TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
TAX II – Atty. Mendoza
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.”
MANILA ELECTRIC COMPANY vs. PROVINCE OF LAGUNA
FACTS
Manila Electric Company (MERALCO) on various dates (the latest being
January 19, 1983) was granted franchises by various municipalities of
Laguna. On Sept. 12 1991, RA 7160 "Local Government Code of 1991" (LGC)
was enacted to take effect on Jan.1 1992 enjoining local goverment units to
create their own sources of revenue and to levy taxes, fees and charges,
subject to the limitations, consistent with the basic policy of local autonomy.
Respondent Laguna Province enacted Ordinance No. 01-92 (effective Jan. 1,
1993) providing, in part:
“Sec. 2.09. Franchise Tax. – There is hereby imposed a tax on businesses
enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%)
of the gross annual receipts, which shall include both cash sales and sales
on account realized during the preceding calendar year within this
province, including the territorial limits on any city located in the
province”
MERALCO was then sent a demand letter to pay the corresponding tax.
MERALCO paid the tax under protest (approx. Php19.5M) and later on filed
a formal claim for refund. It contends that the stated Section 2.09 of the
LGC contravened the provisions of Section 1 of PD 551, which provides:
“Any provision of law or local ordinance to the contrary notwithstanding,
the franchise tax payable by all grantees of franchises to generate,
distribute and sell electric current for light, heat and power shall be two
per cent (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 or 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
1B in 3B DIGEST GROUP
MERALCO then filed a complaint for refund with a prayer for the issuance of
a writ of preliminary injunction and/or TRO at the RTC of Sta. Cruz, Laguna.
The RTC dismissed the complaint and ruled that the Ordinance was valid,
binding, reasonable and enforceable.
ISSUES
1. W/N the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as MERALCO is concerned, is
violative of the non-impairment clause of the Constitution and
Section 1 of Presidential Decree No. 551? NO
2. W/N the LGC, has repealed, amended or modified Presidential
Decree No. 551? YES
RULING
(As an intro for the ruling as stated by the SC:)
Local Governments do not have the inherent power to tax except to the
extent that such power might be delegated to them either by the basic law
or by statute. Presently, Under Article X of the 1987 Constitution, a general
delegation of that power has been given in favor of the Local Government
Units (LGU).
Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although
Congress may provide statutory limitations and guidelines. The basic
rationale for the current rule is to safeguard the viability and self-sufficiency
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
TAX II – Atty. Mendoza
of local government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation
to be absolute and unconditional; the constitutional objective obviously is
to ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that (a) the
taxpayer will not be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government
will not be unduly disturbed; and (d) local taxation will be fair, uniform,
and just.
vesting broad tax powers to local government units, LGC has effectively
withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states:
1. While the Court has, not too infrequently, referred to tax exemptions
contained in special franchises as being in the nature of contracts and a part
of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature. Contractual
tax exemptions, in the real sense of the term and where the nonimpairment clause of the Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under
enabling laws in which the government, acting in its private capacity,
sheds its cloak of authority and waives its governmental immunity. Truly,
tax exemptions of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax exemptions, however, are
not to be confused with tax exemptions granted under franchises. A
franchise partakes the nature of a grant which is beyond the purview of the
non-impairment clause of the Constitution.
The Code, in addition, contains a general repealing clause in its Section 534;
thus:
2. The Local Government Code of 1991 explicitly authorizes provincial
governments, notwithstanding “any exemption granted by any law or other
special law, x x x (to) impose a tax on businesses enjoying a franchise".
(Section 137 of the LGC)
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
Bienvenido V. Reyes, et al., the Court has held that the phrase in lieu of all
taxes “have to give way to the peremptory language of the Local
Government Code specifically providing for the withdrawal of such
exemptions, privileges,” and that “upon the effectivity of the Local
Government Code all exemptions except only as provided therein can no
longer be invoked by MERALCO to disclaim liability for the local tax.” In fine,
Indicative of the legislative intent to carry out the Constitutional mandate of
1B in 3B DIGEST GROUP
“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. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn
upon the effectivity of this Code.
“Section 534. Repealing Clause. – x x x.
“(f) All general and special laws, acts, city charters, decrees, executive
orders, proclamations 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.
3. MERALCO further contends that in a plethora of cases including Court in
Province of Misamis Oriental vs. Cagayan Electric Power and Light Company,
Inc., the phrase "shall be in lieu of all taxes and at any time levied,
established by, or collected by any authority" exempted the franchise
holder from any other tax imposed by the then Internal Revenue Cod and
local ordinaces. The SC holds otherwise.
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
the Court has viewed its previous rulings as laying stress more on the
legislative intent of the amendatory law – whether the tax exemption
privilege is to be withdrawn or not – rather than on whether the law can
withdraw, without violating the Constitution, the tax exemption or not.
PROVINCE OF BULACAN vs. CA
FACTS
On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed
Provincial Ordinance No. 3, known as "An Ordinance Enacting the Revenue
Code of the Bulacan Province." Section 21 of the ordinance provides as
follows:
Sec. 21 Imposition of Tax. There is hereby levied and collected a tax of
10% of the fair market value in the locality per cubic meter of ordinary
stones, sand, gravel, earth and other quarry resources, such, but not
limited to marble, granite, volcanic cinders, basalt, tuff and rock
phosphate, extracted from public lands or from beds of seas, lakes, rivers,
streams, creeks and other public waters within its territorial jurisdiction.
Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated
November 11, 1993, assessed private respondent Republic Cement
Corporation P2,524,692.13 for extracting limestone, shale and silica from
several parcels of private land in the province during the third quarter of
1992 until the second quarter of 1993. Believing that the province, on the
basis of above-said ordinance, had no authority to impose taxes on quarry
resources extracted from private lands, Republic Cement formally contested
the same on December 23, 1993 but was denied by the Provincial Treasurer
on January 17, 1994. Republic Cement consequently filed a petition for
declaratory relief with the RTC of Bulacan on February 14, 1994. The
province filed a motion to dismiss Republic Cement's petition, which was
granted by the trial court on May 13, 1993, which ruled that declaratory
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
relief was improper, allegedly because a breach of the ordinance had been
committed by Republic Cement.
On July 11, 1994, Republic Cement filed a petition for certiorari with the
Supreme Court seeking to reverse the trial court's dismissal of their petition.
The Court, in a resolution dated July 27, 1994, referred the same to the
Court of Appeals. In the interim, the Province of Bulacan issued a warrant of
levy against Republic Cement, allegedly because of its unpaid tax liabilities.
Negotiations between Republic Cement and petitioners resulted in an
agreement and modus vivendi (temporary agreement) on December 12,
1994, whereby Republic Cement agreed to pay under protest P1,262,346.00,
50% of the tax assessed by petitioner, in exchange for the lifting of the
warrant of levy. CA ruled that Province of Bulacan had no legal authority.
ISSUE
W/N the provincial government could impose and/or assess taxes on quarry
resources extracted by Republic Cement from private lands pursuant to
Section 21 of Provincial Ordinance No. 3? No, a province may not levy
excise taxes on articles already taxed by the National Internal Revenue
Code.
