxes, the "in lieu of all taxes" clause does not apply to income tax.

Clincher: It should be noted that the in lieu of all taxes clause in RA 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 (RA 7716, as amended by E-VAT RA 8241). NPC V PROVINCE OF ISABELA DOCTRINE:

If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes, Congress would have expressly mentioned the exemption from municipal and provincial taxes. Congress could have used the language in Section 9(b) of Clavecilla's old franchise, as follows:

1.

Question of Withdrawal of Exemption a.

x x x in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which the grantee is hereby expressly exempted, x x x. (Emphasis supplied). 2.

However, Congress did not expressly exempt Smart from local taxes. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. The only interpretation, under the rule on strict construction of tax exemptions, is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local taxes.

Question of determining whether an entity is subject to franchise tax a.

Re: BLGF Opinion 8/13/98 (Smart) and 2/24/98 (Globe) 3.

Not conclusive on the courts.

Both in their nature and effect, there is no essential difference between a tax exemption and a tax exclusion. Re: The Most Favored Treatment Clause19

In determining whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government.

Question whether LGU can tax instrumentality a.

Re: Tax Exclusion v. Tax Exemption

Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.23 Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.

Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes,

hereafter be granted, shall ipso facto become part of previously granted telecommunications franchise and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise.

19

SECTION 23. Equality of Treatment in the Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may

30

fees or charges on the aforementioned entities. Section 137 of the LGC is one of those exceptions.

Ratio:

FACTS: 

Respondent Province of Isabela filed an action for sum of money against petitioner NPC, a government-owned and controlled corporation engaged in the generation and sale of electric power.



It is alleged by the province that the petitioner’s Magat River Hydro-Electric Plant is located within its territory and that, for this reason, it imposed a franchise tax on petitioner pursuant to Section 1372 of Republic Act No. 7160 (Local Government Code of 1991)



Petitioner alleged that due to the boundary dispute between the respondent and the Province of Ifugao, it is in a quandary as to whom it should pay the franchise tax.



It also alleged that lower court had no jurisdiction over the subject matter of the action by virtue of Presidential Decree No. 242 prescribing the procedure for the administrative settlement or adjudication of disputes, claims, and controversies between or among government offices, agencies and instrumentalities, including government-owned and controlled corporations.



Petitioner also urges this Court to take a second look at its ruling in National Power Corporation v. City of Cabanatuan,13which held it liable for franchise tax by virtue of the LGC. It contends that Section 193 thereof did not withdraw the tax exemption provided under Section 13 of its charter, Rep. Act No. 6395, which provides:



It also argued that Section 137 of the LGC is not applicable to it, as the said provision empowers local government units to impose franchise tax only with respect to private individuals and corporations.







Falls in all four corners of NPC v Cabanatuan



Indeed, taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed.23 Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.



Section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes.



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.



In the argument that NPC is not a “business enjoying a franchise” and that it is not a private corporation

Petitioner stresses that, under the LGC, "business" means a trade or commercial activity regularly engaged in as a means of livelihood or with a view to a profit.17 On the other hand, "franchise" means a right or privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security and safety.

o

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise.

o

As commonly used, a franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government.

o

In determining whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government.

o

Petitioner is also a private corporation considering that it undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis. Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. T

It also allege that NPC is an instrumentality of the Government

ISSUE: 1.

WON the LGC withdraw the tax exemption provided in the carter of NPC (revisit of NPC v City of Cabanatuan)

2.

WON NPC is not a business enjoying a franchise and thus not a private corporation for profit and is not covered by Section 137?

3.

WON NPC is an instrumentality of the government?



In the argument that NPC is an instrumentality of the government? o

Decision: The sales made were for retail purposes, thus liable

31

This contention, however, is without merit. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities.

Section 137 of the LGC is one of those exceptions. It authorizes the province to impose a tax on business enjoying a franchise, at a 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.

same is expressly embraced in PD 1959, which amended PD 1456, wherein it is clear that the "proprietor, lessee or operator of . . . professional basketball games" is required to pay an amusement tax equivalent to fifteen per centum (15%) of their gross receipts to the Bureau of Internal Revenue, which payment is a national tax. While Section 13 of the Local Tax Code mentions "other places of amusement", professional basketball games are definitely not within its scope. Under the principle of ejusdem generis20, in determining the meaning of the phrase "other places of amusement", one must refer to the prior enumeration of theaters, cinematographs, concert halls and circuses with artistic expression as their common characteristic. Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and gaming. Also, a historical analysis of pertinent laws does reveal the legislative intent to place professional basketball games within the ambit of a national tax. Previous laws (PD 871 by PD 1456 and PD 1959) shows a recognition that the amusement tax on professional basketball games is a national, and not a local, tax.

PBA V CA FACTS: On July 21, 1989, the petitioner received an assessment from the CIR for the payment of deficiency amusement tax in the amount of P5,864,260.84 (including 75% surcharge and 25% interest for 2 years). The petitioner contested the assessment but it was denied by the CIR. The Court of Tax Appeals also dismissed the subsequent petition of PBA. The Court of Appeals affirmed the ruling of the CTA so the petitioner filed this petition for certiorari. Petitioner’s arguments: -

Jurisdiction to collect amusement taxes of PBA is vested with the local government and not the national government. It argues that they should be included in the enumeration provided by Section 13 of the Local Tax Code of 1973.

-

Commissioner’s issuance of BIR Ruling No. 231-86 and BIR Revenue Memorandum Circular No. 8-88 -- both upholding the authority of the local government to collect amusement taxes -- should bind the government or that, if there is any revocation or modification of said rule, the same should operate prospectively.

-

Income from the cession of streamer and advertising spaces to VEI should not be subject to amusement taxes

-

In case they are made liable to pay the deficiency amusement tax, they should not be charged with the 75% surcharge.

ISSUES: 1.

WON the amusement tax on admission tickets to PBA games a local tax – NO

2.

WON BIR Ruling No. 231-86 and BIR RMC No. 8-88 binds the government – NO

3.

WON income from the cession of streamer and advertising spaces to VEI is subject to amusement taxes - YES

4.

Commissioner’s issuance of BIR Ruling No. 231-86 and BIR Memorandum Circular No. 8-88, both upholding the authority of the local government to collect amusement taxes cannot bind the government. The government cannot be never be in estoppels, particularly in matters involving tax. It is a well-known rule that erroneous application and enforcement of the law by public officers do not preclude subsequent correct application of the statute, and that the Government is never estopped by mistake or error on the part of its agents.

3.

PD 1456 provides that for the purpose of the amusement tax, the term gross receipts’ embraces all the receipts of the proprietor, lessee or operator of the amusement place. That definition of gross receipts is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place.

4.

