Local Taxation
2008
MNO Corporation was organised on July 1, 2006, to engage in trading of school supplies, with principal place of business in Cubao, Quezon City. Its books of accounts and income statement showing gross sales as follows:
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July 1, 2006 to December 31, 2006 – P5,000,000
January 1, 2007 to June 30, 2007 –P10,000,000
July 1, 2007 to December 31, 2007 –P15,000,000
Since MNO Corporation adopted fiscal year ending June 30 as its taxable year for income tax purposes, it paid its 2% business tax for fiscal year ending June 30, 2007 based on gross sales of P15 million. However, the Quezon City Treasurer assessed the corporation for deficiency business tax for 2007 based on gross sales of P25 million alleging that local business taxes shall be computed based on calendar year.
(A) Is the position of the city treasurer tenable? Explain.
(B) May the deficiency business tax be paid in installments without surcharge and interest? Explain.
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SUGGESTED ANSWER:
(A) Yes, the position of the City Treasurer is tenable. As provided by the Local Government Code of 1991 (R.A. 7160) under Sec. 165, the tax period of all local taxes, fees and charges shall be the calendar year.
Here, the City Treasurer’s assessment is based on the 2007 calendar year.
(B) Yes, as provided Section 192 of the Local Government Code, Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary.
ALTERNATIVE ANSWER:
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(B) No, there is no ordinance authorizing the installment payment of business taxes without interest and surcharges (Sec. 192 of Local Government Code).
The City of Manila enacted an ordinance, imposing a 5% tax on gross receipts on rentals of space in privately-owned public markets. BAT Corporation questioned the validity of the ordinance, stating that the tax is an income tax, which cannot be imposed by the city government. Do you agree with the position of BAT Corporation? Explain.
SUGGESTED ANSWER:
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Yes, BAT Corporation is correct in questioning the ordinance, however is not because it is income tax. The tax imposed is authorized by Section 143(h) of the Local Government Code. The LGC provides a maximum rate that can be imposed by the city is only 3% (Sec. 151 of LGC). Therefore, tax imposed by Manila is invalid for exceeding the amount allowed by law.
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2009
In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00. The fair market value (FMV) of the painting at the time of the purchase was P1-million. Yuri paid all the corresponding taxes on the transaction. In 2001, Xavier died. In his last will and testament, Xavier bequeathed the painting, already worth P1.5-million, to his only son, Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as successor to the painting in the event of Zandro's death. Zandro died in 2007, and Wilma succeeded to the property. LOCAL GOVERNMENT TAX
(A) Should the painting be included in the gross estate of Xavier in 2001 and thus, be subject to estate tax? Explain.
(B) Should the painting be included in the gross estate of Zandro in 2007 and thus, be subject to estate tax? Explain.
(C) May a vanishing deduction be allowed in either or both of the estates? Explain.
SUGGESTED ANSWERS:
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(A) Yes. The transmission of the property from Xavier to Zandro is subject to the estate tax because this is a property within Xavier’s control to dispose upon his death. The composition of the gross estate pertains to properties owned and existing as of the time of death and to be transferred by the owner by death (Sec 85, NIRC).
(B) No. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor is an exempt transfer (Sec 87, NIRC). Zandro has no control over the disposition of the property at the time of his death; hence, the estate tax which imposed the privilege of transmitting properties upon his death will not apply.
(C) Vanishing deduction shall be allowed to the estate of Xavier but only to the extent of 1⁄2 of the property which is the portion acquired by gifts (Sec 100, NIRC). The donation took place within 5 years (1999 to 2001) from the death of Xavier; hence, there is a vanishing deduction. However, Zandro’s estate will not be entitled to claim because, first and foremost, the property previously taxed is not includable in his gross estate and second, even if it is includable, the present decedent died more than 5 years from the death of the previous decedent, and that a vanishing deduction is already claimed by the previous estate involving the same property.
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ALTERNATIVE ANSWER:
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(B) No. The property passes from Zandro to Wilma by virtue of the special power of appointment granted by Xavier. The law includes as part of the gross estate of the decedent a property passing under general (not special) power of appointment. The grantee of the power to appoint, Zandro, has no control over the disposition of the property because it is the desire of the grantor of the power that the property will go to a specific person. This being so, the painting should not be included in the gross estate of Zandro, hence, it is not subject to estate tax (Sec 85(D), NIRC).