RULING
First, with regard to the remedial issue. Petitioners assert that the Court of
Appeals could only rule on the propriety of the trial court's dismissal of
Republic Cement's petition for declaratory relief, allegedly because that was
the sole relief sought by the latter in its petition for certiorari. Petitioners
claim that the appellate court overstepped its jurisdiction when it declared
null and void the assessment made by the Province of Bulacan against
Republic Cement. However, the SC declared that under the principle of
estoppel, the petitioners can no longer attack the modus Vivendi approved
by the CA.
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxx xxx xxx
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products;
xxx xxx xxx
Second and more importantly, is the issue on the validity of the ordinance.
The pertinent provisions of the Local Government Code are as follows:
Sec. 134. Scope of Taxing Powers. — Except as otherwise provided in this
Code, the province may levy only the taxes, fees, and charges as provided
in this Article.
Sec. 158. Tax on Sand, Gravel and Other Quarry Resources. — The
province may levy and collect not more than ten percent (10%) of fair
market value in the locality per cubic meter of ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National
Internal Revenue Code, as amended, extracted from public lands or from
the beds of seas, lakes, rivers, streams, creeks, and other public waters
within its territorial jurisdiction.
xxx xxx xxx
The CA on the basis of Section 134, ruled that a province was empowered to
impose taxes only on sand, gravel, and other quarry resources extracted
from public lands, its authority to tax being limited by said provision only to
those taxes, fees and charges provided in Article I, Chapter 2, Title 1 of Book
II of the Local Government Code. On the other hand, petitioners claim that
Sections 129 and 186 of the Local Government Code authorizes the province
to impose taxes other than those specifically enumerated under the Local
Government Code. The CA erred in ruling that a province can impose only
the taxes specifically mentioned under the Local Government Code. As
correctly pointed out by petitioners, Section 186 allows a province to levy
taxes other than those specifically enumerated under the Code, subject to
the conditions specified therein.
However, in spite of this, province of Bulacan is still prohibited from
imposing taxes on stones, sand, gravel, earth and other quarry resources
extracted from private lands. The tax imposed by the Province of Bulacan is
an excise tax, being a tax upon the performance, carrying on, or exercise of
an activity. The Local Government Code provides:
Sec. 133. — Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
A province may not, therefore, levy excise taxes on articles already taxed by
the National Internal Revenue Code. The National Internal Revenue Code
levies a tax on all quarry resources, regardless of origin, whether extracted
from public or private land. Thus, a province may not ordinarily impose
taxes on stones, sand, gravel, earth and other quarry resources, as the same
are already taxed under the National Internal Revenue Code. The province
can, however, impose a tax on stones, sand, gravel, earth and other quarry
resources extracted from public land because it is expressly empowered to
do so under the Local Government Code. As to stones, sand, gravel, earth
and other quarry resources extracted from private land, however, it may
not do so, because of the limitation provided by Section 133 of the Code in
relation to Section 151 of the National Internal Revenue Code.
MAGTAJAS vs. PRYCE PROPERTIES
FACTS
When PAGCOR announced the opening of a casino in Cagayan de Oro City,
Civic organizations angrily denounced the project. The trouble arose when
in 1992, PAGCOR decided to expand its operations to Cagayan de Oro City. It
leased a portion of a building belonging to Pryce.
The Sangguniang Panlungsod of Cagayan de Oro City enacted Ordinance No.
3353 which basically prohibits the issuance of business permits to any
establishment for the using and allowing to be used its premises or portion
thereof for the operation of casino.It also adopted a sterner Ordinance No.
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
3375-93 which prohibits the operation of casino and providing penalty for
violation thereof.
Pryce assailed the ordinances before the CA, where it was joined by
PAGCOR as intervenor and supplemental petitioner. The CA declared the
ordinances invalid and issued the writ prayed for to prohibit their
enforcement.
ISSUE
Whether or not the ordinances were unconstitutional and thus void
RULING
Yes.
PAGCOR is a corporation created directly by P.D. 1869 to help centralize and
regulate all games of chance, including within the territorial jurisdiction of
the Philippines. In Basco v. Philippine Amusements and Gaming Corporation,
this Court sustained the constitutionality of the decree and even cited the
benefits of the entity to the national economy as the third highest revenueearner in the government, next only to the BIR and the Bureau of Customs.
Cagayan de Oro City is empowered to enact ordinances for the purposes
indicated in the Local Government Code. It is expressly vested with the
police power under what is known as the General Welfare Clause now
embodied in Section 16 as follows:
Sec. 16. — General Welfare. — Every local government unit shall exercise
the powers expressly granted, those necessarily implied therefrom, as
well as powers necessary, appropriate, or incidental for its efficient and
effective governance, and those which are essential to the promotion of
the general welfare. Within their respective territorial jurisdictions, local
government units shall ensure and support, among other things, the
preservation and enrichment of culture, promote health and safety,
enhance the right of the people to a balanced ecology, encourage and
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
support the development of appropriate and self-reliant scientific and
technological capabilities, improve public morals, enhance economic
prosperity and social justice, promote full employment among their
residents, maintain peace and order, and preserve the comfort and
convenience of their inhabitants.
In addition, Section 458 of the said Code specifically declares that:
Sec. 458. — Powers, Duties, Functions and Compensation. — (a) The
Sangguniang Panlungsod, as the legislative body of the city, shall enact
ordinances, approve resolutions and appropriate funds for the general
welfare of the city and its inhabitants pursuant to Section 16 of this Code
and in the proper exercise of the corporate powers of the city as
provided for under Section 22 of this Code, and shall:
(1) Approve ordinances and pass resolutions necessary for an efficient
and effective city government, and in this connection, shall:
xxx xxx xxx
(v) Enact ordinances intended to prevent, suppress and
impose appropriate penalties for habitual drunkenness
in public places, vagrancy, mendicancy, prostitution,
establishment and maintenance of houses of ill repute,
gambling and other prohibited games of chance,
fraudulent devices and ways to obtain money or
property, drug addiction, maintenance of drug dens,
drug pushing, juvenile delinquency, the printing,
distribution or exhibition of obscene or pornographic
materials or publications, and such other activities
inimical to the welfare and morals of the inhabitants of
the city;
The petitioners argue that by virtue of these provisions, the Sangguniang
Panlungsod may prohibit the operation of casinos because they involve
games of chance, which are detrimental to the people. The legislative power
conferred upon local government units may be exercised over all kinds of
gambling and not only over "illegal gambling" as the respondents
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
erroneously argue. Even if the operation of casinos may have been
permitted under P.D. 1869, the government of Cagayan de Oro City has the
authority to prohibit them within its territory pursuant to the authority
entrusted to it by the Local Government Code.
The petitioners also stress that when the Code expressly authorized the
local government units to prevent and suppress gambling and other
prohibited games of chance, like craps, baccarat, blackjack and roulette, it
meant all forms of gambling without distinction. Ubi lex non distinguit, nec
nos distinguere debemos. Otherwise, it would have expressly excluded from
the scope of their power casinos and other forms of gambling authorized by
special law, as it could have easily done. The fact that it did not do so simply
means that the local government units are permitted to prohibit all kinds of
gambling within their territories, including the operation of casinos.
The adoption of the Local Government Code, it is pointed out, had the
effect of modifying the charter of the PAGCOR. The Code is not only a later
enactment than P.D. 1869 and so is deemed to prevail in case of
inconsistencies between them. More than this, the powers of the PAGCOR
under the decree are expressly discontinued by the Code insofar as they do
not conform to its philosophy and provisions, pursuant to Par. (f) of its
repealing clause reading as follows:
(f) All general and special laws, acts, city charters, decrees, executive
orders, proclamations 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.