The issue on the payment of surcharge was never posed as an issue before the respondent court so it must necessarily fail

LUZ YAMANE V BA LEPANTO DOCTRINE: GENERAL RULE: We hold that condominium corporations are generally exempt from local business taxation under the Local Government Code, irrespective of any local ordinance that seeks to declare otherwise. o

WON the petitioner should be charged with amusement tax – YES

HELD: 1.

2.

20

EXCEPTION: It is not unthinkable that the unit owners of a condominium would band together to engage in activities for profit under the shelter of the

Where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned.

Sec 13 of the Local Tax Code indicates that the province can only impose a tax on admission from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of amusement. The authority to tax professional basketball games is not therein included, as the

32

condominium corporation. Such activity would be prohibited under the Condominium Act, but if the fact is established, we see no reason why the condominium corporation may be made liable by the local government unit for business taxes o

1.

In this case, the City Treasurer has not posited the claim that the Corporation is engaged in business activities beyond the statutory purposes of a condominium corporation. The assessment appears to be based solely on the Corporation's collection of assessments from unit owners, such assessments being utilized to defray the necessary expenses for the Condominium Project and the common areas.

FACTS: 1.

2.

BALepanto Condominium Corporation is a duly organized condominium corporation in accordance with the Condominium Act. a.

2.

3.

The City Treasurer argued that BA Lepanto is engaged in business because the dues collected from the different unit owners is utilized towards the beautification and maintenance of the Condominium, resulting in "full appreciative living values" for the condominium units which would command better market prices should they be sold in the future. a.

First, if any profit is obtained by the sale of the units, it accrues not to the corporation but to the unit owner.

b.

Second, if the unit owner does obtain profit from the sale of the corporation, the owner is already required to pay capital gains tax on the appreciated value of the condominium unit

The fact that BA Lepanto is empowered "to acquire, own, hold, enjoy, lease, operate and maintain, and to convey sell, transfer or otherwise dispose of real or personal property" allegedly qualifies "as incident to the fact of [the Corporation's] act of engaging in business.

It owns BALepanto Condominium situated in Paseo de Roxas, Makati City.

RESPONDENT (BA Lepanto Condominium Corporation):

b.

Its membership comprises the various unit owners of the Condominium.

1.

c.

The Corporation is authorized, under Article V of its Amended ByLaws, “to collect regular assessments from its members for operating expenses, capital expenditures on the common areas, and other special assessments as provided for in the Master Deed with Declaration of Restrictions of the Condominium.”

BA Lepanto, as a condominium corporation, was organized not for profit, but to hold title over the common areas of the Condominium, to manage the Condominium for the unit owners, and to hold title to the parcels of land on which the Condominium was located.

2.

Neither was the Corporation authorized, under its articles of incorporation or bylaws to engage in profitmaking activities. The assessments it did collect from the unit owners were for capital expenditures and operating expenses

BA Lepanto received a Notice of Assessment signed by the City Treasurer of Makati Luz Yamane for the payment of business taxes, fees, and charges amounting to P1,601,013.77 for the years 1995-1997. The Notice of Assessment was silent as to the statutory basis of the business taxes assessed.

ISSUE: W/N City of Makati may collect business taxes on condominium corporations – NO. Petition DENIED.

BA Lepanto filed a written tax protest with the City Treasurer questioning the basis of the tax assessment as both Makati Revenue Code and Local Gov't Code do not contain provisions on which the Assessment could be based.

4.

City Treasurer rejected the protest.

5.

On appeal, the RTC affirmed the City Treasurer and held that the BA Lepanto’s activities fell under the definition of “business” as a “trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." under LGC Sec 13(b) and thus subject to local business taxation.

6.

BA Lepanto filed a Petition for Review under Rule 42 with CA, which reversed the RTC. CA held that BA Lepanto was not engaged in profit. a.

RATIO: Power of LGUs to impose taxes

The purpose of Condominium Corporations is to hold title to the common areas and maintain the condominium. The assessments collected from unit owners are limited to those necessary to defray the expenses in the maintenance of the common areas and management of the condominium.



The power of local government units to impose taxes within its territorial jurisdiction derives from Sec. 5 Art. X of the Constitution, which recognizes the power of these units "to create its own sources of revenue and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy."



The Local Government Code of 1991 provides for comprehensive instances when and how local government units may impose taxes.



The coverage of business taxation particular to the City of Makati is provided by the Makati Revenue Code ("Revenue Code"), enacted through Municipal Ordinance No. 92072.

City Treasurer failed to cite legal basis in its Notice of Assessment 

PETITIONER (Luz R. Yamane, City Treasurer of Makati City):

33

At no point has the City Treasurer been candid enough to inform the Corporation, the RTC, the Court of Appeals, or this Court for that matter, as to what exactly is

the precise statutory basis under the Makati Revenue Code for the levying of the business tax on petitioner.

statutory explication, commonsensical meaning, the English language, or even definition from Google.



The notice of assessment, which stands as the first instance the taxpayer is officially made aware of the pending tax liability, should be sufficiently informative to apprise the taxpayer the legal basis of the tax.



Reference to the local tax ordinance is vital, for the power of local government units to impose local taxes is exercised through the appropriate ordinance enacted by the sanggunian, and not by the Local Government Code alone.[44] What determines tax liability is the tax ordinance, the Local Government Code being the enabling law for the local legislative body.

PETRON VS MAYOR TIANGCO

However, BA Lepanto itself failed to allege denial of due process arising from the failure on the part of the City Treasurer to cite its legal basis. Hence, the Court cannot rule that there was denial of due process.

PETRON CORPORATION vs. MAYOR TOBIAS M. TIANGCO, VELASCO, JR, and MUNICIPAL TREASURER BRION, JJ. MANUEL T. ENRIQUEZ of the MUNICIPALITY OF NAVOTAS, METRO MANILA



o

The fact that the Corporation did not fall within the enumerated classes of taxable businesses under either the Local Government Code or the Makati Revenue Code already forewarns that a clear demonstration is essential on the part of the City Treasurer on why the Corporation should be taxed anyway. "Full appreciative living values" is nothing but blather in search of meaning, and to impose a tax hinged on that standard is both arbitrary and oppressive.

Tinga, J. BA Lepanto Condominium Corporation is not engaged in “business” 

Under the Condominium Act, a “condominium” is an interest in real property consisting of a separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building.



We can elicit from the Condominium Act that a condominium corporation is precluded by statute from engaging in corporate activities other than the holding of the common areas, the administration of the condominium project, and other acts necessary, incidental or convenient to the accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of profit, fall within the scope of permissible corporate purposes of a condominium corporation under the Condominium Act.



