NOTES FOR TAXATION BY LOCAL GOVERNMENT UNITS

COMMON LIMITATION SEC. 133

Illustrative cases

Progressive Development Corp. vs. Quezon City

DOCTRINE:Tax of five percent on gross receipts of rentals or lease of space in privately owned markets constitutes a valid “license tax or fee” for the regulation rather than income tax.

To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well.

FACTS:The City Council of QC adopted Ordinance No. 7997, known as the Market Code, section 3 of which provides that privately owned and operated public markets shall pay a 10% tax on all gross receipts from stall rentals as supervision fee. The Market Code was amended by Ordinance 9236 which says that a 5% tax on gross receipts of stall rentals shall be paid privately owned public markets in Quezon City.

Progressive Development Corp, owner of the public market known as “Farmers Market & Shopping Center” filed a petition for prohibition with preliminary injunction against the CFI of Rizal on the ground that said license fee/ supervision fee is really a tax on income which respondent cannot impose as it was expressly prohibited by RA 2264. Petitioner insist that the “supervision fee” collected from rentals, being a return from capital invested in the

construction of the Farmers Market, practically operates as a tax on income, one of those expressly excepted from respondent’s taxing authority, and thus beyond the latter’s competence. Petitioner paid the 5% under protest for three months.

ISSUE:Whether the tax being imposed by respondent is in the nature of an income tax?- NO, it partakes of a license fee.

HELD:The Revised Charted of Quezon City confers upon the city council the grant of authority not only to regulate and fix the license fee but also to tax. Both the Local Autonomy Act and the Charter of respondent clearly show that the respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned public market.

When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power.

In the case at bar, the “Farmers Market & Shopping Center” was built by virtue of Resolution No. 7350 which imposed upon petitioner, as a condition for continuous operation, the obligation to “abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City.” The “Farmers’ Market and Shopping Center” being a public market in the sense of a market open to and inviting the patronage of the general public, even though privately owned, petitioner’s operation thereof required a license issued by the respondent City, the issuance of which, applying the

standards set forth above, was done principally in the exercise of the respondent’s police power.

It is held that hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax but rather a license tax or fee for the regulation of the business in which the petitioner is engaged.

Local governments are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates.

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel the Court to characterize the imposition as a revenue measure exclusively.

As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that unit not having the inherent power of taxation. The rule, however, finds no application in the instant case where what is involved is an exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly accompanied by the taxing power.

Tatel vs. Viras, 48 SCRA 79

Doctrine:To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well.

Facts:

- Celestino Tatel and the other petitioners question the legality of Ordinance no. 5 & 6 issued by the Municipality of Virac. - Ordinance no. 6 is an ordinance imposing municipal license taxes for the exercise of all businesses, occupations and privileges within the Municipality. License taxes were imposed on persons engaged in the business of sari sari stores, sale of abaca and copra, bakery, sale of hollow blocks, etc- The ordinance was assailed on the ground that it partakes the nature of a tax on imports or exports and a tax on purchases as well as double taxation. Also, the ordinance increased taxes by more than 50% without the requisite prior approval of the Secretary of Finance and that that taxes imposed are unjust and excessive.- Lower court renders judgment and ordered the Municipality to reimburse the taxes paid by the petitioners. Municipality appealed to the SC.

ISSUE: Whether or not the assailed Ordinances are null and void

HELD: No, they are valid.

1) The provision requiring prior approval from the Finance Secretary has been impliedly repealed by RA 2264 - which vests in the municipality, city and municipal councils ample discretion to impose taxes and even municipal license taxes. Instead of demanding prior approval from the Finance Sec, the latter only has authority limited to suspending imposition of taxes within 120 days after its passage, when in his opinion, the taxes are unjust, excessive and oppressive.2) The taxes imposed by the Ordinance do not tax specific goods. They impose license taxes, or regulate and tax those engaging in specific businesses. The taxes categorize the businesses.3) The license tax imposed on each category is graduated - the amount depends upon the capital investment or purchases for the year. The nature of the business taxed and the amount invested are reasonable grounds for the classification made in the said ordinances.4) The power to impose these taxes are expressly authorized by RA 2264 - that all cities, municipalities, and municipal districts shall have the authority to impose municipal license taxes or fees upon

persons engaged in any occupation or business by requiring them to secure licenses at rates fixed by the LGU.5) The purpose of RA 2264 was to grant more autonomy to our local governments. Based on the statements made on the floor of the House of Reps, it is clear that the LGU's power to tax has become very broad because the purpose of the law was for the LGUs to increase their finances so that they will not be burdening the national government by asking certain things that they cannt do themselves.