It is also maintained that assuming there is doubt regarding the effect of the
Local Government Code on P.D. 1869, the doubt must be resolved in favor
of the petitioners, in accordance with the direction in the Code calling for its
liberal interpretation in favor of the local government units. Section 5 of the
Code specifically provides:
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
Sec. 5. Rules of Interpretation. — In the interpretation of the provisions
of this Code, the following rules shall apply:
(a) Any provision on a power of a local government unit shall be liberally
interpreted in its favor, and in case of doubt, any question thereon shall
be resolved in favor of devolution of powers and of the lower local
government unit. Any fair and reasonable doubt as to the existence of the
power shall be interpreted in favor of the local government unit
concerned;
xxx xxx xxx
(c) The general welfare provisions in this Code shall be liberally
interpreted to give more powers to local government units in accelerating
economic development and upgrading the quality of life for the people in
the community; . . . (Emphasis supplied.)
Finally, the petitioners also attack gambling as intrinsically harmful and cite
various provisions of the Constitution and several decisions of this Court
expressive of the general and official disapprobation of the vice. They
invoke the State policies on the family and the proper upbringing of the
youth and, as might be expected, call attention to the old case of U.S. v.
Salaveria, which sustained a municipal ordinance prohibiting the playing of
panguingue.
The morality of gambling is not a justiciable issue. Gambling is not illegal per
se. While it is generally considered inimical to the interests of the people,
there is nothing in the Constitution categorically proscribing or penalizing
gambling or, for that matter, even mentioning it at all. It is left to Congress
to deal with the activity as it sees fit. In the exercise of its own discretion,
the legislature may prohibit gambling altogether or allow it without
limitation or it may prohibit some forms of gambling and allow others for
whatever reasons it may consider sufficient. It is settled that questions
regarding the wisdom, morality, or practicibility of statutes are not
addressed to the judiciary but may be resolved only by the legislative and
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
executive departments, to which the function belongs in our scheme of
government. That function is exclusive.
The only question we can and shall resolve in this petition is the validity of
Ordinance No. 3355 and Ordinance No. 3375-93 as enacted by the
Sangguniang Panlungsod of Cagayan de Oro City. And we shall do so only by
the criteria laid down by law and not by our own convictions on the
propriety of gambling.
The tests of a valid ordinance are well established. A long line of decisions
has held that to be valid, an ordinance must conform to the following
substantive requirements:
1) It must not contravene the constitution or any statute.
2) It must not be unfair or oppressive.
3) It must not be partial or discriminatory.
4) It must not prohibit but may regulate trade.
5) It must be general and consistent with public policy.
6) It must not be unreasonable.
We begin by observing that under Sec. 458 of the Local Government Code,
local government units are authorized to prevent or suppress, among
others, "gambling and other prohibited games of chance." Obviously, this
provision excludes games of chance which are not prohibited but are in fact
permitted by law. The petitioners are less than accurate in claiming that the
Code could have excluded such games of chance but did not. In fact it does.
The language of the section is clear and unmistakable. Under the rule of
noscitur a sociis, a word or phrase should be interpreted in relation to, or
given the same meaning of, words with which it is associated. Accordingly,
we conclude that since the word "gambling" is associated with "and other
prohibited games of chance," the word should be read as referring to only
illegal gambling which, like the other prohibited games of chance, must be
prevented or suppressed.
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
The apparent flaw in the ordinances in question is that they contravene P.D.
1869 and the public policy embodied therein insofar as they prevent
PAGCOR from exercising the power conferred on it to operate a casino in
Cagayan de Oro City. The petitioners have an ingenious answer to this
misgiving. They deny that it is the ordinances that have changed P.D. 1869
for an ordinance admittedly cannot prevail against a statute. Their theory is
that the change has been made by the Local Government Code itself, which
was also enacted by the national lawmaking authority. In their view, the
decree has been, not really repealed by the Code, but merely "modified pro
tanto" in the sense that PAGCOR cannot now operate a casino over the
objection of the local government unit concerned. This modification of P.D.
1869 by the Local Government Code is permissible because one law can
change or repeal another law.
It seems to us that the petitioners are playing with words. While insisting
that the decree has only been "modified pro tanto," they are actually
arguing that it is already dead, repealed and useless for all intents and
purposes because the Code has shorn PAGCOR of all power to centralize
and regulate casinos. Strictly speaking, its operations may now be not only
prohibited by the local government unit; in fact, the prohibition is not only
discretionary but mandated by Section 458 of the Code if the word "shall"
as used therein is to be given its accepted meaning. Local government units
have now no choice but to prevent and suppress gambling, which in the
petitioners' view includes both legal and illegal gambling. Under this
construction, PAGCOR will have no more games of chance to regulate or
centralize as they must all be prohibited by the local government units
pursuant to the mandatory duty imposed upon them by the Code. In this
situation, PAGCOR cannot continue to exist except only as a toothless tiger
or a white elephant and will no longer be able to exercise its powers as a
prime source of government revenue through the operation of casinos.
It is noteworthy that the petitioners have cited only Par. (f) of the repealing
clause, conveniently discarding the rest of the provision which painstakingly
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
mentions the specific laws or the parts thereof which are repealed (or
modified) by the Code. Significantly, P.D. 1869 is not one of them. A reading
of the entire repealing clause, Section 534, will disclose the omission of said
P.D. 1869. Furthermore, it is a familiar rule that implied repeals are not
lightly presumed in the absence of a clear and unmistakable showing of
such intention.
It is a canon of legal hermeneutics that instead of pitting one statute against
another in an inevitably destructive confrontation, courts must exert every
effort to reconcile them, remembering that both laws deserve a becoming
respect as the handiwork of a coordinate branch of the government. On the
assumption of a conflict between P.D. 1869 and the Code, the proper action
is not to uphold one and annul the other but to give effect to both by
harmonizing them if possible. This is possible in the case before us. The
proper resolution of the problem at hand is to hold that under the Local
Government Code, local government units may (and indeed must) prevent
and suppress all kinds of gambling within their territories except only those
allowed by statutes like P.D. 1869. The exception reserved in such laws must
be read into the Code, to make both the Code and such laws equally
effective and mutually complementary.
This basic relationship between the national legislature and the local
government units has not been enfeebled by the new provisions in the
Constitution strengthening the policy of local autonomy. Without meaning
to detract from that policy, we here confirm that Congress retains control of
the local government units although in significantly reduced degree now
than under our previous Constitutions. The power to create still includes the
power to destroy. The power to grant still includes the power to withhold or
recall. True, there are certain notable innovations in the Constitution, like
the direct conferment on the local government units of the power to tax,
which cannot now be withdrawn by mere statute. By and large, however,
the national legislature is still the principal of the local government units,
which cannot defy its will or modify or violate it.
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
Separate Opinions
PADILLA, J., concurring:
I concur with the majority holding that the city ordinances in question
cannot modify much less repeal PAGCOR's general authority to establish
and maintain gambling casinos anywhere in the Philippines under
Presidential Decree No. 1869.