Facts: Petron maintains a depot or bulk plant at the Navotas Fishport Complex in Navotas. it is engaged in the selling of diesel fuels to vessels used in commercial fishing in and around Manila Bay. Petron received a letter from the office of Navotas Mayor, respondent Toby Tiangco, where the corporation was assessed taxes relative to the figures covering sale of diesel declared by Petron’s Navotas Terminal from 1997 to 2001. The amount due was P6,259,087.62. Petron filed with Navotas a letter-protest to the notice of assessment which was denied by the Navotas Municipal Treasurer. After this Petron received a letter from the Mayor captioned Final Demand to Pay.

The City Treasurer’s argument that the collection of these assessments and dues are "with the end view of getting full appreciative living values" because profit is obtained once these units are sold at higher prices is untentable. o

o

o

Petron filed with the Malabon RTC a Complaint for Cancellation of Assessment for Deficiency Taxes. While the case was pending decision, respondents refused to issue a business permit to Petron.

The logic on this point of the City Treasurer is baffling. By this rationale, every Makati City car owner may be considered as being engaged in business, since the repairs or improvements on the car may be deemed oriented towards appreciating the value of the car upon resale.

Petitioner Petron: The business taxes on its sale of diesel fuels partakes of an excise tax and Sec 133 (h) of the LGC says that ”…the taxing powers of provinces, cities, municipalities, and Barangays shall not extend to the levy of the following: Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products.”

There is a distinction between persons who spend on repairs and improvements for the purpose of increasing its resale value, and those who defray such expenses for the purpose of preserving the property. The vast majority of persons fall under the second category, and it would be highly specious to subject these persons to local business taxes.

Furthermore, the Art 232 of the LGC’s IRR says “…that in line with existing national policy, any business engaged in the production, manufacture, refining, distribution or sale of oil, gasoline and other petroleum products shall not be subject to any local tax imposed on this article.”

We shudder at the thought of upholding tax liability on the basis of the standard of "full appreciative living values", a phrase that defies

34

Respondents: What the Sec 133 (h) prohibits is the imposition of excise taxes on petroleum products, but not the imposition of business taxes on the same. A tax on business is distinct from a tax on the article itself.

direct or excise taxes on petroleum products, and not business taxes - [a] tax on a business is distinct from a tax on the article itself. They borrow that dictum from the case of Pililla. However, at the time the taxes sought to be collected in Pililla were imposed, there was no national law in place similar to Section 133(h) of the Code that barred local taxes, fees or charges on petroleum products.

The Malabon RTC dismissed Petron’s complaint and ordered the payment of the assessed amount. Subsequently Petron received a Closure Order from the Mayor. Petron elevated the case directly to the Supreme Court since the matter involves only a pure question of law.

1.) W/N the Navotas tax is an excise tax on an article enumerated under the NIRC, thusly prohibited under Section 133(h) of the Code. No, it is not an excise tax.

We can concede that a tax on a business is distinct from a tax on the article itself, or for that matter, that a business tax is distinct from an excise tax. However, such distinction is immaterial insofar as the latter part of Section 133(h) is concerned, for the phrase taxes, fees or charges on petroleum products does not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition imposed by the provision.

2.) W/N the Navotas tax is prohibited by Section 133(h) under the proviso, taxes, fees or charges on petroleum products. Yes, it is a prohibited tax covered under the proviso in Section 133 (h).

The absence of such a qualification leads to the conclusion that all sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h). Where the law does not distinguish, we should not distinguish.

Issues:

It is not an excise tax.

MANILA TRADING & SUPPLY CO. V CITY OF MANILA

Section 133 (h) mentions two kinds of taxes which cannot be imposed by local government units, namely:

DOCTRINE(S):

1.) excise taxes on articles enumerated under the National Internal Revenue Code

1.

One who imports raw materials and assembles them later to turn them into finished products is a manufacturer because the word "manufacturer" in its plain and ordinary meaning includes "the process of assembling articles which while complete and finished, have no independent utility but are designed to be used in combination as parts of some other articles, such as a typewriter, an automobile, or the like, but when so used, the process of assembling usually, if not always, involves the exercise of manual or mechanical skill and labor and the more or less extensive use of auxiliary machinery"

2.

If a company does not have a store independent and separate from its assembly plant where it displays and sells the cars and trucks it manufactures but delivers them after they had been assembled direct to its customers who had placed before hand their orders for said cars and trucks and does not manufacture cars and trucks to keep stock on hand for wholesale but only after receiving orders to buy them from its customers, said company cannot be considered as dealers insofar as said cars and trucks are concerned but merely as manufacturer.

2.) taxes, fees or charges on petroleum products Petron’s argument is that that the business taxes on its sale of diesel fuels partakes of an excise tax, under #1. They define an excise tax as a tax upon the performance, carrying on, or the exercise of an activity. This definition was taken from the compendium American Jurisprudence, popularly referred to as Am Jur. This definition is no longer applicable. The current definition of an excise tax is that of a tax levied on a specific article, and no longer a tax upon the performance, carrying on, or the exercise of an activity. There are two different kinds of excise taxes: specific tax which is imposed and based on weight or volume capacity or any other physical unit of measurement; and ad valorem tax which is imposed and based on the selling price or other specified value of the goods. Petrons argument concerning excise taxes is founded not on what the NIRC or the Code actually provides, but on a non-statutory definition.

FACTS: Plaintiff was engaged in the assembly of cars and trucks in its warehouse, as it imported spare parts it assembled into motor vehicles which it manufactured and delivered upon order. The Municipal Board of Manila approved ordinances which impose a quarterly municipal tax on wholesale dealers in general merchandise based on their quarterly sales from the preceding quarter, which included wholesale dealers of automobiles and other mobile vehicles. Plaintiff received a demand for payment of tax imposed by the aforesaid ordinances on the ground that it is a wholesale dealer.

The Navotas tax is prohibited under the 2nd proviso of Section 133 (h). Congress has the constitutional authority to impose limitations on the power to tax of local government units, and Section 133 of the Code is one such limitation. Section 133(h) states that local government units shall not extend to the levy of “…taxes, fees or charges on petroleum products.” Respondents assert that the phrase taxes, fees or charges on petroleum products pertains to the imposition of

Plaintiff contested the assessment on the grounds that (1) it is not a wholesale dealer; and (2) it is a manufacturer and not a dealer of cars and trucks and does not sell its

35

products at it stores, but this protest was denied so it elevated its case to the CFI. The CFI decided in favor of plaintiff, ordering defendant to refund the wholesale taxes it paid. Defendants appealed, saying (1) manufacturers are within the ambit of dealers in general merchandise and that (2) plaintiff is not a manufacturer because it imports manufactured materials for the assembly of its cars and motor vehicles.

prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption."