REMEDIES OF TAXPAYERSTaxing Powers1) Prov. Of Bulacan vs. Court of Appeals .

DOCTRINE:A province has no authority to impose the taxes on gravel, sand, stones, earth and other quarry resources extracted from private lands. A province may not levy excise taxes on articles already taxed by the NIRC

Facts: In 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, Sec 21 of which provides:

Sec 21.  There is hereby levied & collected a tax of 10% of the FMV in the locality per cubic meter of ordinary stones, sand, gravel, earth & 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.

In a letter dated Nov. 11, 1993, the Provincial Treasurer assessed Republic Cement Corp (RCC)  P2,524,692 for extracting limestone, shale and silica from several parcels of private land in the province during in 1992 & 1993. On Dec. 23, 1993, RCC formally contested the assessment, which was, denied by the Provincial Treasurer on Jan. 17, 1994.  Thus, on Feb. 14, 1994, RCC filed a petition for declaratory relief with the RTC of Bulacan.

The RTC, upon motion of the province, dismissed RCC’s petition on the ground that the declaratory relief was improper, allegedly because a breach of the ordinance had been committed by RCC. On July 11, 1994, RCC filed a petition for certiorari with the SC which, in a resolution, referred the same to the CA.

In the interim, the Province issued a warrant of levy against RCC for its unpaid tax liabilities.  In an agreement and modus

vivendi between the parties, RCC agreed to pay under protest 50% of the tax assessed, in exchange for the lifting of the warrant of levy.  Also, the parties agreed, with the approval of the CA, to limit the issue for to the question as to whether or not the provincial government could impose and/or assess taxes on quarry resources extracted by RCC from private lands.  The CA ruled in favor of RCC, hence this petition for certiorari.

Issues:1) W/N the remedy against the RTC’s dismissal of the petition of RCC is certiorari.

The remedy against a final order [motion to dismiss] is an appeal, and not a petition for certiorari under Rule 65 regardless of the questions sought to be raised on appeal, whether of fact or of law, whether involving jurisdiction or grave abuse of discretion of the trial court. The party aggrieved does not have the option to substitute the special civil action for certiorari under Rule 65 for the remedy of appeal.  The existence and availability of the right of appeal are antithetical to the availment of the special civil action for certiorari.

However, contrary to the allegation of petitioners, RCC did not file a petition for certiorari under Rule 65, but an appeal by certiorari under Rule 45. Certiorari under Rule 45 is a mode of appeal.

2) W/N the province of Bulacan, on the basis of the ordinance, has authority to impose taxes on quarry resources extracted from private lands.

NO. Although Sec 186 of the LGC allows a province to levy taxes other than those specifically enumerated in the LGC, the same is subject to certain conditions. One of these limitations is Sec 133(h) of the LGC which provides that a province may not levy excise taxes on articles already taxed by the NIRC. Under Sec 151 of the NIRC, an excise tax is levied on all quarry resources, regardless of origin, whether extracted from public or private land.  

In this case, since the tax imposed by the Province is an excise tax (being a tax upon the performance, carrying on, or exercise of an

activity), it may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the NIRC.  

However, as to sand, gravel, earth and other quarry resources extracted from public lands, a province may do so because Sec 138 of the LGC expressly empowers a province to impose taxes thereon.

Moreover, even if the limitation set by Section 133 of the LGC is disregarded, petitioners may not impose taxes on quarry resources extracted from private lands on the basis of Sec 21 of Provincial Ordinance No. 3 as the latter clearly applies only to quarry resources extracted from public lands.

2) First Phil. Industrial vs. Court of Appeals

DOCTRINE:

Legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called “common carrier’s tax.”

FACTS:

Petitioner applied for a mayor's permit. However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. Then respondent assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00.

Petitioner filed a letter-protest addressed to the respondent City Treasurer. The respondent City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code.

ISSUES:

W/N petitioner is a common carrier or a transportation contractor, and (2) W/N the exemption sought for by petitioner is clear under the law.

HELD:

YES to both. Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public."