However, despite the legality of the opening and operation of a casino in
Cagayan de Oro City by respondent PAGCOR, I wish to reiterate my view
that gambling in any form runs counter to the government's own efforts to
re-establish and resurrect the Filipino moral character which is generally
perceived to be in a state of continuing erosion. It is in the light of this
alarming perspective that I call upon government to carefully weigh the
advantages and disadvantages of setting up more gambling facilities in the
country. That the PAGCOR contributes greatly to the coffers of the
government is not enough reason for setting up more gambling casinos
because, undoubtedly, this will not help improve, but will cause a further
deterioration in the Filipino moral character.It is worth remembering in this
regard that, 1) what is legal is not always moral and 2) the ends do not
always justify the means.
DAVIDE, JR., J., concurring:
While I concur in part with the majority, I wish, however, to express my
views on certain aspects of this case.
I.
It must at once be noted that private respondent Pryce Properties
Corporation (PRYCE) directly filed with the Court of Appeals its so-called
petition for prohibition, thereby invoking the said court's original jurisdiction
to issue writs of prohibition under Section 9(1) of B.P. Blg. 129. As I see it,
however, the principal cause of action therein is one for declaratory relief:
to declare null and unconstitutional — for, inter alia, having been enacted
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
without or in excess of jurisdiction, for impairing the obligation of contracts,
and for being inconsistent with public policy — the challenged ordinances
enacted by the Sangguniang Panglungsod of the City of Cagayan de Oro.
The intervention therein of public respondent Philippine Amusement and
Gaming Corporation (PAGCOR) further underscores the "declaratory relief"
nature of the action. PAGCOR assails the ordinances for being contrary to
the non-impairment and equal protection clauses of the Constitution,
violative of the Local Government Code, and against the State's national
policy declared in P.D. No. 1869. Accordingly, the Court of Appeals does not
have jurisdiction over the nature of the action. Even assuming arguendo
that the case is one for prohibition, then, under this Court's established
policy relative to the hierarchy of courts, the petition should have been filed
with the Regional Trial Court of Cagayan de Oro City. I find no special or
compelling reason why it was not filed with the said court. I do not wish to
entertain the thought that PRYCE doubted a favorable verdict therefrom, in
which case the filing of the petition with the Court of Appeals may have
been impelled by tactical considerations. A dismissal of the petition by the
Court of Appeals would have been in order pursuant to our decisions.
P&G vs. MUNICIPALITY OF JUGNA
FACTS
P &G is a domestic corporation engaged in the manufacture of soap, edible
oil, margarine and other similar products, and for this purpose maintains a
"bodega" in defendant Municipality where it stores copra purchased in the
municipality and therefrom ships the same for its manufacturing and other
operations.
TAX II – Atty. Mendoza
For a period of six years, from 1958 to 1963, P&G paid defendant
Municipality, allegedly under protest, storage fees in the total sum of
1142,265.13.
In 1964, P&G filed this suit in the CFI wherein it prayed that 1) Ordinance
No. 4 be declared inapplicable to it (it claims that it is not engaged in the
storage of copra for compensation and the tax pf P0.10 for 100 kilos is
excessive, unreasonable and oppressive), or that it be pronounced ultravires and void for being beyond the power of the Municipality to enact; and
2) that defendant Municipality be ordered to refund to it the amount which
it had paid under protest; and costs. However, defendant Municipality
upheld its power to enact the Ordinance in question; questioned the
jurisdiction of the CFI to take cognizance of the action; and pleaded
prescription and laches for P&G's failure to timely question the validity of
the said Ordinance.
After the parties had agreed to submit the case for judgment on the
pleadings, the CFI upheld its jurisdiction as well as defendant Municipality's
power to enact the Ordinance in question under section 2238 of the Revised
Administrative Code, otherwise known as the general welfare clause, and
declared that P&G's right of action had prescribed under the 5-year period
provided for by Article 1149 of the Civil Code.
ISSUE
Whether defendant Municipality was authorized to impose and collect the
storage fee provided for in the challenged Ordinance
RULING
Subsequently, the Municipal Council of Jagna enacted Municipal Ordinance
No. 4 which imposes storage fees to all exportable copra deposited in a
“bodega” within the jurisdiction of the Municipality.
1B in 3B DIGEST GROUP
The validity of the Ordinance must be upheld pursuant to the broad
authority conferred upon municipalities by Commonwealth Act No. 472,
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
which was the prevailing law when the Ordinance was enacted. Section 1
thereof reads:
Section 1. A municipal council or municipal district council shall have the
authority to impose municipal license taxes upon persons engaged in
any occupation or business, or exercising privileges in the municipality
or municipal district, by requiring them to secure licenses at rates fixed
by the municipal council, or municipal district council, and to collect fees
and charges for services renderedxx
Under the foregoing provision, a municipality is authorized to impose three
kinds of licenses: (1) a license for regulation of useful occupation or
enterprises; (2) license for restriction or regulation of non-useful
occupations or enterprises; and (3) license for revenue. It is thus
unnecessary, to determine whether the subject storage fee is a tax for
revenue purposes or a license fee to reimburse defendant Municipality for
service of supervision because defendant Municipality is authorized not only
to impose a license fee but also to tax for revenue purposes.
Moreover, the business of buying and selling and storing copra is property
the subject of regulation within the police power granted to municipalities
under section 2238 of the Revised Administrative Code or the "general
welfare clause"
P&G's argument that the imposition of P0.10 per 100 kilos of copra stored in
a bodega within defendant's territory is beyond the cost of regulation and
surveillance is not well taken. As enunciated in the case of Victorias Milling
Co. vs. Municipality of Victorias, “The cost of regulation cannot be taken as a
gauge, if the municipality really intended to enact a revenue ordinance.”
Municipal corporations are allowed wide discretion in determining the rates
of imposable license fees even in cases of purely police power measures. In
the case at bar, P&G has not sufficiently shown that the rate imposed by the
questioned Ordinance is oppressive, excessive and prohibitive.
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
The Ordinance in question does not amount to double taxation. For double
taxation to exist, the same property must be taxed twice, when it should be
taxed but once. Surely, a tax on P&G's products is different from a tax on
the privilege of storing copra in a bodega situated within the territorial
boundary of defendant municipality.
P&G's further contention that the storage fee imposed by the Ordinance is
actually intended to be an export tax, which is expressly prohibited by
section 2287 of the Revised Administrative Code, is without merit. Said
provision reads as follows:
Section 2287 ... It shall not be in the power of the municipal council to
impose a tax in any form whatever upon goods and merchandise carried
into the municipality, or out of the same, and any attempt to impose an
import or export tax upon such goods shall be void. xxx xxx xxx
We have held that only where there is a clear showing that what is being
taxed is an export to any foreign country would the prohibition come into
play. The storage fee impugned is not a tax on export because it is imposed
not only upon copra to be exported but also upon copra sold and to be used
for domestic purposes if stored in any warehouse in the Municipality and
the weight thereof is 100 kilos or more.
On the issue of prescription, the case of Municipality of Opon vs. Caltex Phil.,
is authority for the view that the period for prescription of actions to
recover municipal license taxes is six years under Article 1145(2) of the Civil
Code. Thus, plaintiff's action brought within six years from the time the right
of action first accrued in 1958 has not yet prescribed.
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
VILLANUEVA vs. CITY OF ILOILO
TAX II – Atty. Mendoza
3. Is Ordinance 11 oppressive and unreasonable because it carries a
penal clause? NO.
