SITUS OF THE TAX - A STUDY OF ITS
IMPLEMENTATION
(Pursuant to Republic Act 7160, the
Local Government Code of 1991)
by
Florecita P. Flores
Local Government Research and Consultancy Service
• Republic Act No. 7160, otherwise known
as the Local Government Code of 1991,
under Book II (Local Taxation and Fiscal
Matters), in Title One (Local Government
Taxation) prescribed the situs of the tax for
purposes of collection of the tax on
business.
• “Situs” is defined “L(atin) for Situation; Location e.g. location or place of crime or business. Site; position; the place where a thing is considered, for example with reference to jurisdiction over it, or the right or power to tax it. It imports fixedness of location. Situs of property, for tax purposes, is determined by whether the taxing state has sufficient contact with the personal property sought to be taxed to justify in fairness the particular tax.” (Black’s Law Dictionary, Centennial Edition (1891-1991) p.1387)
• The “situs rule” is defined as “a
provision of tax law setting out the
factors which determine where a
particular asset is situated or deemed
to be situated for tax purposes. The
location of the assets may be a
decisive element in determining tax
liability.” (International Tax Glossary,
Second Edition, International Bureau
of Fiscal Documentation, 1992 IBFD
Publications BV)
The Taxes on Business
• It is necessary to first establish
the taxes, fees and charges on
business which are authorized in
the Local Government Code
(“Code”, for brevity), and the
Local Government Units (“LGUs”,
for brevity) which may levy such
taxes, fees and charges.
Province: (Section 134)
• Tax on the Transfer of Real Property Ownership (Sec.135)
• Tax on Business of Printing and Publication (Sec. 136)
• Franchise Tax (Sec. 137)
• Tax on Sand, Gravel and Other Quarry Resources (Sec. 138)
• Professional Tax (Sec. 139)
• Amusement Tax (Sec. 140)
• Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products. (Sec. 141)
Municipalities/Cities (Section 142 and Section 151)
• Tax on manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, wines, or manufacturers of any article of commerce of whatever kind or nature (Sec. 143 [a])
• Tax on wholesalers, distributors or dealers in any article of commerce of whatever kind or nature (Sec.143 [b])
• Tax on exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities (Sec. 143 [c])
• Tax on Retailers (Sec. 143 [d])
• Tax on Contractors (Sec. 143 [e]) • Tax on banks and other financial institutions (Sec. 143
[f])
• Tax on peddlers (Sec. 143 [h])
• Tax on any business , not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax.
Barangays (Section 152) • Taxes on retailers with fixed business establishments
with gross sales or receipts of the preceding calendar year of P50,000.00 or less, in the case of cities and P30,000.00 or less, in the case of municipalities (Sec. 152[a])
• Services fees or charges for services rendered in connection with the regulation or the use of barangay-owned properties or service facilities such as palay, copra, or tobacco dryers (Sec. 152 [b])
• Barangay Clearance – any license or permit for any business or activity located or conducted within the bagangay (Sec. 152[c])
• Other fees and charges on the following: (Sec. 152 [d]) – On commercial breeding of fighting cocks, cockfights and
cockpits
– On places of recreation which charges admission fees; and
– On billboards, signboards, neon signs, and outdoor adverstisements.
Scope of Taxing Power of the LGUs
(Section 151)
• “Except as otherwise provided in this Code, the city may levy taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code.
• The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.”
I. Specific Provisions in the Code and its
Implementing Rules and Regulations (IRR) on
Situs of the Tax:
• (A) Sec. 150. - “(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 in 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:
• 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;
• 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.
• (c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:
• (i.) Sixty percent (60%) to the city
or municipality where the factory
is located; and
• (ii) Forty percent (40%) to the city
or municipality where the
plantation is located.
• (d) In cases where a manufacturer, assembler, producer,
• exporter or contractor has two (2) or more factories, project offices, plants or plantations are located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) or subsection (2) above shall be prorated among the localities where the factories, project offices, plants and plantations are located in proportion to their respective volumes of production during the period for which the tax is due.