The test for determining whether a party is a common carrier of goods is:

1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation;

2. He must undertake to carry goods of the kind to which his business is confined;

3. He must undertake to carry by the method by which his business is conducted and over his established roads; and

4. The transportation must be for hire.

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. As such, it is exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit:

"Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following :

XXX

(j) Taxes on the gross receipts of transportation 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."

3) Mactan Cebu vs. Marcos, et. al G.R. 120082 Sept. 11, 1996DOCTRINES:1. POLITICAL LAW; GOVERNMENT; POWER OF TAXATION; CONSTRUED.— As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitution. Our Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. So potent indeed is the power that it was once opined that “the power to tax involves the power to destroy.” Verily, taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting the exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operation.2. ID.; ID.; ID.; MAYBE EXERCISED BY THE LOCAL LEGISLATIVE BODIES.— The power to taxis primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. The LGC, enacted pursuant to Section 3, Article X

of the Constitution, provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemptions from taxation. Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units.3. ID.; ID.; ID.; EXEMPTION FROM PAYMENT OF TAX MAYBE WITHDRAWN AT THE PLEASURE OF THE TAXING AUTHORITY; EXCEPTION.— There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment claim of the Constitution.4. ID.; LOCAL GOVERNMENT CODE; SEC. 234 PROVIDES FOR THE EXEMPTION FROMTHE PAYMENT OF REAL PROPERTY TAX; BASIS THEREOF.— Section 234 of the LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government-owned and controlled corporations, except as provided therein. These exemptions are based on the ownership, character, and use of the property. Thus: (a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, (vi) registered cooperatives. (b) Character exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non-profit or religious cemeteries. (c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all lands, buildings and improvements which are actually, directly and exclusively used for religious, charitable or educational purposes; (ii) all machineries and equipment actually, directly and exclusively used by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or

generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection. To help provide a healthy environment in the midst of the modernization of the country, all machinery and equipment for pollution control and environmental protection may not be taxed by local governments. 2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons including government-owned or controlled corporations are withdrawn upon effectivity of the Code.FACTS:

Mactan Cebu International Airport Authority (MCIAA) was created to “principally undertake to economical, efficient and effective control, management and supervision of the Mactan International Airport… and such other airports as may be established in the province of Cebu…” Section 14 of its charter excempts the Authority from payment of realty taxes but in 1994, the City Treasurer demanded payment for realty taxes on several parcels of land belonging to the other. MCIAA filed a petition in RTC contending that, by nature of its powers and functions, it has the same footing of an agency or instrumentality of the national government. The RTC dismissed the petition based on Section 193 & 234 of the local Government Code or R.A. 7160. Thus this petition.

ISSUE:

Whether or not the MCIAA is exempted from realty taxes?

RULING:No. It is not exempted from Realty TaxesWith the repealing clause of RA 7160 the tax exemption provided. “All general and special in the charter of the MCIAA has been expressly repealed. It state laws, acts, City Charters, decrees, executive orders, proclamations and administrative regulations, or part of parts thereof which are inconsistent with any of the provisions of the Code are hereby repeated or modified accordingly.” Therefore the SC affirmed the decision and order of the RTC and herein petitioner has to pay the assessed realty tax of its properties effective January 1, 1992 up to the present.

4) LTO vs. City of Butuan

DOCTRINE:Local Government Code"SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units."

"SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

xxx"(I) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles."

The reliance made by respondents on the broad taxing power of local government units, specifically under Section 133 of the Local Government Code, is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations.

FACTS:

City of Butuan enacted an “Ordinance Regulating the Operation of Tricycles-for-Hire, providing mechanism for the issuance of Franchise, Registration and Permit, and Imposing Penalties for Violations thereof and for other Purposes." The ordinance provided for, among other things, the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof.

The ordinance was enacted based on the 1987 Constitution which provides:"Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments." And Sec. 129 and 133 of the LGC.

However, LTO opposes the ordinance and alleged that: one of the functions of the national government that, indeed, has been transferred to local government units is the franchising authority over tricycles-for-hire of the "LTFRB" but not, it asseverates, the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles.

ISSUE:Whether the City of Butuan has the power to collect fees for registration and fees for the issuance of a permit for driving a tricycle for hire beside the payment of franchise fees?