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2010
What is the basis for the computation of business tax on contractors under the Local Government Code? (2%)
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The basis for the computation of business tax on contractors under the Local Government Code is Section 143 (e) of the Local Government Code. It provides that the business tax on contractors is a graduated annual fixed tax based on the gross receipts for the preceding calendar year. However, when the gross receipts amount to P2 million or more, the business tax on contractors is imposed as a percentage tax at the rate of 50% of 1%
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How are retiring businesses taxed under the Local Government Code? (2%)
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Under Section 145 of the Local Government Code, a business subject to tax pursuant to the preceding sections shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year, the difference shall be paid before the business is concerned officially retired.
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Retiring businesses under the LGC are taxed in their gross sales or gross receipts in the current year and not in the preceding year. If the tax paid in the current year is less than the tax due on gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired (Sec 145, LGC).
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On May 15, 2009, La Manga Trading Corporation received a deficiency business tax assessment of P1,500,000.00 from the Pasay City Treasurer. On June 30, 2009, the corporation contested the assessment by filing a written protest with the City Treasurer.
On October 10, 2009, the corporation received a collection letter from the City Treasurer, drawing it to file on October 25, 2009 an appeal against the assessment before the Pasay Regional Trial Court (RTC).
(A) Was the protest of the corporation filed on time? Explain. (3%)
(B) Was the appeal with the Pasay RTC filed on time? Explain. (3%)
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SUGGESTED ANSWER:
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(A) Yes. The protest was filed on time. Section 195 of the Local Government Code provides that: SECTION 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer contesting the assessment; otherwise, the assessment shall become final and executory. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he shall issue a notice canceling wholly or partially the assessment. However, if the local treasurer finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.
Since the corporation received the assessment on May 15, 2009, and filed a protest on June 30, 2009, the protest was filed within the 60 day period. Thus, the protest was filed on time.
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(B) No. The appeal with the Pasay RTC was not filed on time. Under Section 195 of the Local Government Code, the taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable. In this case, the corporation filed an appeal on October 25, 2009 against the assessment. Thus, the said date is beyond the 30 days period to appeal to the RTC.
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Ferremaro, Inc., a manufacturer of handcrafted shoes, maintains its principal office in Cubao, Quezon City. It has branches/sales offices in Cebu and Davao. Its factory is located in Marikina City where most of its workers live. Its principal office in Quezon City is also a sales office.
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Sales of finished products for calendar year 2009 in the amount of P10 million were made at the following locations:
i) Cebu branch 25%
ii) Davao branch 15%
iii) Quezon City branch 60% Total 100%
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Where should the applicable local taxes on the shoes be paid? Explain. (3%)
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SUGGESTED ANSWER:
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Based on the facts provided, the Twenty five percent (25%) of total sales or P2.5 million shall be taxed in Cebu and 15% of total sales or P1.5 million shall be taxed in Davao. For the remaining 60% sales amounting to P6 million which are recorded in the principal office, 30% thereof or P1.8 million is taxable in Quezon City where the principal office is located and 70% or P4.2 million is taxable in Marikina City where the factory is located.
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This allocation of taxes is explained in Section 150 of the Local Government Code provides that
(A) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality.
(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business:
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(4) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located; and
(5) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant, or plantation is located.
XYZ Shipping Corporation is a branch of an international shipping line with voyages between Manila and the West Coast of the U.S. The company’s vessels load and unload cargoes at the Port of Manila, albeit it does not have a branch or sales office in Manila. All the bills of lading and invoices are issued by the branch office in Makati which is also the company’s principal office.
The City of Manila enacted an ordinance levying a 2% tax on gross receipts of shipping lines using the Port of Manila.
Can the City Government of Manila legally impose said levy on the corporation? Explain. (3%)
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SUGGESTED ANSWER:
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NO. It is provided in Section 133 (j) of the Local Government Code that taxes on the gross receipts of transaction contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code are not within the taxing powers of provinces, cities, municipalities, and barangays.
In this case, the XYZ Shipping Corporation is a common carrier of goods/cargos. Hence, the City Government of Manila cannot levy taxes on the said corporation.
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2011
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What is the tax base for the imposition by the province of professional taxes?