• (e) The foregoing sales
allocation shall be applied
irrespective of whether or not
sales are made in the locality
where the factory, project
office, plant or plan is located.
(B). Art. 243. - (a) Definition of Terms –
• Principal Office - the head or main office of the business appearing in the pertinent documents submitted to the Securities and Exchange Commission or the Department of Trade and Industry, or other appropriate agencies, as the case may be. The city or municipality specifically mentioned in the Articles of Incorporation or official registration papers as being the official address of said principal office shall be considered as the situs thereof. In case there is a transfer or relocation of the principal office to another city or municipality, it shall be the duty of the owner, operator or manager of the business to give due notice of such transfer or relocation to the local chief executives of the cities or municipalities concerned within fifteen (15) days after such transfer or relocation is effected.
• Branch or Sales Office – a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices, as herein contemplated. A warehouse which accepts order and/or issues sales invoices independent of a branch with sales office, shall be considered as a sales office.
• Warehouse – buildings utilized for
the storage of products for sale and
from which goods or merchandise
are withdrawn for delivery to
customers or dealers, or by persons
acting in behalf of the business. A
warehouse that does not accept
orders and/or issue sales invoices
as aforementioned shall not be
considered a branch or sales office.
• Plantation - a tract of
agricultural land planted to trees
or seedlings whether fruit
bearing or not, uniformly spaced
or seeded by broadcast methods
or normally arranged to allow
highest production.For purposes
of this Article, inland fishing
ground shall be considered as
plantation.
• Experimental Farms - agricultural lands utilized by a business or corporation to conduct studies, tests, researches or experiments involving agricultural, agribusiness, marine, or aquatic, livestock, poultry, diary and other similar products for the purpose of improving the quality and quantity of goods or products. On-site sales of commercial quantity made in experimental farms shall be similarly imposed the corresponding tax under Article 233 and allocated in paragraph (b) of this Article.
(b) Sales Allocation –
• (1) All sales made in a locality
where there is a branch or sales
office or warehouse shall be
recorded in said branch or sales
office or warehouse and the tax
shall be payable in the city or
municipality where the same is
located.
• In cases where there is no such
branch, sales office or
warehouse in the locality where
the sale is made, the sale shall
be recorded in the principal
office along with the sales made
by said principal office and the
tax shall accrue to the city or
municipality where said principal
office is located.
• In cases where there is a factory, project
office, plant or plantation, in pursuit of
business, 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 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; LGUs where only experimental
farms are located shall not be entitled to
the sales allocation provided in this
subparagraph.
• In case of a plantation located in a
locality other than that where the
factory is located, the seventy
percent (70%) sales allocation shall
be divided as follows:
• (i) Sixty percent (60%) to the city or
municipality where the factory is
located, and
• (ii) Forty percent (40%) to the city or
municipality where the plantation is
located.
• In cases where there are two (2) or more factories, project offices, plants or plantations located in different localities, the seventy percent (70%) sales allocation shall be prorated among the localities where such factories, project offices, plants and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. In the case of project offices of service and other independent contractors, the term ‘production’ shall refer to the costs of projects actually undertaken during the tax period.
• The sales allocation in
paragraph (b) hereof shall be
applied irrespective of whether
or not sales are made in the
locality where the factory, project
office, plant or plantation is
located. In case of sales made
by the factory, project office,
plant or plantation, the sale shall
be covered by subparagraphs
(1) or (2) above.
• In case of manufacturers or producers
which engage the services of an
independent contractor to produce or
manufacture some of their products,
these rules on situs of taxation shall
apply except that the factory or plant and
warehouse of the contractor utilized for
the production and storage of the
manufacturer’s products shall be
considered as the factory or plant and
warehouse of the manufacturer
• (c) Port of Loading - The city or
municipality where the port of loading
is located shall not levy or collect the
tax imposable in Article 233 of this
Rule unless the exporter maintains in
said city or municipality its principal
office, a branch, sales office or
warehouse, factory, plant or
plantation in which case, the rule on
the matter shall apply accordingly.