FACTS
4. Does Ordinance 11 violate the rule of uniformity of taxation? NO.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance
86, imposing license tax fees on tenement house.This Court, in City of Iloilo
vs. Remedios Sian Villanueva and Eusebio Villanueva 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." On January 15, 1960 the municipal board of Iloilo City,
believing, obviously, that with the passage of RA 2264,Local Autonomy Act,
it had acquired the authority or power to enact an ordinance similar to that
previously declared by this Court as ultra vires, enacted Ordinance 11 (AN
ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN
THE BUSINESS OF OPERATING TENEMENT HOUSES).By virtue of the
ordinance in question, the appellant City collected from appellee Villanueva,
for the years 1960-1964, the sum of P5,824.30, and from other appellees,
for the same year, the sum of P1,317.00. Hence, plaintiffs-appellees filed a
complaint, against the City of Iloilo, 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 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. Lower
court rendered judgment declaring the ordinance illegal.
ISSUES
1. Is the City of Iloilo empowered by the Local Autonomy Act to
impose tenement taxes? YES.
2. Is Ordinance 11 of the City of Iloilo, illegal because it imposes
double taxation? NO.
1B in 3B DIGEST GROUP
RULING
1. RA 2264 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.
The appellees strongly maintain that it is a "property tax" or "real estate
tax," and not a "tax on persons engaged in any occupation or business or
exercising privileges," or a license tax, or a privilege tax, or an excise tax. It is
our view, contrary to the appellees' contention, that the tax in question is
not a real estate tax. The tax imposed by the ordinance in question does not
possess the attributes of a real estate tax. It is not a tax on the land on
which the tenement houses are erected, although both land and tenement
houses may belong to the same owner. The tax is not a fixed proportion of
the assessed value of the tenement houses, and does not require the
intervention of assessors or appraisers. It is not payable at a designated
time or date, and is not enforceable against the tenement houses either by
sale or distraint. Clearly, therefore, the tax in question is not a real estate
tax. On the contrary, it is plain from the context of the ordinance that the
intention is to impose a license tax on the operation of tenement houses,
which is a form of business or calling. The ordinance, in both its title and
body, particularly sections 1 and 3 thereof, designates the tax imposed as a
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
"municipal license tax" which, by itself, means an "imposition or exaction on
the right to use or dispose of property, to pursue a business, occupation, or
calling, or to exercise a privilege.” In City of Iloilo vs. Remedios Sian
Villanueva, et al., tenement house is defined as "any house or building, or
portion thereof, which is rented, leased, or hired out to be occupied, or is
occupied, as the home or residence of three families or more living
independently of each other and doing their cooking in the premises or by
more than two families upon any floor, so living and cooking, but having a
common right in the halls, stairways, yards, water-closets, or privies, or
some of them." Tenement houses, being necessarily offered for rent or
lease by their very nature and essence, therefore constitute a distinct form
of business or calling, similar to the hotel or motel business, or the
operation of lodging houses or boarding houses.
The lower court has interchangeably denominated the tax in question as a
tenement tax or an apartment tax. Called by either name, it is not among
the exceptions listed in section 2 of the Local Autonomy Act. On the other
hand, the imposition by the ordinance of a license tax on persons engaged
in the business of operating tenement houses finds authority in section 2 of
the Local Autonomy Act which provides that chartered cities have the
authority to impose municipal license taxes or fees upon persons engaged in
any occupation or business, or exercising privileges within their respective
territories, and "otherwise to levy for public purposes, just and uniform
taxes, licenses, or fees."
2. The trial court condemned the ordinance as constituting "not only double
taxation but treble at that," because "buildings pay real estate taxes and
also income taxes as provided for in Sec. 182 (A) (3) (s) of the NIRC, besides
the tenement tax under the said ordinance." 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.
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
There is nothing inherently obnoxious in the exaction of license fees or
taxes with respect to the same occupation, calling or activity by both the
State and a political subdivision thereof.
The contention that the plaintiffs-appellees are doubly taxed because they
are paying the real estate taxes and the tenement tax imposed by the
ordinance in question, is also devoid of merit. It is a well-settled rule that a
license tax may be levied upon a business or occupation although the land
or property used in connection therewith is subject to property tax. To
constitute double taxation in the objectionable or prohibited sense the
same property must be taxed twice when it should be taxed but once; both
taxes must be imposed on the same property or subject-matter, for the
same purpose, by the same State, Government, or taxing authority, within
the same jurisdiction or taxing district, during the same taxing period, and
they must be the same kind or character of tax. It has been shown that a
real estate tax and the tenement tax imposed by the ordinance, although
imposed by the same taxing authority, are not of the same kind or
character.
3. 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. On the other hand, the charter of Iloilo City empowers
its municipal board to "fix penalties for violations of ordinances, which shall
not exceed a fine of two hundred pesos or six months' imprisonment, or
both such fine and imprisonment for each offense.
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
4. The trial court brands the ordinance as violative of the rule of uniformity
of taxation because while the owners of the other buildings only pay real
estate tax and income taxes, the ordinance imposes aside from these two
taxes an apartment or tenement tax. Appellees also argue that there is "lack
of uniformity" and "relative inequality," because "only the taxpayers of the
City of Iloilo are singled out to pay taxes on their tenement houses, while
citizens of other cities, where their councils do not enact a similar tax
ordinance, are permitted to escape such imposition."
It is our view that both assertions are undeserving of extended attention.
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.
The last important issue posed by the appellees is that since the ordinance
in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo
which was declared by this Court as ultra vires, the decision in that case
should be accorded the effect of res judicata in the present case or should
constitute estoppel by judgment. To dispose of this contention, it suffices to
say that there is no identity of subject-matter in that case and this case
because the subject-matter in it was an ordinance which dealt not only with
tenement houses but also warehouses, and the said ordinance was enacted
pursuant to the provisions of the City charter, while the ordinance in the
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
case at bar was enacted pursuant to the provisions of the Local Autonomy
Act.
MUNICIPALITY OF OPON vs. CALTEX
FACTS
Caltex (Philippines) Inc., is a domestic corporation engaged in the business
of importing, distributing and selling gasoline, kerosene and other
petroleum products. For the purpose of storing its imported petroleum
products it has an establishment called 'Caltex Opon Terminal' located in
the Municipality of Opon, Cebu. In addition, the said 'Caltex Opon Terminal'
has a tin can factory whereby plaintiff-appellant manufactures 5-gallon tin
cans for its use in the sale and distribution of its petroleum products.
Pursuant, however, to a service agreement dated August 1, 1946 and
entered into between plaintiff-appellant and Tidewater Associated Oil
Company, plaintiff-appellant agreed to arrange, within its ability to do so, in
drum and package factories owned and operated by it, to manufacture,
supply and/or fill cans and drums for Tidewater, provided the latter
reimburses herein plaintiff-appellant for all cost and expense caused
thereby, plus three (3%) per cent of such cost and expense.
From 1950 to 1955, plaintiff-appellant’s9 tin can factory at its 'Caltex Opon
Terminal' manufactured 8,037,775 tin cans out of which 6,883,429 were
used for the sale and distribution of its own products and 1,154,346 tin cans
were delivered to Tidewater by virtue of the service agreement
abovementioned.
Ordinance No. 9, series of 1949, of defendant-appellee Municipality of Opon,
Cebu, imposes a municipal license tax on tin factory on the basis of its
maximum annual output capacity, with a schedule of graduated rates.