A. That which Congress determined.
B. The pertinent provision of the local Government Code.
C. The reasonable classification made by the provincial sanggunian.
D. That which the Dept. of Interior and Local Government determined.
SUGGESTED ANSWER:
C. The reasonable classification made by the provincial sanggunian.
The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination at such amount and reasonable classification as the sangguniang panlalawigan may determine but shall in no case exceed Three hundred pesos (P300.00). (Section 139(a) of the Local Government Code)
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2012
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Which statement is correct?
a) Legislative acts passed by the municipal council in the exercise of its lawmaking authority are denominated as resolutions and ordinances;
b) Legislative acts passed by the municipal council in the exercise of its lawmaking authority are denominated as resolutions;
c) Legislative acts passed by the municipal council in the exercise of its lawmaking authority are denominated as ordinances;
d) Both ordinances and resolutions are solemn and formal acts.
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SUGGESTED ANSWER:
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c) Legislative acts passed by the municipal council in the exercise of its lawmaking authority are denominated as ordinances;
Under Section 48 of RA 7160,otherwise known as the Local Government Code of 1991,local legislative power shall be exercised by the Sangguniang Panlungsod of the city. The legislative acts of the Sangguniang Panlungsod in the exercise of its lawmaking authority are denominated ordinances. ( Lagcao vs. Judge Labra, G.R. No. 155746)
Which of the following statements is NOT a test of a valid ordinance?
a) It must not contravene the Constitution or any statute;
b) It must not be unfair or oppressive;
c) It must not be partial or discriminatory;
d) It may prohibit or regulate trade.
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SUGGESTED ANSWER:
d) It may prohibit or regulate trade.
It was held in Magtajas v. Pryce Properties Corp., Inc. that for an ordinance to be valid, it must conform to the following substae 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 (G.R. No. 111097, [July 20, 1994], 304 PHIL 428-454)
Taxing power of local government units shall NOT extend to the following taxes, except one:
a) Income tax on banks and other financial institutions;
b) Taxes of any kind on the national government, its agencies and instrumentalities, and local government units;
c) Taxes on agricultural and aquatic products when sold by the marginal farmers or fishermen;
d) Excise taxes on articles enumerated under the National Internal Revenue Code.
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SUGGESTED ANSWER:
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a) Income tax on banks and other financial institutions;
Section 133 of the Local Government Code provides that: 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: a) Income tax, except when levied on banks and other financial institutions;
Which statement on prescriptive periods is true?
a) The prescriptive periods to assess taxes in the National Internal Revenue Code and the Local Government Code are the same;
b) Local taxes shall be assessed within five (5) years from the date they became due;
c) Action for the collection of local taxes may be instituted after the expiration of the period to assess and to collect the tax;
d) Local taxes may be assessed within ten (10) years from discovery of the underpayment of tax which does not constitute fraud.
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SUGGESTED ANSWER:
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b) Local taxes shall be assessed within five (5) years from the date they became due;
Section 194 of the Local Government Code provides that:
SECTION 194. Periods of Assessment and Collection. -
(a) Local taxes, fees, or charges shall be assessed within five (5) years from the date they became due. No action for the collection of such taxes, fees, or charges, whether administrative or judicial, shall be instituted after the expiration of such period: Provided, That, taxes, fees or charges which have accrued before the effectivity of this Code may be assessed within a period of three (3) years from the date they became due.
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2013
ABC Corporation is registered as a holding company and has an office in the City of Makati. It has no actual business operations. It invested in another company and its earnings are limited to dividends from this investment, interests on its bank deposits, and foreign exchange gains from its foreign currency account. The City of Makati assessed ABC Corporation as a contractor or one that sells services for a fee. Is the City of Makati correct?
SUGGESTED ANSWER:
The City of Makati is wrong in assessing ABC Corp. as a contractor. First, ABC Corp. is not a contractor as defined in Section 131(h) of Republic Act No. 7160 or the Local Government Code (LGC). This provision defines a contractor as a person, natural or juridical, not subject to professional tax under the LGC, but whose activity consists essentially of the sale of all kinds of services for a fee, regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractor or his employees.