HELD:NO. (the power delegated is not exactly an exercise of taxing power but rather regulatory or police power – power to issue franchises and to regulate)

The LTO is a line agency under the DOTC whose powers and functions, pursuant to Land Transportation and Traffic Code, as amended, deal primarily with the registration of all motor vehicles and the licensing of drivers thereof. The LTFRB, upon the other hand, is the governing body (also under DOTC) tasked by E.O. No. 202, dated 19 June 1987, to regulate the operation of public utility

or "for hire" vehicles and to grant franchises or certificates of public convenience ("CPC"). Finely put, registration and licensing functions are vested in the LTO while franchising and regulatory responsibilities had been vested in the LTFRB.

Under the Local Government Code, certain functions of the DOTC were transferred to the LGUs such as “Subject to the guidelines prescribed by the Department of Transportation and Communications, regulate the operation of tricycles and grant franchises for the operation thereof within the territorial jurisdiction of the city."

LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the operation thereof. "To regulate" means to fix, establish, or control; to adjust by rule, method, or established mode; to direct by rule or restriction; or to subject to governing principles or laws. A franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right. On the other hand, "to register" means to record formally and exactly, to enroll, or to enter precisely in a list or the like, and a "driver's license" is the certificate or license issued by the government which authorizes a person to operate a motor vehicle. The devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as so aptly observed by the Solicitor General, is aimed at curbing the alarming increase of accidents in national highways involving tricycles. It has been the perception that local governments are in good position to achieve the end desired by the law-making body because of their proximity to the situation that can enable them to address that serious concern better than the national government.

As can be gleaned from the explicit language of the statute, as well as the corresponding guidelines issued by DOTC, the newly delegated powers pertain to the franchising and regulatory powers theretofore exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of licenses for the driving thereof. Clearly unaffected by the Local Government Code are the powers of LTO under R.A. No.4136 requiring the registration of all kinds of motor vehicles "used or operated on or upon any public highway" in the country.

The reliance made by the City of Butuan on the broad taxing power of local government units, specifically under Sec. 133 of the Local Government Code, is tangential (vague). Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare.

Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored. The power over tricycles granted under Section 458(a)(3)(VI) of the Local Government Code to LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the LGC must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R. A. 4136. Not insignificant is the rule that a statute must not be construed in isolation but must be taken in harmony with the extant body of laws.

5) City Govt. of San Pablo vs. Reyes

Doctrine:Section 193 of the LGC prescribes the general rule, viz., the tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities expressly enumerated.

Facts:Act No. 3648 granted the Escudero Electric Services Company, a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities. Escudero’s franchise was transferred to MERALCO under Republic Act No. 2340. Subsequently, P.D. No. 551 was enacted on September 11, 1974 which provides that franchise tax payable by all grantees of franchise to generate, distribute and sell electric current for light, heat and power shall be two percent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current. The franchise tax shall be in lieu of all taxes. On January 1, 1992, RA 7160 (Local Gov’t Code) took effect, authorizing the province/city to impose a tax on business enjoying a franchise at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year realized within its jurisdiction. Pursuant to such law, City of San Pablo enacted Ordinance no.56 imposing a tax on business enjoying a franchise at a rate of (50%) of (1%) of the gross annual receipts.

ISSUE: W/N the City of San Pablo may impose a local franchise tax pursuant to the LGC upon MERALCO which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on savings or income.

HELD: YES, the City of San Pablo may impose a local franchise tax. Reading together Sections 137 and 193 of the LGC, SC concluded that under the LGC the local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year based on the incoming receipts realized within its territorial jurisdiction. The legislative

purpose to withdraw tax privileges enjoyed under existing law or charter is clearly manifested by the language used in Section 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be not only tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used. The “magic words” contained in the phrase “shall be in lieu of all taxes have to give way to the peremptory language of the LGC specifically providing for the withdrawal of such exemption privileges.

6) Meralco vs. Province of Laguna

DOCTRINE:Local Government Units; power to tax – 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. The basic rationale for the current rule is to safeguard the viability and self-sufficiency 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.

FACTS: MERALCO operated in Laguna. When the Local Government Code was enacted "enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy", Laguna decided to tax the sales of MERALCO within its jurisdiction. MERALCO paid under protest.

MERALCO claimed that the tax contravened P.D. 551 which already provided for a franchise tax at the national level and which shall 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."

ISSUE: Whether or not the LGU may collect taxes from MERALCO.

HELD:Yes. The Local Government Code of 1991 has incorporated and adopted, by and large the provisions of the now repealed Local Tax Code, which had been in effect since July 1, 1973.  The 1991 Code 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."