ISSUE(S): Whether or not plaintiff is a wholesale dealer within the purview of the aforesaid ordinances (NO, plaintiff is a manufacturer) 1.

The provision relied upon by defendants does not include manufacturers under the definition of wholesale dealers21

2.

A dealer is defined as ‘a person who makes a business of buying and selling goods, especially as distinguished from a manufacturer, without altering their condition . . . .’ (Webster’s International Dictionary) . . . A dealer, in the popular acceptation or sense of the word, is one who buys to sell again. He stands immediately between the producer and the consumer, and depends for his profits not on the labor he bestows on his commodities, but on the skill and foresight with which he watches the markets. (Taylor v. Vincent)

3.

4.

5.

CENTRAL AZUCARERA DON PEDRO V CITY OF MANILA Central Azucarera v City of Manila GR No. L-7679 / 29 Sep 1955 / J. Labrador FACTS

Plaintiff does not have a wholesale store for selling the cars and trucks assembled by it and neither does it display them. Plaintiff takes steps to import raw materials and other spare parts for motor cars and trucks only after it receives the purchase orders of its customers. It does not undertake the assembling of cars and trucks to keep stock on hand for wholesale sale.

Central Azucarera (appellee) is engaged in milling and manufacturing sugar. It maintains a sugar mill where sugarcane is processed, warehouses where sugar is stored, a main office in Manila and a branch office in Nasugbu, Batangas. The City of Manila assessed taxes on the appellee under two municipal ordinances imposing taxes on wholesale dealers and retailers, respectively. It claimed that it sold sugar to Kim Kee Chua Yu & Co, Inc. and to San Miguel Corp., it sold sugar at wholesale and retail, respectively, and since the contracts of sale were made in Manila, appellee is taxable as a dealer of sugar in the city. The sugar sold and delivered was taken from warehouses of the appellee and delivered partly in Manila, in Pasay and in Nasugbu.

“Manufacturer" in its plain and ordinary meaning includes "the process of assembling articles which, while complete and finished, have no independent utility, but are designed to be used in combination as parts of some other article, such as a typewriter, an automobile, or the like, but when so used the process of assembling usually, if not always, involves the exercise of manual or mechanical skill and labor and the more or less extensive use of auxiliary machinery" (M. H. Rowe Co. v. Beck)

The CFI found for appellee ordering the City to refund the assessed and collected taxes, hence the City appealed to the SC.

The NIRC defines manufacturer as follows: a.

ISSUE / HELD

"(x) ‘Manufacturer’ includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare if tor a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or

W/N appellee is taxable under the ordinances. NO. CFI judgment affirmed. RATIO 1. The manufacturer becomes a dealer if he carries on the business of selling goods or his products manufactured by him at a store or warehouse apart form his own shop or manufactory. But appellee did not carry on the business of selling sugar at stores or at its warehouses. It entered into the contracts of sale at its central office in Manila and made deliveres of the sugar sold from its warehouses. It does not appear that the plaintiff keeps stores at its warehouses and engages in selling sugar in said stores. Neither does it appear that any one who desires to purchase sugar from it may go to the warehouses and there purchase sugar. All that it does was to sell the sugar it manufactured.

21

Section 18(o) of the Revised Charter of the City (Republic Act No. 409): "...to tax and fix the license fees on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax under the provisions of this section."

36

A dealer is a middleman between the producer and the consumer. A dealer is one who buys to sell again. He stands immediately between the producer and consumer, and depends for his profits not on the labor he bestows on his commodities, but on the skill and foresight with which he watches the markets. 2. Appellee converts sugarcane into sugar. It may be liable for the manufacturer's tax or producer's tax for the sugar it manufacturers, but the mere fact that it sells the sugar it manufactures does not thereby make it a dealer in sugar. The right to manufacture implies the right to sell the manufactured product at the manufactory. CALTEX PHILIPPINES V CITY OF MANILA



City of Manila, filed a complaint in the Court of First Instance of Manila to collect from the Manila Remnant Co., Inc



The complaint was in regards to total accumulated license taxes provided for in a municipal ordinance which defendant failed to pay for retail sales made from 1946 to 1950



The parties agreed that to determine the nature of the sales of the textiles by the defendant, the court may take as a basis the sales made in the year 1948 in favor of different purchasers



The only question to be determined is whether the sales of textiles made by defendants to different factories specified in paragraph 4 of the stipulation of facts

Caltex Philippines Inc. v. City of Manila and Cudiamat, City Treasurer (1969). 3 years after the ruling in Central Azucarera Don Pedro v. Manila, Caltex reorganized its operations so that no sales would be conducted from its storage sites in Pandacan, Manila. All sales would exclusively go through its main office in Ermita, Manila.

Liberty Shirt Factory

1,543 kilos

Bee Cuan Shirt Factory

7,835 kilos

Ben Shen Shirt Factory

2,903 kilos

Philippine Kapok Factory

13,208 kilos

Army Shirt Factory

3,338 kilos

ISSUES: (1) WON they would still fall under the Manila City ordinance imposing a “dealers” tax. (NO). (2) WON they intentionally changed their setup to avoid the tax (NO).

Kok Hoa Shirt Factory

SC: As in the case of Azucarera, Caltex cannot be considered a dealer falling under the purview of the dealers tax. Also, there was no intent to evade since the reorganization happened 3 years later.

Grand total

321 kilos 30,149 kilos

in order that said factories might cut those textiles and convert them into finished suits and dresses to be sold to consumers, were wholesale or retail. If they were wholesale this case must be dismissed. If they were retail defendant must pay the amount claimed by plaintiff in its complaint.

Doctrines & Principles: (1) Dealer is “a person who makes a business of buying and selling goods especially as distinguished from a manufacturer xxxx a middle man between the producer and the consumer xxxx one who buys to sell again xxxx who stands between the producer and consumer, and depends for his profit not on the labor he bestows on his commodities, but on the skill and foresight with which he watchers the markets” (citing Central Azucarera Don Pedro v. Manila). (2) A manufacturer is not a dealer when it sells its own goods EXCEPT in the situation where it sets up a business store at its warehouse situated apart from its manufacturing facilities where sales are made to whoever may come to buy. The right to manufacture carries with it the right to sell.