In the given problem, ABC Corp. is merely a holding company whose earnings are limited to dividends, interests on bank deposits and foreign exchange gains from foreign currency account. Evidently, ABC Corp. is not engaged in the sale of services for a fee. Second, Section 186 of LGC provides that local government units cannot levy taxes, fees or charges on any base or subject tax under the provisions of the NIRC. In the given problem, ABC Corp.’s dividends, interest income and foreign exchange gains from foreign currency account are already subject to final income tax under the NIRC, specifically, Sections 27(D)(4), 27(D)(1), 32(A), respectively. Consequently, the City of Makati cannot levy from ABC Corp. taxes on these incomes.
Pheleco is a power generation and distribution company operating mainly from the City of Taguig. It owns electric poles which it also rents out to other companies that use poles such as telephone and cable companies. Taguig passed an ordinance imposing a fee equivalent to 1% of the annual rental for these poles. Pheleco questioned 'the legality of the ordinance on the ground that it imposes an income tax which local government units (LGUs) are prohibited from imposing. Rule on the validity of the ordinance. (1%)
(A) The ordinance is void; the fee is based on rental income and is therefore a tax on income.
(B) The ordinance is valid as a legitimate exercise of police power to regulate electric poles.
(C) The ordinance is void; 1% of annual rental is excessive and oppressive.
(D) The ordinance is valid; an LGU may impose a tax on income.
SUGGESTED ANSWER:
(A) The ordinance is void; the fee is based on rental income and is therefore a tax on income. The Sec. 32(A)(5) of the NIRC includes “rents” in the enumeration of taxable income. Under Section 13311 of the LGC, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of income tax except when levied on banks and other financial institutions.
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2014
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In accordance with the Local Government Code (LGC), the Sangguniang Panglungsod (SP) of Baguio City enacted Tax Ordinance No. 19, Series of 2014, imposing a P50.00 tax on all the tourists and travellers going to Baguio City. In imposing the local tax, the SP reasoned that the tax collected will be used to maintain the cleanliness of Baguio City and for the beautification of its tourist attractions. (D) is punishable by administrative penalty only.
Claiming the tax to be unjust, Baguio Travellers Association (BTA), an association of travel agencies in Baguio City, filed a petition for declaratory relief before the Regional Trial Court (RTC) because BTA was apprehensive that tourists might cancel their bookings with BTA’s member agencies. BTA also prayed for the issuance of a Temporary Restraining Order (TRO) to enjoin Baguio City from enforcing the local tax on their customers and on all tourists going to Baguio City.
The RTC issued a TRO enjoining Baguio City from imposing the local tax. Aggrieved, Baguio City filed a petition for certiorari before the Supreme Court (SC) seeking to set aside the TRO issued by the RTC on the ground that collection of taxes cannot be enjoined. Will the petition prosper? (5%)
SUGGESTED ANSWER:
Yes. The petition for certiorari will prosper. The RTC has no jurisdiction to entertain any action concerning the validity of a Tax Ordinance and to enjoin the imposition of taxes levied by it. Any question on the legality of the tax ordinance can only be raised on appeal with the Secretary of Justice and the appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and the payment of the tax levied therein (Section 187, LGC).
ALTERNATIVE ANSWER:
No, the petition for certiorari filed by Baguio City will not prosper. As stated in Valley Trading Co., Inc. v. CFI of Isabela (G.R. No. L-49529, March 31, 1989) and Angeles City v. Angeles City Electric Corporation (G.R. No. 166134, June 29, 2010), the prohibition on the issuance of an order or writ enjoining the collection of taxes applies only to national internal revenue taxes, and not to local taxes. Unlike the NIRC, there is no express provision in the Local Government Code prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. Therefore, the RTC was properly vested with authority to issue the assailed TRO enjoining Baguio City from imposing the local tax.
Doña Evelina, a rich widow engaged in the business of currency exchange, was assessed a considerable amount of local business taxes by the City Government of Bagnet by virtue of Tax Ordinance No. 24. Despite her objections thereto, Doña Evelina paid the taxes. Nevertheless, unsatisfied with said Tax Ordinance, Doña Evelina, through her counsel Atty. ELP, filed a written claim for recovery of said local business taxes and contested the assessment. Her claim was denied, and so Atty. ELP elevated her case to the Regional Trial Court (RTC).
The RTC declared Tax Ordinance No. 24 null and void and without legal effect for having been enacted in violation of the public ation requirement of tax ordinances and revenue measures under the Local Government Code (LGC) and on the ground of double taxation. On appeal, the Court of Tax Appeals (CTA) affirmed the decision of the RTC. No motion for reconsideration was filed and the decision became final and executory. (4%)
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(A) If you are Atty. ELP, what advise will you give Doña Evelina so that she can recover the subject local business taxes?