Sales made by route trucks, vans, or
vehicles -
• For route sales made in a locality
where a manufacturer, producer,
wholesaler, retailer or dealer has a
branch or sales office or
warehouse, the sales are recorded
in the branch, sales office or
warehouse and the tax due thereon
is paid to the LGU where such
branch, sales office or warehouse is
located.
• For route sales made in a locality
where a manufacturer, producer,
wholesaler, retailer or dealer has a
branch, sales office or warehouse,
the sales are recorded in the
branch, sales office or warehouse
from where the route trucks
withdraw their products for sale, and
the tax due on such sales is paid to
the LGU where such branch, sales
office or warehouse is located.
• Based on subparagraphs (1) and (2) above,
LGUs where route trucks deliver merchandise
cannot impose any tax on said trucks except
the annual fixed tax authorized to be imposed
by the province in Art. 231 of this Rule on
every delivery truck or van or any motor
vehicle used by manufacturers, producers,
wholesalers, dealers or retailers in the delivery
or distribution of distilled spirits, fermented
liquors, soft drinks, cigars or cigarettes, and
other products as may be determined by the
sangguniang panlalawigan and by the city,
pursuant to Article 223 of this Rule.
• In addition to the annual fixed tax,
cities may also collect from same
manufacturers, producers,
wholesalers, retailers, and dealers
using route trucks a mayor’s
permit fee which shall be imposed
in a local tax ordinance pursuant
to Article 434 in relation to Article
233 of this Rule.”
II. The Department of Finance also
issued specific guidelines on Situs of the
tax for several industries:
• Banks and Other Banking Institutions - Local
Finance Circular No. 1-93 (6/16/93)
• “Section 5. Situs of the Tax. – For purposes of
collection of the tax, the following shall apply (a)
All transactions filed with or negotiated in the
branch shall be recorded in said branch and the
gross receipts derived from said transactions
shall be taxable by the city or municipality where
such branch is located. The rule shall be applied
to:
• transactions negotiated with and
approved by the branch
manager under his own
authority; or
• transactions filed and negotiated
in the branch but being beyond
the approving authority of the
branch manager are forwarded
to the Head Office for final
approval.
• (b) The gross receipts derived from
transactions made by the Head Office,
except gross receipts recorded in the
branches, shall be taxable by the city or
municipality where said Head Office is
located.
• (c) In case there is a transfer or relocation
of the Head Office or of any branch to
another city or municipality, the bank shall
give due notice of such transfer or
relocation to the chief executives of the
cities or municipalities concerned within
fifteen (15) days after such transfer or
relocation is effected.”
On Insurance Companies – Local Finance
Circular No. 2-93 (6/16/93)
• “Section 5. Situs of the Tax. - For purposes of collection of the tax, the following shall apply - (a) Insurance contracts/policies issued by the Head Office or branch shall be recorded in said office or branch as the case may be and the premiums and/or gross receipts due on such contracts/policies shall be taxable by the city or municipality where such Head Office or branch to which such premiums or gross receipts were actually paid is located. This rule shall be applied irrespective of whether the insurance contracts/policies were solicited or negotiated by insurance agents, or brokers who are not residents of the city or municipality where the branch is located or affiliated with or assigned to such branch.
• The offices of an insurance agent, or
broker, shall not be considered a branch
and shall not be subject to the situs of
taxation rule.
• All insurance premiums and/or gross
receipts from transactions not recorded
in the branches of the insurance
companies in accordance with paragraph
(a) above shall be recorded in the Head
Office and taxable by the city or
municipality where said Head Office is
located.
• In case there is a transfer or
relocation of the Head Office or of
any branch to another city or
municipality, the insurance
companies shall give due notice of
such transfer or relocation to the
chief executives of the cities or
municipalities concerned within
fifteen (15) days after such transfer
or relocation is effected
On Financing Companies - Local Finance
Circular No. 3-93 (6/16/93)
• “Section 5. Situs of the Tax. - For
purposes of collection of the tax, the
following shall apply - (a) All transactions
made by the branch shall be recorded in
said branch and the gross receipts derived
from said transactions shall be taxable by
the city or municipality where such branch
is located.