The lower court rendered judgment in favor of the plaintiff and sentenced the defendant to pay to it the sum of P8,709, with legal interest from the date of the filing of the complaint, with costs

ISSUE: WON the corporation is on a wholsale business or retail business and whether the use of the purchaser can be a basis of the said assessment. Decision: The sales made were for retail purposes, thus liable Ratio: 

MANILA CITY V MANILA REMNANT DOCTRINE: THERE is no fixed amount or volume of sale to be used as a reliable test in determining whether the sale is for retail or wholesale purposes. It should not be too difficult to determine the nature of a sale if we consider the business of the buyer, regardless of the bulk or volume of the sale. FACTS:

37

As contended, the use of the purchases is not within the control of the seller, thus, this contention would seem meritorious because a purchaser of a commodity may either consume it or otherwise devote it to its own use, or it may resell it for profit. HOWEVER, The trouble with appellant's theory is that there is no fixed amount or volume of sale to be used as a reliable test.

o 

It should not be too difficult to determine the nature of a sale if we consider the business of the buyer, regardless of the bulk or volume of the sale. o



FACTS: This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by the Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the City.  Ordinance No. 279 of Cebu is "an ordinance imposing a quarterly tax on gross sales or receipts of merchants, dealers, importers and manufacturers of any commodity doing business" in Cebu City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a quarter.  Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be considered as sales" in the city and shall be taxable.  The Philippine Match Co., Ltd., is engaged in the manufacture of matches. It ships cases or cartons of matches from Manila to its branch office in Cebu City for storage, sale and distribution within the territories and districts under its Cebu branch or the whole Visayas-Mindanao region.  The company does not question the tax on the matches of matches consummated in Cebu City. It assails the legality of the tax which the city treasurer collected on out-of- town deliveries of matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the city; (2) transfers of matches to newsmen assigned to different agencies outside of the city and (3) shipments of matches to provincial customers pursuant to salesmen's instructions.

A sale of half dozen pairs of socks may support the inference that said socks are all going to be used by the buyer, so that the sale is retail.

A sale or fix or a dozen bolts (piezas) of cloth to a retail merchant engaged in the sale of cloth by the yard or meter should be consider as wholesale; and a sale even of dozens of the bolts or hundreds of kilos of cloth or textiles to tailor, shirt factories or dressmaking establishments, should be regarded as retail for the reason that said textiles are consumed by said buyers in their business of converting the cloth into finished suits, dresses, shirts, etc., using in the conversion and manufacture not only the original cloth, but also thread, buttoms, metal hooks, zippers, trimmings, decoration, etc., resulting in a product for sale, one entirely different from the original article purchased.

In Tan v . de la Fuente case: o

The fact that the purchases — the tailors, shirt, factories, taxicab companies and schools — transformed such dry goods bought from the appellee into suits, shirts and other garments, used them for seat covers, or sold them to their employees and to their teachers and students, does not convert the sale made by the appellee into wholesale and tailors, shirt factories, taxicab companies and schools into retailers. They were consumers in legal contemplation because they use the goods purchased by them. The retail sale of copra for the manufacture of soap or oleo-margarine, of hemp used to make twine or rope and in general of raw materials that are used or enter into the manufacture of finished products, cannot be deemed wholesale by the mere fact that the copra, hemp and raw materials are sold in altered form to the ultimate consumer.



The definition provided by Republic Act No. 1180 will not apply because the definition given in Section 4 was intended only for the purpose of said Act, and second, because said Republic Act was passed only on June 19, 1954, long after the transactions involved in the present case, namely, from 1946 to 1950.



On the basis of the stipulation of facts, particularly the sales made in the year 1948, and the fact that said sales were made to shirt factories and a Kapok factory which evidently consumed and used the textiles purchased by them for conversion and manufacture into shirts, suits, etc., it is clear that the sales made by the defendant should be regarded as retail, and consequently, it should pay the license taxes due to the plaintiff. Finding no reversible error in the decision appealed from, the same is hereby affirmed, with costs.

ISSUE: (1) WON the City of Cebu can tax sales of matches which were perfected and paid for in Cebu City but the matches were delivered to customers outside of the City. (2) WON the trial court erred in not ordering defendant acting city treasurer to pay exemplary damages HELD: 1. Yes. 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). The municipal board of Cebu City is empowered "to provide for the levy and collection of taxes for general and purposes in accordance with law" (Sec. 17[a], Commonwealth Act No. 58; Sec. 31[l], Rep. Act No. 3857, Revised Charter of Cebu city). The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy Act, Republic Act No. 2264 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. The taxing power of cities, municipalities and municipal districts may be used (1) "upon any person engaged in any occupation or

PHILIPPINE MATCH CO., LTD.
VS.
THE CITY OF CEBU TOPIC: LOCAL GOVERNMENT TAXATION

38

RULING:

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.

The court ruled that the tax ordinances issued by the local autonomy is governed by the Local Tax Code of 1974 as it was stated in Section 64 (a) thereof all existing tax ordinances of provinces, cities, municipalities and barrios shall be deemed ipso facto nullified on June 30, 1974. The court also clarified that the 120 days that lapsed before the Minister of Finance acted on the ordinance did not render the action inoperative due to prescription. Even if the Secretary of Finance failed to review or act on the ordinance within 120 days, it does not follow as a legal consequence thereof that an otherwise invalid ordinance is thereby validated. It does not also mean that the Secretary can no longer act by suspending and/or revoking an invalid ordinance even after the lapse of 120 day period.

The sales in the instant case were in the city and the matches sold were stored in the city. The fact that the matches were delivered to customers, whose places of business were outside of the city, would not place those sales beyond the city's taxing power. Those sales formed part of the merchandising business being assigned on by the company in the city. In essence, they are the same as sales of matches fully consummated in the city. 2. No. The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is argued that the city treasurer refused and neglected without just cause to perform his duty and to act with justice and good faith. The company faults the city treasurer for not following the opinion of the city fiscals, as legal adviser of the city, that all out-of-town deliveries of matches are not subject to sales tax because such transactions were effected outside of the city's territorial limits. The city treasurer acted within the scope of his authority and in consonance with his bona fide interpretation of the tax ordinance. The fact that his action was not completely sustained by the courts would not him liable for the court have upheld his act of taxing sales of matches booked and paid for in the city.

MOBIL PHILIPPINES VS CITY TREASURER OF MAKATI

Facts: Mobil Philippines Inc is a domestic corporation engaged in the manufacturing, importing, exporting and wholesaling of petroleum products, while respondents are the local government officials of the City of Makati charged with the implementation of the Revenue Code of the City of Makati, as well as the collection and assessment of business taxes, license fees and permit fees within said city. Prior to September 1998, petitioner’s principal office was in Makati City. On August 20, 1998, petitioner filed an application with the City Treasurer of Makati for the retirement of its business within the City of Makati as it moved its principal place of business to Pasig City.

JESUS ESTANISLAO VS. AMADO COSTALES GRN 96516 May 8, 1991 / 196 SCRA 853

The OIC of the License Division issued a billing slip of business taxes amounting to P 1,898,106.96 which the petitioner paid under protest on September 1998. In 1999, petitioner filed a claim for refund but was denied. The trial court rules that the payments made by the petitioner in 1998 are payments for the business taxes in 1997.