(B) If Doña Evelina eventually recovers the local business taxes, must the same be considered as income taxable by the national government?
SUGGESTED ANSWER:
(A) Since the decision by the CTA had already become final and executory, I would advise Dona Evelina to press for the execution of the judgment. Should the city treasurer refuse to refund the local taxes paid, they should push for the issuance of a writ of execution by the CTA to force the local treasurer to make the refund.
(B) Yes. Subject to the tax benefit rule. The local business tax paid is a business connected tax hence, deductible from gross income. If at the time of its deduction it resulted to a tax benefit to Dona Evelina, then the recovery will form part of gross income to the extent of the tax benefit on the previous deduction (Section 34 (C)(1), NIRC).
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2015
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In 2014, M City approved an ordinance levying customs duties and fees on goods coming into the territorial jurisdiction of the city. Said city ordinance was duly published on February 15, 2014 with effectivity date on March 1, 2014.
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(A) Is there a ground for opposing said ordinance? (2%)
(B) What is the proper procedural remedy and applicable time periods for challenging the ordinance? (4%)
SUGGESTED ANSWERS:
(A) Yes. Under Sec. 133 of the Local Government Code, the exercise of the taxing powers of provinces, cities and barangays shall not extend to the levy of taxes, fees or charges of any kind already imposed by the National Government. This extends to customs and charges under the Customs and Tariffs Code of the Philippines, which the governing law for the imposition of, among others, customs duties and is implemented by the Bureau of Customs. Thus, M City has no authority to levy customs duties and fees coming into the territorial jurisdiction of the city.
(B) Under Sec. 187 of the Local Government Code, any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within 30 days from effectivity thereof to the Secretary of Justice who shall render a decision within 60 days from the date of receipt of the appeal. Furthermore, within 30 days after the lapse of the 60-day period without the Secretary acting upon the appeal, the aggrieved party may file a petition with a court of competent jurisdiction.
Here, since the city ordinance’s effectivity is on March 1, 2014, a petition to question the legality or constitutionality of the ordinance must be filed with the Secretary within 30 days thereafter. If the Secretary fails to act within the 60 day period allowed by law, a petition may thereafter be filed with the appropriate court, this being the Court of Tax Appeals, with 30 days after the lapse the 60-day period
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2016
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The City of Maharlika passed an ordinance imposing a tax on any sale or transfer of real property located within the city at a rate of fifty percent (50%) of one percent (1%) of the total consideration of the transaction. Jose sold a parcel of land in the city, which he inherited from his deceased parents, and refused to pay the aforesaid tax. He instead filed a case asking that the ordinance be declared null and void since the tax it imposed can only be collected by the national government, as in fact he has paid the Bureau of Internal Revenue (BIR) the required capital gains tax. If you were the City Legal Officer of Maharlika, what defenses would you raise to sustain the validity of the ordinance?
SUGGESTED ANSWER
As the City Legal Officer, I will defend the validity of the imposition of a tax on the sale or transfer of real property as this as this imposition is sanction under the Local Government Code.
Under the Section 135 of the Local Government Code, the province may impose a tax on the sale , donation, barter, or on any other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of the one percent (1%) of the total consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is not substantial, whichever is higher.
Further the same section provides, the Register of Deeds of the province concerned shall, before registering any deed, require the presentation of the evidence of payment of this tax.
Under the National Internal Revenue Code, Transfer Tax paid in the Bureau of Internal Revenue (BIR) can be either donor’s or estate.
Here the City of Maharlika's imposition is clearly in accordance with the provision of the Local Government Code and is therefore valid. The capital gains tax Jose paid with the Bureau of Internal Revenue, which is based on the provisions of NIRC, is entirely different from the transfer tax provided under the LGC.
Thus, Jose is liable for transfer tax imposed by the City of Maharlika for the parcel of land he sold in the city.
2017
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BATAS Law is a general professional partnership operating in the City of Valenzuela. It regularly pays value-added tax on its services. All its lawyers have individually paid the required professional tax for the year 2017. However, as a condition for the renewal of its business permit for the year 2017, the City Treasurer of Valenzuela assessed BATAS Law for the payment of percentage business tax on its gross receipts for the year 2016 in accordance with the Revenue Tax Code of Valenzuela.