• The gross receipts derived from transactions made by the Head Office, except gross receipts recorded in the branches, shall be taxable by the city or municipality where the Head Office is located.
• (c) In case there is a transfer or relocation of the Head Office or of any branch to another city or municipality, the bank (sic) shall give due notice of such transfer or relocation to the chief executives of the cities or municipalities concerned within fifteen (15) days after such transfer or relocation is effected.”
On Exporters - Local Finance Circular
No. 4-93 (7/30/93)
• “Section 5. Situs of the Tax. - (a) Definition of Terms –
• (1) Principal Office - shall refer to the head or main office of the exporter indicated in the pertinent documents submitted to the Securities and Exchange Commission, Department of Trade and Industry or other appropriate agencies, the city or municipality specifically mentioned in the Articles of Incorporation and other official registration papers being the official address of said Principal Office shall be considered as the situs thereof.
• (2) Branch of Sales Office – a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products whre no stock or items are stored for sale, although orders for the products where no stock or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as sales office.
• (3) Warehouse - a building utilized for
the storage of products for sale and
from which goods or merchandise are
withdrawn for delivery to customers or
dealers, or by persons acting in
behalf of the business. A warehouse
that does not accept orders and/or
issue sales invoices as
aforementioned shall not be
considered a branch or sales office.
• Sales Allocation – For purposes of collection of
the tax, the following shall apply:
• (1)All export transactions made by the branch
shall be recorded in said branch and the gross
sales or receipts derived from said transaction
shall be taxable by the city or municipality
where such branch is located.
• (2)The gross sales or receipts derived from
export transactions made by the Principal
Office, except gross sales or receipts recorded
in the branches shall be taxable by the city or
municipality where said Principal Office is
located
• (3)In cases where there is no such branch or sales office, in the locality where the sale is made, the sale shall be recorded in the principal office along with the sales made by said principal office and the tax shall accrue to the city or municipality where said principal office is located.
• (4)In cases where there is a factory or plant in pursuit of business, 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 seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory or plant is located.
• (5)In cases where there are two or more
factories or plants located in different localities,
the seventy percent (70%) sales allocation shall
be prorated among the localities where such
factories or plants are located in proportion to
their respective volumes of production during the
period for which the tax is due.
• (6) The sales allocation in paragraph (b) hereof
shall be applied irrespective of whether or not
sales are made in the locality where the factory
or plant is located. In case of sales made by the
factory or plant, the sale shall be covered by
subparagraphs (1) or (2) above.
• (7) In case of manufacturers or producers which
engage the services of an independent
contractor to produce or manufacture some of
their products, these rules on situs of taxation
shall apply except that the factory or plant and
warehouse of the contractor utilized for the
production and storage of the manufacturer’s
products shall be considered as the factory or
plant and warehouse of the manufacturer, the
independent contractor shall not be taxed on the
basis of the gross sales of its production of the
manufacturer’s products but on the gross
receipts as independent contractor under Sec.
143 (e) of the LGC, as implemented under Art.
232 (e) of its IRR.
On Construction Contractors – Local Finance Circular
No. 3-95 (5/22/95)
• Definition of Terms.
– Head/Principal Office - shall refer to the main office
of the construction contractor indicated in the
pertinent documents submitted to either the
Securities and Exchange Commission (SEC) or
other appropriate government agencies, as the case may be. The city or municipality specifically
mentioned in the Articles of Incorporation and other
official registration papers as being the official
address of said Head Office/Principal Office shall be
considered as the situs thereof.
– Branch Office – is a fixed place
in a locality which conducts
operations of the business as
an extension of the principal
office.
– Project Office - shall mean
the field office in the
construction site. It is
equivalent to the factory of a
manufacturer,
• For purposes of collection of the tax, the
following rules shall apply:
• (1) All gross receipts realized from
domestic projects or contracts undertaken by
the branch office shall be recorded in the said
branch office and the tax thereon shall be
payable to the city or municipality where said
branch is located.