Gancayco, J.: FACTS: The Sanggunian Panglungsod passed ordinance No 44 of Zamboanga City. The same was sent to the Minister of Finance where it was found out to contravenes Section 19 of the local Tax Code. The authority of the city is limited to the imposition of a percentage tax on the gross sales or receipts of said production. The tax being imposed in the ordinance is based on the output or production and not on the gross sales or receipts as authorized under the local tax code. The city Mayor of Zamboanga questioned such decision of the Finance Minister and the lower court ruled in favor of the former by reason of prescription. The ordinance imposed P0.01 per liter of softdrinks produced, manufactured and or bottled within the territorial jurisdiction of the City of Zamboanga.

Issue: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998?

Ruling: The trial court erred when it said that the payments made by petitioner in 1998 are payments for business tax incurred in 1997 which only accrued in January 1998. Business taxes imposed in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a business in the year the tax was

ISSUE: Whether or not Ordinance No. 44 contravenes the Local Tax Code of 1974.

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paid. It is paid at the beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business.

The firm of Pujalte & Co. is engaged in the business of timber, and it was shown that prior to the assignment of the railroad ties to HSBC it owed to the BIR forest charges, one of the taxes enumerated in the NIRC, amounting to P8328.93. It executed a bond of P2000 to secure the payment of the forest charges and was allowed to remove the timber from the public forests.

Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person’s income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one taxable year. It is due on or before the 15th day of the 4th month following the close of the taxpayer’s taxable year .

More than a year later, when some of the timber were already made into railroad ties and transferred to third parties like HSBC, the Collector instituted collection proceedings agains Pujalte. To enforce collection, the CIR went after thee property of Pujalte & Co. including that which were already in the possession of HSBC, who at the time it acquired the property had no notice of the lien nor of the delinquent tax due from Pujalte.

Under the Makati Revenue Code, it appears that the business tax, like income tax, is computed based on the previous year’s figures. In computing the amount of tax due for the first quarter of operations, the business’ capital investment is used as the basis. For the subsequent quarters of the first year, the tax is based on the gross sales/receipts for the previous quarter. The business taxes paid in the year 1998 is for the privilege of engaging in business for the same year, and not for having engaged in business for 1997.

ISSUE: Whether or not the CIR can still enforce the lien? Held: No, the lien does not follow the property subject to the tax into the hands of a third party when at the time of transfer, no demand for payment had been made and when the purchaser then had no notice of the existence of the lien.

Under the same Code, on the year an establishment retires or terminates its business within the municipality, it would be required to pay the difference in the amount if the tax collected, based on the previous year’s gross sales or receipts, is less than the actual tax due based on the current year’s gross sales or receipts. For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998. The amount of tax as computed based on petitioner’s gross sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based on petitioner’s actual gross sales for 1998, petitioner upon its retirement is not liable for additional taxes to the City of Makati. Thus, the Court ruled that the respondent erroneously treated the assessment and collection of business tax as if it were income tax, by rendering an additional assessment of P1,331,638.84 for the revenue generated for the year 1998.

Under the general rule of the Civil law, possession of movables is not necessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property even in the hands of a bona fide purchaser without notice. Under the law of taxation however, the tax lien does not establish itself upon property which has been transferred to an innocent purchaser prior to demand. A demand is necessary to create and bring the lien into operation. Furthermore, in order that the lien may follow the property into the hands of a third party, it is essential that the latter should have notice, either actual or constructive. The reason behind this is the benevolence of our Constitution which prohibits the taking of property without due process of law. The policy of the law is against upholding secret liens and charges against property of innocent purchasers or encumbrances for value. At the time HSBC acquired the property there was nothing to show that Pujalte & Co. were deliquent tax payers nor were there any public records that may be consulted to protect it from loss by reason of the existence of a secret lien.

Therefore, respondents City Treasurer and Chief of the License Division of Makati City are ordered to refund to petitioner business taxes paid in the amount of P1,331,638.84.

Minor issue on the right of HSBC to recover interest from the undue enforcement of the lien: The reckoning date for the computation of interest should be the date when the taxpayer lost the income from the funds by payment under protest. In this case, it is not from the filing of the complaint for collection but on the date HSBC was deprived of the property.

HONGKONG & SHANGHAI BANKING CORPORATION V. RAFFERTY G.R. No. L-13188, November 15, 1918 39 SCRA 145 FACTS: Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from the firm of Pujalte & Co. which the latter assigned to it after it was unable to pay a large sum of money it then owed to HSBC.

SERFINO V. CA (GR L-40858, 15 September 1987) Ponente : Paras, J. Facts:

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On 25 August 1937, a parcel of land was patented in the name of Pacifico Casamayor (OCT1839). On 14 December 1945, he sold said land in favor of Nemesia D. Balatazar (TCT No. 57-N, 18 January1946). OCT 1839 was lost during the war and upon petition of Nemesia Baltazar, the Court of First Instance of Negros Occidental ordered the reconstitution thereof. Pursuant thereto, OCT 14-R (1839) was issued on 18 January 1946 in the name of Pacifico Casamayor. On that same day, TCT 57-N was issued in the name of Nemesia Baltazar but after the cancellation of OCT 14-R(1839). On 15 August 1951, Nemesia Baltazar, sold said property to Lopez Sugar Central Mill Co., and the latter did not present the documents for registration until 17December 1964 to the Office of the Registry of Deeds. Said office refused registration upon its discovery that the same property was covered by another certificate of title, TCT 38985, in the name of Federico Serfino. On 19November 1964, the spouses Serfinos mortgaged the land to the Philippine National Bank (PNB) to secure a loan in the amount of P5,000.00; which was inscribed in TCT No. 38985.The Lopez Sugar Central instituted an action to recover said land; and the lower court rendered a decision ordering the cancellation of TCT No. 38985;issuance of a new TCT in the name of plaintiff; and the payment of the plaintiff PNB the loan of spouses Serfinos secured by said land. Both parties appealed from this decision of the trial court. Ruling on the assignment of errors, the appellate court affirmed the judgment of the trial court with modification in its decision setting aside the decision of the trial court declaring plaintiff liable to PNB for payment, however, ordering the plaintiff to reimburse the Serfino spouses of the sum P1,839.49, representing the unpaid taxes and penalties paid by the latter when they repurchased the property. Hence, the appeal by the spouses Serfino and PNB to the Supreme Court. Issue: Whether the auction sale of the disputed property was null and void. Held: The assailed decision of the appellate court declares that the prescribed procedure in auction sales of property for tax delinquency being in derogation of property rights should be followed punctiliously. Strict adherence to the statutes governing tax sales is imperative not only for the protection of the tax payers, but also to allay any possible suspicion of collusion between the buyer and the public officials called upon to enforce such laws. Notice of sale to the delinquent land owners and to the public in general is an essential and indispensable requirement of law, the non-fulfillment of which vitiates the sale. In the present case, Lopez Sugar Central was not entirely negligent in its payment of land taxes. The record shows that taxes were paid for the years 1950 to 1953 and a receipt therefor was obtained in its name. The sale therefore byte Province of Negros Occidental of the land in dispute to the spouses Serfinos was void since the Province of Negros Occidental was not the real owner of the property thus sold. In turn, the spouses Serfinos title which has been derived from that of the Province of Negros Occidental is likewise void. However, the fact that the public auction sale of the disputed property was not valid cannot in any way be attributed to the Mortgagee’s fault. The inability of the Register of Deeds to notify the actual owner or Lopez Sugar Central of the scheduled public auction sale was partly due to the failure of Lopez Sugar Central to declare the land in its name for a number of years and to pay the complete taxes thereon. PNB is therefore entitled to the payment of the mortgage loan as ruled by the trial court and exempted from the