Furthermore, the Local Government Code withdrew some tax exemptions previously enjoyed by government corporations:

"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."

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 of the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution.  While the Court has 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 are far from being strictly contractual in nature.

7) Reyes vs. CA

FACTS

The Sangguniang Bayan of San Juan, Metro Manila implemented several tax ordinances. Petitioners filed an appeal with the Department of Justice assailing the constitutionality of these tax ordinances allegedly because they were promulgated without previous public hearings thereby constituting deprivation of property without due process of law. Respondent Secretary of Justice dismissed the appeal for having been filed out of time. On appeal, the CA affirmed the said decision.

ISSUES1.  Whether or not the Court of Appeals erred in affirming the decision of the Secretary of Justice who dismissed the prohibition suit, on the ground that it was filed out of time?2.  Whether or not lack of mandatory public hearings prior to enacting Municipal Ordinance Nos. 87, 91, 95, 100 and 101 render them void on the ground of deprivation of property without due process?

RULING1. NOSec. 187 of R.A. 7160, cited by respondent Secretary, provides as follows:“Sec. 187-- Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures; Mandatory Public Hearings. -- The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code:  Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof:  Provided further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal:  Provided, however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein:  Provided, finally , That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party

may file appropriate proceedings with a court of competent jurisdiction.”

Clearly, the law requires that the dissatisfied taxpayer who questions the validity or legality of a tax ordinance must file his appeal to the Secretary of Justice, within 30 days from effectivity thereof.  In case the Secretary decides the appeal, a period also of 30 days is allowed for an aggrieved party to go to court.  But if the Secretary does not act thereon, after the lapse of 60 days, a party could already proceed to seek relief in court.  These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court.  Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions.[5] For this reason the courts construe these provisions of statutes as mandatory.[6]

A municipal tax ordinance empowers a local government unit to impose taxes.  The power to tax is the most effective instrument to raise needed revenues to finance and support the myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and enhancement of peace, progress, and prosperity of the people.[7] Consequently, any delay in implementing tax measures would be to the detriment of the public.  It is for this reason that protests over tax ordinances are required to be done within certain time frames.  In the instant case, it is our view that the failure of petitioners to appeal to the Secretary of Justice within 30 days as required by Sec. 187 of R.A. 7160 is fatal to their cause.

2) Lack of Public Hearing NOT provenOn the second issue, petitioners allege that the Sangguniang Bayan of San Juan did not comply with the prescribed procedure for enacting an ordinance because they failed to conduct public hearings. However, proof that public hearings were not held falls on petitioners’ shoulders.  For failing to discharge that burden, their petition was properly dismissed.

8) DOF – Bureau of Local government Finance Opinion 03- 29-1993

FACTS:

Megastrat, Inc. is engaged in the trading of books and holds office in Pasig, where issuance of sales invoices is made. It also maintains a warehouse in Mandaluyong which serves as a storage area only.

ISSUE:What kind of tax, if any, should Megastrat, Inc. be assessed by the municipalities of Pasig and Mandaluyong?

HELD:In the absence of a duly-enacted tax ordinance, there will be no basis for the collection of any tax, fee or charge from the company. Section 143 (h) and 150 of the Local Government Code of 1991 provides:

Sec. 143. Tax on Business. The municipality may impose taxes on (h) any business which the sanggunian may deem proper to tax, provided that on any business subject to excise, VAT or percentage tax, the rate of tax shall not exceed 2%. The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed therein.

Sec. 150. Situs of tax. For purposes of collection of taxes under Sec. 143, businesses maintaining or operating branch or sales outlet s elsewhere shall record the sale in the branch or sales outlet making the transaction, and the tax thereon shall be paid to the municipality where such branch is located. In cases where there is no such branch or sales outlet in the municipality where the transaction is made, the sale shall be duly recorded in the principal office.

As per the IRR of the LGC, “warehouse” is defined as a building utilized for storage of products for sale and if such warehouse does not accept orders and/or issue sales invoices, it shall not be considered a branch or sales office.

Thus, Megastrat should be assessed under the Code at the gross sales or receipts of the preceding year and payable to the municipality of Pasig. Municipality of Pasig may collect mayor’s permit and other regulatory fees from the Company. Mandaluyong, on the other hand, may only collect Mayor’s permit fee and other

regulatory fees provided for under existing local tax ordinances of the municipality.