• (2) In cases where there is no branch office,
the gross receipts from domestic projects or
contracts shall be recorded in the Head Office/
Principal Office and the same shall be
allocated as follows:
• Thirty percent (30%) of the gross receipts shall be taxable by the city or municipality where the principal office is located; and
• (ii) Seventy percent (70%)of the gross receipt shall be taxable by the city or municipality where the project office is located.
• In cases where there are two (2) or more project offices located in different localities, the seventy percent (70%) allocation stated in subparagraph (2) (ii) above shall be prorated among the localities where such project offices are located in proportion to the work accomplished based on the cost of the projects or contracts actually undertaken in the locality during the tax period for which the tax is due.
• In the case of overseas construction projects, the construction contractor shall declare separately the gross receipts realized therefrom, which shall not be subject to the business tax.
• In case of pre-fabricated works which are paid for in accepted freely convertible currency with attendant installation works outside the Philippines, the gross receipts realized therefrom shall be subject to not more than one-half (1/2) of the rate prescribed for in Sec. 3 (a) hereof.
• In case there is a transfer or
relocation of the Head/Principal
Office or any branch to another
city or municipality, the
construction contractor shall give
due notice of such transfer or
relocation to the cities or
municipalities concerned within
fifteen (15) before such transfer
or relocation is effected.”
Query of. Republic-Asahi Glass
Corporation
– The company has its principal office, factory and sales offices located in the Municipality of Pasig;
– all sales are recorded in Pasig and the taxes due are paid thereat;
– the company also has ten (10) depots located in two (2) municipalities and eight (8) cities where its products are stored for sale and accepts orders from dealers in their respective areas.
• In the DOF opinion (which was signed
by an Undersecretary), the provincial
depots were considered
“warehouses” following the definition
in subparagraph (3) of Article 243, to
wit:
• “A building utilized for the storage of
products for sale and from which
goods and merchandise are
withdrawn for delivery to customers or
dealers, or by persons acting in
behalf of the business.”
• Hence, while all the sales made by the
principal office, factory and sales offices
located in Pasig should be recorded and
the tax due paid thereat, if the provincial
depots accepts orders and/or issue sales
invoices, such orders and/or sales shall be
recorded in the said depot and the tax due
shall be paid to the city or municipality
where the depot is located.
• It will be noted that the DOF opinion was largely
based on the facts as alleged by the taxpayer in
determining the tax situs of the principal office,
factory and sales offices. With respect to the
provincial depots, the taxpayer only alleged that
it was used for storage of products and to accept
orders from dealers in the area. It was the DOF
which filled out the “missing facts” that would
establish the tax situs of the depots i.e., if the
depots accept orders and/or issue sales
invoices, such orders or sales must be recorded
in the depot and the tax paid to the city or
municipality where the depot was located.
Query of Kenram Philippines, Inc
• These facts were disclosed in three (3) letters which provided piece-meal information on the operations of the company, as follows:
• In the first letter, it was represented that the sales, invoicing and collection of the company was made in the principal office located in the Municipality of Pasig; – that no sale is consummated (sic) in the plantation
and farm office located in the Municipality of Isulan, Sultan Kudarat;
• that likewise, no sale is consummated at the Port of General Santos City where the storage tank for the palm oil shipped to Manila is located;
• In a second letter, representations were further made that the plantation is solely planted with palm trees that bear fruits known as Fresh Fruit Bunches; the fruits are milled by another company for extraction of palm oil which is sold domestically.
• Then, in a third letter, it was explained that kernels are also extracted from the nuts of the fresh fruits and these are cleaned, dried and packed in bags for export.
• BLGF replied that sales allocation under Art 243© of the IRR shall apply such that seventy percent (70%) of the sales recorded in the principal office in Pasig shall be taxable by the municipality of Isulan, Sultan Kudarat where the plantation is located while the remaining thirty percent (30%) shall be taxable by the municipality of Pasig. With respect to the palm oil sold domestically and the kernels that are exported, BLGF expressed the view that the issue was not its tax situs but the nature of the products i.e., the palm oil and the kernels, which BLGF considered as “agricultural products” under Sec. 143 © (2) of the Code, taxable at one-half of the rate prescribed therein, to wit:
• “On exporters, and on manufacturers, millers, producers,
• wholesalers, distributors, dealers or retailers of essential commodities enumerated hereunder at a rate not exceeding one half (1/2) of the rates prescribed under subsections (a), (b) and (d) of this Section:
• x x x
• Wheat or cassava flour, meat, dairy products, locally-
• manufactured, processed or preserved food, sugar, salt and other agricultural, marine, fresh water products, whether in original state or not. (italics, ours)
• In this situation, BLGF relied on
the representations of the
taxpayer in giving its opinion on
the situs queries except with
respect to the storage tank
located in the port of loading in
General Santos City on which
BLGF requested more
information.