payment of costs. The Supreme Court affirmed the assailed decision, with modification that PNB mortgage credit must be paid by Lopez Sugar Central. ESTATE OF LATE MERCEDES V. CA The land subject matter hereof owned by Mercedes Jacob and covered by Transfer Certificate of Title No. 39178 was sold at public auction to satisfy the tax delinquency of the land. Members of the Jacob family tried to redeem the property from buyer Virginia Tugbang but she evaded them until the Final Bill of Sale was issued to her. Petitioners, the heirs of the late Mercedes Jacob filed a complaint with the Regional Trial Court of Quezon City against respondent spouses Ramon R. Tugbang, for annulment or cancellation of the auction sale, the final Bill of Sale, TCT No. 81860, the new certificate of title issued to the Tugbangs and for redemption of the property plus damages. The trial court dismissed the petition purportedly for lack of jurisdiction as the petition according to the trial court is in reality a petition to annul and set aside the Decision rendered by the RTC, Quezon City, Br. 106. canceling Mercedes Jacob's TCT No. 39178 and consolidating title to the property to private respondent Virginia Tugbang, and ordering the issuance of new title in her favor. Petitioners filed a petition for review on certiorari with the Court but this Court referred it to the Court of Appeals. However, the appellate court dismissed the petition for lack of merit. This petition seeks the reversal of the Decision of the Court of Appeals and for judgment directing the RTC - Br. 82, Quezon City, to proceed with the trial of Civil Case. The Supreme Court granted the petition. The Court ruled that a cursory examination of the petition readily shows that it is an action for reconveyance. The petition states that petitioners are not after the annulment of the judgment of the Regional Trial Court, Quezon City, Br. 106. The Regional Trial Court has jurisdiction over the petition as it may be considered only as a continuation of the original proceeding Alberto Sta. Maria sold in 1964 a parcel of land covered by TCT. No. 68818 to Teresa L. Valencia who, as a consequence, had the title cancelled and TCT No. 79818 issued in her name. She however failed to have the tax declaration transferred in her name. In 1973 Valencia sold the land on installment with a mortgage in favor of respondent Bernardito C. Tolentino. However, from 1979 to 1983 Valencia failed to pay the real estate taxes due on the land. As a result, the land was sold at a public auction to cover the tax delinquency. The spouses Romeo and Verna Chua bought the land in question. Thereafter, a certificate of sale was issued to the Chua spouses but it showed on its face that the land was still covered by TCT No. 68818 and not TCT No. 79818. Apparently, the Office of the City Treasurer was unaware that TCT No. 68818 had already been canceled by TCT No. 79818. However, in the Final Bill of Sale issued to the Chua spouses TCT No. 79818 still appeared in the name of Alberto Sta. Maria, the former owner. The Chua spouses filed a petition with the Regional Trial Court of Quezon City for the cancellation of TCT No. 79818 and the issuance of a new title in their name. The court granted their petition and TCT No. 357727 was issued in the name of the Chua spouses. In the meantime, Bernardita Tolentino paid in full the purchase price of the property and Teresa L. Valencia executed a deed of absolute sale in her favor. On 2 August 1988, in view of the fire that gutted the office of the Register of Deeds of Quezon City,

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Tolentino filed a petition for reconstitution of TCT No. 79818. As purchasers of the property in the auction sale, the Chuas demanded delivery of possession from Bernardito C. Tolentino and Teresa L. Valencia. As a consequence, Tolentino sued for annulment of the auction sale in the Regional Trial Court of Quezon City. The trial court granted the petition. The Court of Appeals affirmed the court a quo. Hence, this petition for review on certiorari by the City Treasurer of Quezon City.

reiterated its warning that its properties may be sold at public auction if it failed to pay the taxes due.

The Supreme Court annulled the public auction sale and ordered the Register of Deeds of Quezon City to cancel TCT No. 352727 and issue in lieu thereof a new one in the name of respondent Bernardita C. Tolentino. The Court held that in ascertaining the identity of the delinquent taxpayer the City Treasurer should have not simply relied on the tax declaration. The property being covered by the Torrens System, it would have been more prudent for him to verify from the Office of the Register of Deeds of Quezon City where the property is situated and as to who the registered owner was at the time the auction sale was to take place, to determine who the real delinquent taxpayer was within the purview of Section 73 of PD No. 464. When the property was sold by Sta. Maria to Valencia in 1964 the law applicable was RA No. 537 which provides that failure to do so (to make a new declaration) shall make the assessment in the name of the previous owner valid and binding on all persons interested, and for all purposes, as though the same had been assessed in the name of the actual owner. However the law in force at the time of the auction sale on 29 February 1984 was already PD No. 464 which did not contain the aforecited phrase. The fact that the pertinent phrase found in both RA No. 537 and RA No. 409 was not incorporated in PD No. 464 implies that the assessment of the subject property in the name of Sta. Maria would not bind, much less affect, Valencia for there is no longer any statutory waiver of the right to contest assessment by the actual owner due to mere non-declaration.

5.

MERALCO filed before the RTC Makati applied for TRO to enjoin the Municipal Treasurer of Muntinlupa from enforcing the warrants of garnishment. Petitioner alleged, inter alia, that it had paid the real property taxes on its properties from 1975 to 1978 in full, based on the assessed value thereof.

6.

RTC issued a TRO

7.

The Municipal Treasurer filed a Motion to Dismiss[15] on the following grounds:

a.

b.

lack of jurisdiction, since under Sec. 64 of the Real Property Tax Code, courts are prohibited from entertaining any suit assailing the validity of a tax assessed thereunder until the taxpayer shall have paid, under protest, the tax assessed against him; and lack of cause of action, by reason of MERALCO’s failure to question the notice of assessment issued to it by the Municipality of Muntinlupa before the Local Board of Assessment Appeals.