Section 1, in part, provides: "A municipal license tax on tin factory" is
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
imposed upon "(a) Tin factory with a maximum output capacity of 30,000
tins — P150.00"
Pursuant to this ordinance, defendants-appellees levied and collected from
plaintiff-appellant license taxes based on the production of the tin factory at
its 'Caltex Opon Terminal' for the years 1950 to 1955.
Plaintiff contends that respondent company is liable for the entire output of
the tin can factory because profit is the motivating factor in the
manufacture thereof. Petitioners' view is that the tin cans whether for its
own use or for Tidewater upon the contract heretofore stated, are taxable.
Reason therefor, so petitioners point out, is that the license tax is based on
the maximum annual output capacity of the factory.
ISSUES
1. Whether or not respondent tin can factory is taxable as a separate
business of respondent – NO.
2. Whether or not period to claim refund has prescribed – NO.
TAX II – Atty. Mendoza
further articulation. For petitioners insist that respondent's factory also
serves the needs of another entity — Tidewater. To be noted here is that of
the tin cans produce for the period 1950-1955, 85.63% were used by
respondent; 14.361% delivered to Tidewater. Jurisprudential support is not
wanting for the decision of the Court of Appeals establishing a dividing line
between the tin cans manufactured for respondent's own business and
those for Tidewater.
For the tin cans produced for Tidewater license tax was correctly assessed.
But for those produced by respondent for its own use, no license tax is due,
because the manufacture thereof is "incidental to" and tends "to better
accomplish the principal end in view" — its main business.
2. A rule which has earned acceptance is that the period for prescription of
action to recover municipal license taxes is six years under Article 1145 (2)
of the Civil Code. The two-year prescriptive period in Section 306 of the
National Internal Revenue Code relied upon by petitioners finds no
application. For, this codal provision, as we have said in one case, "clearly
refers exclusively to claims for refund of `national internal revenue tax'
erroneously or illegally collected" and not "to a refund of `local or municipal
license fees' illegally collected."
RULING
PHILIPPINE BASKETBALL ASSOCIATION vs. CA
1. When a person or company is already taxed on its main business, it may
not be further taxed for doing something or engaging in an activity or work
which is merely a part of, incidental to and is necessary to its main business.
In the sale and distribution of its products in liquid form respondent uses
containers. The container is a part of the product sold. By maintaining its
factory for tin cans respondent is assured of continuous supply thereof.
Therefore, the tin cans it manufactures for its ownership are not within the
coverage of petitioner municipality's taxing power under Ordinance No. 9.
FACTS
PBA received a tax assessment from the BIR for deficiency on amusement
taxes
PBA contested the said deficiency on amusement taxes with the CTA
however was denied. The same was raised to the CA and was also denied as
well as a subsequent MR.
The entire-output-of-factory argument advanced by petitioners needs
1B in 3B DIGEST GROUP
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
PBA now raises the case to the SC
ISSUES
1. Does the National government have jurisdiction to tax PBA or is it
the local government as provided in SEC. 13 of the Local Tax code?
NO
2. Is the Petitioner liable for the said amusement taxes? YES
Petitioner contends PD 231, otherwise known as the Local Tax Code of 1973,
transferred the power and authority to levy and collect amusement taxes
from the sale of admission tickets to places of amusement from the national
government to the local governments. Petitioner cited BIR Memorandum
Circular No. 49-73 providing that the power to levy and collect amusement
tax on admission tickets was transferred to the local governments by virtue
of the Local Tax Code; and BIR Ruling No. 231-86 which held that "the
jurisdiction to levy amusement tax on gross receipts from admission tickets
to places of amusement was transferred to local governments under P.D.
No. 231, as amended.
TAX II – Atty. Mendoza
With the reference to PD 871 by PD 1456 and PD 1959, there is a
recognition under the laws of this country that the amusement tax on
professional basketball games is a national, and not a local, tax. Even up to
the present, the category of amusement taxes on professional basketball
games as a national tax remains the same. This is so provided under Section
125 of the 1997 National Internal Revenue Code. Section 140 of the Local
Government Code of 1992 (Republic Act 7160), meanwhile, retained the
areas (theaters, cinematographs, concert halls, circuses and other places of
amusement) where the province may levy an amusement tax without
including therein professional basketball games.
Last issue for resolution concerns the liability of petitioner for the payment
of surcharge and interest on the deficiency amount due. Petitioner
contends that it is not liable, as it acted in good faith, having relied upon the
issuances of the respondent Commissioner. This issue must necessarily fail
as the same has never been posed as an issue before the respondent court.
Issues not raised in the court a quo cannot be raised for the first time on
appeal.
All things studiedly considered, the Court rules that the petitioner is liable to
pay amusement tax to the national government, and not to the local
government, in accordance with the rates prescribed by PD 1959.
RULING
Sec. 13. Amusement tax on admission. -The province shall impose a tax
on admission to be collected from the proprietors, lessees, or operators
of theaters, cinematographs, concert halls, circuses and other places of
amusement xxx."
The foregoing provision of law in point 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.
1B in 3B DIGEST GROUP
HAGONOY MARKET VENDOR ASSOCIATION vs. MUNICIPALITY OF
HAGONOY
FACTS
On October 1, 1996, the Sangguniang Bayan of Hagonoy, Bulacan, enacted
an ordinance, Kautusan Blg. 28, which increased the stall rentals of the
market vendors in Hagonoy. Article 3 provided that it shall take effect upon
approval. The subject ordinance was posted from November 4-25, 1996. In
the last week of November, 1997, the petitioner’s members were personally
given copies of the approved Ordinance and were informed that it shall be
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
enforced in January, 1998. On December 8, 1997, the petitioner’s President
filed an appeal with the Secretary of Justice assailing the constitutionality of
the tax ordinance. Petitioner claimed it was unaware of the posting of the
ordinance.
Respondent opposed the appeal. It contended that the ordinance took
effect on October 6, 1996 and that the ordinance, as approved, was posted
as required by law. Hence, it was pointed out that petitioner’s appeal,
made over a year later, was already time-barred. The Secretary of Justice
dismissed the appeal on the ground that it was filed out of time, i.e., beyond
thirty (30) days from the effectivity of the Ordinance on October 1, 1996, as
prescribed under Section 187 of the 1991 Local Government Code. Citing
the case of Tañada vs. Tuvera, the Secretary of Justice held that the date of
effectivity of the subject ordinance retroacted to the date of its approval in
October 1996, after the required publication or posting has been complied
with, pursuant to Section 3 of said ordinance.
ISSUE
Was the appeal by the petitioner with the Secretary of Justice time-barred?
RULING
YES. Section 187 of the Local Gov’t Code requires that an appeal of a tax
ordinance or revenue measure should be made to the Secretary of Justice
within thirty (30) days from effectivity of the ordinance and even during its
pendency, the effectivity of the assailed ordinance shall not be suspended.
In the case at bar, Municipal Ordinance No. 28 took effect in October 1996.
Petitioner filed its appeal only in December 1997, more than a year after the
effectivity of the ordinance in 1996. Clearly, the Secretary of Justice
correctly dismissed it for being time-barred. At this point, it is apropos to
state that the timeframe fixed by law for parties to avail of their legal
remedies before competent courts is not a “mere technicality” that can be
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
easily brushed aside. The periods stated in Section 187 of the Local
Government Code are mandatory. Ordinance No. 28 is a revenue measure
adopted by the municipality of Hagonoy to fix and collect public market
stall rentals. Being its lifeblood, collection of revenues by the government is
of paramount importance. The funds for the operation of its agencies and
provision of basic services to its inhabitants are largely derived from its
revenues and collections. Thus, it is essential that the validity of revenue
measures is not left uncertain for a considerable length of time. Hence, the
law provided a time limit for an aggrieved party to assail the legality of
revenue measures and tax ordinances.