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Is BATAS Law liable to pay the assessed percentage business tax? Explain your answer.
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SUGGESTED ANSWER:
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No, BATAS Law is not liable to pay the assessed percentage business tax.
Section 133 (i) of the Local Government Code provides that the exercise of the taxing powers of local government units shall not extend to the levy of “percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services” except as otherwise provided in the LGC.
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Therefore, the City of Valenzuela, is devoid of the power to levy percentage or value-added tax by express provision of law. Consequently, BATAS Law may not be assessed with and required to pay percentage business tax.
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2018
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KM Corporation, doing business in the City of Kalookan, has been a distributor and retailer of clothing and household materials. It has been paying the City of Kalookan local taxes based on Sections 15 (Tax on Wholesalers, Distributors or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Kalookan City (Code). Subsequently, the Sangguniang Panlungsod enacted an ordinance amending the Code by inserting Section 21 which imposes a tax on "Businesses Subject to Excise, Value-Added and Percentage Taxes under the National Internal Revenue Code (NIRC)," at the rate of 50% of 1 % per annum on the gross sales and receipts on persons "who sell goods and services in the course of trade or business." KM Corporation paid the taxes due under Section 21 under protest, claiming that (a) local government units could not impose a tax on businesses already taxed under the NIRC and (b) this would amount to double taxation, since its business was already taxed under Sections 15 and 17 of the Code.
(A) May local government units impose a tax on businesses already subjected to tax under the NIRC? (2.5%)
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SUGGESTED ANSWER:
(A). No, the local government units may only exercise the power to impose taxes on any base or subject not otherwise taxd under the provisions of the NIRC, as amended. (Sec. 186, LGC)
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Kathang Isip, Inc. (Kii) is a domestic corporation engaged in the business of manufacturing, importing, exporting, and distributing toys both locally and abroad. Its principal office is located in Kalookan City, Philippines. It has 50 branches in different cities and municipalities in the country. When Kii applied for renewal of its mayor's permit and licenses in its principal office in January this year, Kalookan City demanded payment of the local business tax on the basis of the gross sales reported by the corporation in its audited financial statements for the preceding year. Kil protested, contending that Kalookan City may tax only the sales consummated by its principal office but not the sales consummated by its branch offices located outside Kalookan City.
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When Kalookan City denied the protest, Kil engaged the services of Atty. Kristeta Kabuyao to file the necessary judicial proceedings to appeal the decision of Kalookan City. Atty. Kabuyao is a legal expert, but resides in Kalibo, Aklan where her husband operates a resort. She, however, practices in Metro Manila, including Kalookan City. The counsel representing the city, in the case filed in Kalookan City by KII, questioned the use of Atty. Kabuyao's Professional Tax Receipt (PTR) issued in Aklan for a case filed in Kalookan City.
(A) Is Kll's contention that Kalookan City can only collect local business taxes based on sales consummated in the principal office meritorious? (2.5%)'
(B) Is the Kalookan City counsel correct in saying that Atty. Kabuyao's PTR issued in Aklan cannot be used in Kalookan? (2.5%)
SUGGESTED ANSWER:
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(A) Yes. Under the law, manufacturers maintaining a branch or sales office shall record the sale in the branch or sales office making the sale and pay the tax in the city or municipality where the branch or sales office is located. If there are no such branches or sales office, the sale shall be recorded in principal office and the taxes due shall accrue and be paid in the city or municipality where such office is located. (Sec. 150, LGC)
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Thus, KII shall only be liable to pay taxes based on the sales made and recorded in its principal office in Kalookan City since it has several branches in other places.
(B) Yes. The payment of professional tax shall be made in the province where the taxpayer practices his profession or where he maintains his principal office in case he practices his profession in several places. Such payment shall entitle him to practice his profession in any part of the Philippines xxx. (Sec. 139, LGC). The place of residence has no power to collect professional taxes from the person legally authorized to practice his profession.
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Thus, the PTR issued in Aklan is null and void since the it is the place of residence of Atty. Kabuyao. Atty. Kabuyao should’ve paid professional tax in any city in Metro Manila since it is where she practices her legal profession.
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The PTR being invalid, Atty. Kabuyao is not entitled to practice her profession anywhere without paying her tax in the proper ci.