• (4) Wenphil Corporation is a duly
registered domestic corporation
engaged in the operation of Wendy’s
hamburger restaurants. It holds the
exclusive franchise to operate Wendy’s
restaurants so all its outlets are
company-owned.
• Its principal office is located in Muntinlupa City
• It has forty-five (45) outlets or restaurants in different localities in Metro Manila and nearby provinces
• It maintains its sale commissary in the City of Marikina which serves as a central receiving, quality inspection and warehouse area for some goods which the company’s suppliers deliver in bulk
• No sales are made in the commissary; deliveries or withdrawals from the commissary are through vans to the various outlets outside Marikina recorded in stock cards with no sales invoices being issued.
• Issue: The Chief, Business Permits and
Licenses Office of the City Treasurer’s
Office informed Wenphil that the
commissary was treated as Cold Storage
and Processing Plant and a major integral
part of the various Outlet’s of Wendy’s
Hamburger restaurants; that these outlets
are dependent to a large measure on said
Plant. Thus, said office treated
all materials withdrawn as sales and,
taxable.
• Citing Art. 243(b) on Sales Allocation. BLGF
opined that with respect to the forty-five (45)
outlets of Wenphil in different localities, 100% of
sales made in the said outlets shall be taxable
by the local government units where the same
are located. The City of Marikina where only the
commissary is maintained and where there is no
sales outlet, shall not share in the business tax
that is paid by the sales outlets. Accordingly, the
City of Marikina may only impose a Mayor’s
permit fee and other regulatory fees and charges
on Wenphil for the operation of a Cold Storage
and Processing Plant.
Query of SM Prime Holdings, Inc:
• SM Prime Holdings, Inc. maintains its principal office in Makati. However, said principal office performs administrative functions only;
• The corporation conducts its business operations through the following Shopping Malls:
» SM City located North EDSA, Quezon City
» SM Centrepoint located at Sta. Mesa, City of Manila
» SM Southmall located in the City of Las Pinas
» SM City located in Cebu City
» SM Bacoor in Bacoor, Cavite
• The income derived from the operation of said
shopping malls includes rentals from store
spaces, receipts from cinemas, bowling alleys,
skating rinks and parking fees and the gross
receipts are reported and the corresponding
local business taxes are paid to the cities where
the shopping malls are located
• Issue: The ICO Treasurer of Makati assessed
SM Prime Holdings deficiency assessment
based on a 30%-70% allocation of taxable sales
i.e. that the City of Makati was entitled to 30%
thereof.
• BLGF pointed out that since the business operations of SM Prime Holdings were conducted through the different shopping malls that it maintains and not in its principal office located in Makati, the said shopping malls partake of the nature of a branch or sales office. Accordingly, the transactions involved should be recorded in such “branch” or “sales office” and the local business taxes due on said gross receipts from rentals should be paid in the city where the same is located pursuant to the provisions of subparagraph (1) of Article 243 (b) of the Implementing Rules and Regulations of the Code.
• BLGF also advised that “while it appears from the provisions of Art 243 of the IRR implementing Section 150 of the Code, in determining the proper situs of the taxes due, the term “sales” is used, this should not be strictly construed as being limited to the sale of goods or products whether they are in their original form , or are manufactured, or processed before being sold in the market. Rather, the term used in the IRR should be interpreted to mean also other forms of receipts or income as, for example, receipts for services rendered by “contractors” or income realized by banks and other financial institutions in their operations as contemplated under Section 150 of the Code itself.”