YAMANE vs. BA LEPANTO
FACTS
Respondent BA-Lepanto Condominium Corporation (the “Corporation”) is a
duly organized condominium corporation constituted in accordance with
the Condominium Act, which owns and holds title to the common and
limited common areas of the BA-Lepanto Condominium (the
“Condominium”), situated in Paseo de Roxas, Makati City. Its membership
comprises the various unit owners of the Condominium. The Corporation is
authorized, under Article V of its Amended By-Laws, 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.
The Corporation received a Notice of Assessment signed by the City
Treasurer stating that the Corporation is “liable to pay the correct city
business taxes, fees and charges,” computed as totaling P1,601,013.77 for
the years 1995 to 1997. The Notice of Assessment was silent as to the
statutory basis of the business taxes assessed. The Corporation responded
with a written tax protest addressed to the City Treasurer. It was evident in
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
the protest that the Corporation was perplexed on the statutory basis of the
tax assessment.
Proceeding from the premise that its tax liability arose from Section
3A.02(m) of the Makati Revenue Code, the Corporation proceeded to argue
that under both the Makati Code and the Local Government Code,
“business” is defined as “trade or commercial activity regularly engaged in
as a means of livelihood or with a view to profit.” It was submitted that the
Corporation, 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. Neither was the Corporation
authorized, under its articles of incorporation or by-laws to engage in profitmaking activities. The assessments it did collect from the unit owners were
for capital expenditures and operating expenses.
The protest was rejected by the City Treasurer, insisting that the collection
of dues from the unit owners was effected primarily “to sustain and
maintain the expenses of the common areas, with the end in view of getting
full appreciative living values for the individual condominium occupants and
to command better marketable prices for those occupants” who would in
the future sell their respective units. Thus, she concluded since the “chances
of getting higher prices for well-managed common areas of any
condominium are better and more effective that condominiums with poor
managed common areas,” the corporation activity “is a profit venture
making”.
From the denial of the protest, the Corporation filed an Appeal with the RTC
which dismissed the apeal for lack of merit, accepting the premise laid by
the City Treasurer.
From this Decision of the RTC, the Corporation filed a Petition for
Review under Rule 42 of the Rules of Civil Procedure with the Court of
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
Appeals. Initially, the petition was dismissed outright on the ground that
only decisions of the RTC brought on appeal from a first level court
could be elevated for review under the mode of review prescribed
under Rule 42. However, the Corporation pointed out in its Motion for
Reconsideration that under Section 195 of the Local Government Code,
the remedy of the taxpayer on the denial of the protest filed with the
local treasurer is to appeal the denial with the court of competent
jurisdiction.
The CA reversed the RTC and declared that the Corporation was not liable
to pay business taxes to the City of Makati.
ISSUES
1. Whether the RTC, in deciding an appeal taken from a denial of a
protest by a local treasurer under Section 195 of the Local
Government Code, exercises “original jurisdiction” or “appellate
jurisdiction.”
2. Whether or not the City of Makati may collect business taxes on
condominium corporations.
RULING
1. Original Jurisdiction. The question assumes a measure of importance to
this petition, for the adoption of the position of the City Treasurer that the
mode of review of the decision taken by the RTC is governed by Rule 41 of
the Rules of Civil Procedure means that the decision of the RTC would have
long become final and executory by reason of the failure of the Corporation
to file a notice of appeal.
Labelling the said review as an exercise of appellate jurisdiction is
inappropriate, since the denial of the protest is not the judgment or order of
a lower court, but of a local government official.
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
From these premises, it is evident that the stance of the City Treasurer is
correct as a matter of law, and that the proper remedy of the Corporation
from the RTC judgment is an ordinary appeal under Rule 41 to the Court of
Appeals. However, we make this pronouncement subject to two important
qualifications. First, in this particular case there are nonetheless significant
reasons for the Court to overlook the procedural error and ultimately uphold
the adjudication of the jurisdiction exercised by the Court of Appeals in this
case. Second, the doctrinal weight of the pronouncement is confined to
cases and controversies that emerged prior to the enactment of Republic Act
No. 9282, the law which expanded the jurisdiction of the Court of Tax
Appeals (CTA).
2. No. 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. 92-072. The Revenue Code remains in effect as of
this writing. Article A, Chapter III of the Revenue Code governs business
taxes in Makati, and it is quite specific as to the particular businesses which
are covered by business taxes.
At no point has the City Treasurer informed 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.
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. Section 195 of
the Local Government Code does not go as far as to expressly require that
the notice of assessment specifically cite the provision of the ordinance
involved but it does require that it state the nature of the tax, fee or charge,
the amount of deficiency, surcharges, interests and penalties. In this case,
the notice of assessment sent to the Corporation did state that the
assessment was for business taxes, as well as the amount of the assessment.
There may have been prima facie compliance with the requirement under
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
Section 195. However in this case, the Revenue Code provides multiple
provisions on business taxes, and at varying rates. Hence, we could
appreciate the Corporation’s confusion, as expressed in its protest, as to the
exact legal basis for the tax.
Moreover, a careful examination of the Revenue Code shows that while
Section 3A.02(m) seems designed as a catch-all provision, Section 3A.02(f),
which provides for a different tax rate from that of the former provision,
may be construed to be of similar import. While Section 3A.02(f) is quite
exhaustive in enumerating the class of businesses taxed under the provision,
the listing, while it does not include condominium-related enterprises, ends
with the abbreviation “etc.”, or “et cetera”.
(m) On owners or operators of any business not specified above shall pay
the tax at the rate of two percent (2%) for 1993, two and one-half percent (2
½%) for 1994 and 1995, and three percent (3%) for 1996 and the years
thereafter of the gross receipts during the preceding year.
We do note our discomfort with the unlimited breadth and the dangerous
uncertainty which are the twin hallmarks of the words “et
cetera.” Certainly, we cannot be disposed to uphold any tax imposition that
derives its authority from enigmatic and uncertain words such as “et cetera.”
Yet we cannot even say with definiteness whether the tax imposed on the
Corporation in this case is based on “et cetera,” or on Section 3A.02(m), or
on any other provision of the Revenue Code. Assuming that the assessment
made on the Corporation is on a provision other than Section 3A.02(m), the
main legal issue takes on a different complexion. For example, if it is based
on “et cetera” under Section 3A.02(f), we would have to examine whether
the Corporation faces analogous comparison with the other businesses listed
under that provision.
Certainly, the City Treasurer has not been helpful in that regard, as she has
been silent all through out as to the exact basis for the tax imposition which
she wishes that this Court uphold. Indeed, there is only one thing that
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
prevents this Court from ruling that there has been a due process violation
on account of the City Treasurer’s failure to disclose on paper the statutory
basis of the tax–that the Corporation itself does not allege injury arising from
such failure on the part of the City Treasurer.
As stated earlier, local tax on businesses is authorized under Section 143 of
the Local Government Code. The word “business” itself is defined under
Section 131(d) of the Code as “trade or commercial activity regularly
engaged in as a means of livelihood or with a view to profit.” This definition
of “business” takes on importance, since Section 143 allows local
government units to impose local taxes on businesses other than those
specified under the provision. Moreover, even those business activities
specifically named in Section 143 are themselves susceptible to broad
interpretation.