8.

RTC denied the motion to dismiss, ratiocinating that since MERALCO was not the present owner or possessor of the properties in question, it was not the “taxpayer” contemplated under Section 64 of the Tax Code:

9.

CA ruling:

MERALCO V BARLIS GR 114231 dated June 29, 2004 1.

From 1968 to 1972, petitioner MERALCO, engaged in the distribution of electricity, erected four (4) power generating plants in Sucat, Muntinlupa. To equip the power plants, various machineries and equipment were purchased both locally and abroad.

2.

When the Real Property Tax Code took effect on June 1, 1974, MERALCO filed its tax declarations covering the Sucat power plants, including the buildings thereon as well as the machineries and equipment.

3.

In 1978, MERALCO sold all the power-generating plants including the landsite to the National Power Corporation (NAPOCOR), a corporation fully owned and controlled by the Philippine government.

4.

In 1985, the Municipal Assessor of Muntinlupa, discovered that MERALCO, for the period beginning January 1, 1976 to December 29, 1978, misdeclared and/or failed to declare for taxation purposes a number of real properties. Hence, demanded payment of real property taxes and

Declared the assailed order “void and without life in law, having been issued without jurisdiction, on a petition that further does not state a sufficient cause of action, filed by a party who had not exhausted available administrative remedies.”[18] The CA ruled that MERALCO was the taxpayer liable for the taxes due, and that it was barred under Section 64 of P.D. No. 464 from assailing the 1986 assessment of the Municipal Assessor for its failure to appeal therefrom.

10. MERALCO filed a petition for review on certiorari under Rule 45,  the petitioner was not the taxpayer for the purpose of an assessment under the Real Property Tax Code; and,  no assessment was made by the respondent, and only collection letters were sent to it; hence, Section 30 of the said Code had no application. The petitioner also alleged that its petition stated a sufficient cause of action for prohibition against the petitioner. Thus: ISSUE:

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WON, respondent’s letters are notices of assessment envisaged in Section 27 of P.D. No. 464. – NO!

of Local Government Finance relating to the failure of most of the cities and municipalities of Metropolitan Manila, including the City of Manila, to conduct the general revision of real property and after obtaining the necessary funds from the City Council, the City Assessor began the process of general revision based on the updated fair market values of the real properties. The City Assessor’s Office submitted the proposed schedule of fair market values to the City Council for its appropriate action. The council then enacted Manila Ordinance No. 7894 which was approved. With the implementation of the ordinance, the tax on the land owned by the petitioner was increase hence he filed a special proceeding for the declaration of nullity of the City of Manila Ordinance No. 7894 for being “unjust, excessive, oppressive or confiscatory.” Manila Ordinance No. 7905 took effect thereafter, reducing by fifty percent (50%) the assessment levels (depending on the use of property, e.g., residential, commercial) for the computation of tax due. The new ordinance amended the assessment levels provided by Section 74, paragraph (A) of Manila Ordinance No. 7794.. Despite the amendment brought about by Manila Ordinance No. 7905, the controversy proceeded. The trial court dismissed the case for failure of the petitioner to exhaust administrative remedies. ISSUE: W/N the doctrine of exhaustion of administrative remedies may be dispensed with in the instant case HELD: NO. As a general rule, where the law provides for the remedies against the action of an administrative board, body, or officer, relief to courts can be sought only after exhausting all remedies provided. The reason rests upon the presumption that the administrative body, if given the chance to correct its mistake or error, may amend its decision on a given matter and decide it properly. Therefore, where a remedy is available within the administrative machinery, this should be resorted to before resort can be made to the courts, not only to give the administrative agency the opportunity to decide the matter by itself correctly, but also to prevent unnecessary and premature resort to courts. “One of the reasons for the doctrine of exhaustion is the separation of powers which enjoins upon the judiciary a becoming policy of non-interference with matters coming primarily within the competence of other department. x x x There are however a number of instances when the doctrine may be dispensed with and judicial action validly resorted to immediately. Among these exceptional cases are: (1) when the question raised is purely legal, (2) when the administrative body is in estoppel; (3) when the act complained of is patently illegal; (4) when there is urgent need for judicial intervention; (5) when the claim involved is small; (6) when irreparable damage will be suffered; (7) when there is no other plain, speedy and adequate remedy; (8) when strong public interest is involved; (9) when the subject of controversy is private land; and (10) in quo-warranto proceeding (citation omitted). In the court’s opinion, however, the instant petition does not fall within any of the exceptions above-mentioned.

HELD: The Court, upheld the petitioner’s contention and ruled that the aforequoted letters/notices are not the notices of assessment envisaged in Section 27 of P.D. No. 464. Thus: It is apparent why the foregoing cannot qualify as a notice of tax assessment. A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property, or proportion thereof subject to tax, including the discovery, listing, classification, and appraisal of properties. The September 3, 1986 and October 31, 1989 notices do not contain the essential information that a notice of assessment must specify, namely, the value of a specific property or proportion thereof which is being taxed, nor does it state the discovery, listing, classification and appraisal of the property subject to taxation. In fact, the tenor of the notices bespeaks an intention to collect unpaid taxes, thus the reminder to the taxpayer that the failure to pay the taxes shall authorize the government to auction off the properties subject to taxes or, in the words of the notice, “Ipinaala-ala po lamang, ang sino mang magpabaya o magkautang ng buwis ng maluwat ay isusubasta (Auction Sale) ng pamahalaan ang inyong ari-arian ng naaayon sa batas.” The Court further rules that there is a need to remand the case for further proceedings, in order for the trial court to resolve the factual issue of whether or not the Municipal Assessor served copies of Tax Declarations Nos. B-009-05499 to B009-05502 on the petitioner, and, if in the affirmative, when the petitioner received the same; and to resolve the other issues raised by the parties in their pleadings. It bears stressing that the Court is not a trier of facts. The Decision of this Court dismissing the petition is SET ASIDE. The petition at bar is GIVEN DUE COURSE and GRANTED. The assailed decision of the CA is REVERSED and SET ASIDE. The case is REMANDED to the trial court for further proceedings. The trial court is DIRECTED to terminate the proceedings within six (6) months from notice hereof. LOPEZ V. CITY OF MANILA FACTS: Section 219 of Republic Act 7160 (R.A. 7160) or the Local Government Code of 1991 requires the conduct of the general revision of real property. The revision of real property assessments prescribed therein was not yet enforced in the City of Manila. Upon receipt of Memorandum Circular No. 04-95 from the Bureau

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