It is thus imperative that in order that the Corporation may be subjected to
business taxes, its activities must fall within the definition of business as
provided in the Local Government Code. And to hold that they do is to
ignore the very statutory nature of a condominium corporation.
For orderly administration over common areas which are jointly owned by
the various unit owners, the Condominium Act permits the creation of a
condominium corporation, which is specially formed for the purpose of
holding title to the common area, in which the holders of separate interests
shall automatically be members or shareholders, to the exclusion of others,
in proportion to the appurtenant interest of their respective units.
In line with the authority of the condominium corporation to manage the
condominium project, it may be authorized, in the deed of restrictions, “to
make reasonable assessments to meet authorized expenditures, each
condominium unit to be assessed separately for its share of such expenses in
proportion (unless otherwise provided) to its owner’s fractional interest in
any common areas.” It is the collection of these assessments from unit
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
owners that form the basis of the City Treasurer’s claim that the Corporation
is doing business.
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.
The Court has examined the particular Articles of Incorporation and By-Laws
of the Corporation, and these documents unmistakably hew to the
limitations contained in the Condominium Act. Obviously, none of these
corporate purposes are geared towards obtaining of profit. Even though the
Corporation is empowered to levy assessments or dues from the unit
owners, these amounts collected are not intended for the incurrence of
profit by the Corporation or its members, but to shoulder the multitude of
necessary expenses that arise from the maintenance of the Condominium
Project. Just as much is confirmed by Section 1, Article V of the Amended ByLaws, which enumerate the particular expenses to be defrayed by the
regular assessments collected from the unit owners. These would include
the salaries of the employees of the Corporation, and the cost of
maintenance and ordinary repairs of the common areas.
The City Treasurer nonetheless contends that the collection of these
assessments and dues are “with the end view of getting full appreciative
living values” for the condominium units, and as a result, profit is obtained
once these units are sold at higher prices. The Court cites with approval the
two counterpoints raised by the Court of Appeals in rejecting this
contention. First, if any profit is obtained by the sale of the units, it accrues
not to the corporation but to the unit owner. Second, if the unit owner does
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
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 City Treasurer also contends that the fact that the Corporation is
engaged in business is evinced by the Articles of Incorporation, which
specifically empowers the Corporation “to acquire, own, hold, enjoy, lease,
operate and maintain, and to convey, sell, transfer mortgage or otherwise
dispose of real or personal property.” What the City Treasurer fails to add
is that every corporation organized under the Corporation Code is so
specifically empowered. Section 36(7) of the Corporation Code states that
every corporation incorporated under the Code has the power and capacity
“to purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with such real and personal property . . . as the
transaction
of
the
lawful
business
of
the
corporation may reasonably and necessarily require . . . .” Without this
power, corporations, as juridical persons, would be deprived of the capacity
to engage in most meaningful legal relations.
Again, whatever capacity the Corporation may have pursuant to its power to
exercise acts of ownership over personal and real property is limited by its
stated corporate purposes, which are by themselves further limited by the
Condominium Act. A condominium corporation, while enjoying such powers
of ownership, is prohibited by law from transacting its properties for the
purpose of gainful profit.
Accordingly, and with a significant degree of comfort, 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.
1B in 3B DIGEST GROUP
TAX II – Atty. Mendoza
SAN JUAN vs. CASTRO
FACTS
Romulo D. San Juan, registered owner of real properties in Marikina City
conveyed, by Deed of Assignment, the properties to the Saints and Angels
Realty Corporation (SARC), then under the process of incorporation, in
exchange for 258,434 shares of stock therein with a total par value of
P2,584,340.
Mr. San Juan then paid the transfer tax based on the consideration stated in
the Deed of Assignment. Marikina City Treasurer Ricardo L. Castro informed
him, however, that the tax due is based on the fair market value of the
property. In turn, Mr. San Juan in writing protested the basis of the tax due
but on July 15, 2005, via a letter, Mr. Castro responded on the negative.
Mr. San Juan thus filed before RTC a Petition for mandamus and damages
against Mr. Castro in his capacity as Marikina City Treasurer praying that the
latter be compelled to “perform a ministerial duty, that is, to accept the
payment of transfer tax based on the actual consideration of the
transfer/assignment.” Mr. San Juan claims that the intention of the law in
Sec. 135 of the LGC is not to automatically apply the “whichever is higher”
rule. Clearly, from reading the provision, it is only when there is a monetary
consideration involved and the monetary consideration is not substantial
that the tax rate is based on the higher fair market value. But the RTC
dismissed the case holding that “[M]onetary consideration” as used in
Section 135 of R.A. 7160 does not only pertain to the price or money
involved but likewise, as in the case of donations or barters, this refers to
the value or monetary equivalent of what is received by the transferor. And
in this case the fair market value of the stocks which is P7M is higher than
the consideration which is only P2.58M, hence, the former amount must be
used as tax base. Moreover, The subject of this Petition is the performance
of a duty which is not ministerial in character. Assessment of tax liabilities
or obligations and the corresponding duty to collect the same involves a
Ad Deum Per Excellentia
TAX DIGEST – ASSIGNMENT # 9 LOCAL GOV’T TAXATION
A.M.+D.G.
degree of discretion. It is erroneous to assume that the City Treasurer is
powerless to ascertain if the payment of the tax obligation is proper or
correct. Mandamus cannot lie to compel the City Treasurer to accept as
full compliance a tax payment which in his reasoning and assessment is
deficient and incorrect.
TAX II – Atty. Mendoza
ISSUE
Mandamus lies only to compel an officer to perform a ministerial duty (one
which is so clear and specific as to leave no room for the exercise of
discretion in its performance) but not a discretionary function (one which by
its nature requires the exercise of judgment). Mr. Castro’s argument that
“[m]andamus cannot lie to compel the City Treasurer to accept as full
compliance a tax payment which in his reasoning and assessment is
deficient and incorrect” is thus persuasive.
Did the RTC err in dismissing the petition for mandamus?
MACTAN CEBU INTERNATIONAL AIRPORT vs. MARCOS (TO FOLLOW)
RULING
NO. For a petition for Mandamus to lie, there must be no other plain,
speedy and adequate remedy in the ordinary course of law. In this case, the
said condition was not satisfied. A taxpayer who disagrees with a tax
assessment made by a local treasurer may file a written protest as
prescribed by Sec. 195 of the LGC: The taxpayer shall have thirty (30) days
from the receipt of the denial of the protest or from the lapse of the sixtyday (60) period prescribed herein within which to appeal with the court of
competent jurisdiction, otherwise the assessment becomes conclusive and
unappealable.
That Mr. San Juan protested in writing against the assessment of tax due
and the basis thereof is on record as in fact it was on that account that Mr.
Castro sent him the July 15, 2005 letter which operated as a denial of Mr.
San Juan’s written protest. Mr. San Juan should thus have, in accordance
with Sec. 195 of the LGC, either appealed the assessment before the court
of competent jurisdiction or paid the tax and then sought a refund. He did
not observe any of these remedies available to him, however. He instead
opted to file a petition for mandamus to compel Mr. Castro to accept
payment of transfer tax as computed by him.
1B in 3B DIGEST GROUP
Ad Deum Per Excellentia