3. Retirement of Business (Sec.

145)

(38) Mobil Phils. vs. City Treasurer of Makati GR No. 154092, July 14, 2005
FACTS: Mobil Philippines is a domestic corporation engaged in the manufacturing, importing,
exporting and wholesaling of petroleum products, while the local government officials of the City of
Makati is charged with the implementation of the Revenue Code of the City of Makati.
Prior to September 1998, petitioner’s principal office was in Makati City. On August 20, 1998,
petitioner filed an application with the City Treasurer of Makati for the retirement of its business
within the City of Makati as it moved its principal place of business to Pasig City.
Upon evaluation of petitioner’s application, a billing slip assessing the following taxes against
petitioner: For the 4th Quarter of 1998 (based on 1997 gross sales), P 566TH and for the Gross Sales
made in 1998, P 1.3M. The TOTAL ASSESSED BUSINESS TAXES is P 1.8M. On September 11,
1998, petitioner paid the assessed amount of P1,898,106.96 under protest. The City Treasurer
approved the petitioner’s application for retirement of business from Makati to Pasig City.

Thereafter, the petitioner filed a claim for P1.3M refund. The petitioner received a letter denying the
claim for refund on the ground that petitioner was merely transferring and not retiring its
business, and that the gross sales realized while petitioner still maintained office in Makati from
January 1 to August 31, 1998 should be taxed in the City of Makati. Petitioner subsequently filed a
petition with the Regional Trial Court of Pasig City, Branch 268, seeking the refund of business taxes
erroneously collected by the City of Makati.

ISSUE: Whether or not the business tax are for refund.

The respondent city treasurer erroneously treated the assessment and collection of business tax as if it
were income tax.—For the year 1998, petitioner paid a total of P2,262,122.48 to the City Treasurer of
Makati as business taxes for the year 1998. The amount of tax as computed based on petitioner’s gross
sales for 1998 is only P1,331,638.84. Since the amount paid is more than the amount computed based
on petitioner’s actual gross sales for 1998, petitioner upon its retirement is not liable for additional
taxes to the City of Makati. Thus, we find that the respondent erroneously treated the assessment and
collection of business tax as if it were income tax, by rendering an additional assessment of
P1,331,638.84 for the revenue generated for the year 1998.

It is necessary to distinguish between a business tax vis-à-vis an income tax. Business taxes imposed
in the exercise of police power for regulatory purposes are paid for the privilege of carrying on a
business in the year the tax was paid. It is paid at the beginning of the year as a fee to allow the
business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising from property, professions, trades
or offices, or as a tax on a person’s income, emoluments, profits and the like. It is tax on income,
whether net or gross realized in one taxable year. It is due on or before the 15th day of the 4th month
following the close of the taxpayer’s taxable year and is generally regarded as an excise tax, levied
upon the right of a person or entity to receive income or profits.

4. Payment of Business Taxes (Sec. 146)

(a) The taxes imposed under Section 143 (specific business activities) shall be payable for every
separate or distinct establishment or place where business subject to the tax is conducted and one line
of business does not become exempt by being conducted with some other businesses for which such
tax has been paid. The tax on a business must be paid by the person conducting the same.
(b) In cases where a person conducts or operates two (2) or more of the businesses mentioned in
Section 143 of this Code which are subject to the same rate of tax, the tax shall be computed on the
combined total gross sales or receipts of the said two (2) or more related businesses.

(c) In cases where a person conducts or operates two (2) or more businesses mentioned in Section 143
of this Code which are subject to different rates of tax, the gross sales or receipts of each business
shall be separately reported for the purpose of computing the tax due from each business.

6. Fees and Charges (Sec. 147)

7. Others (Sec. 148 and Sec. 149)

Municipalities and cities may impose and collect such reasonable fees and charges on business and
occupation, except the professional tax which is reserved to the province. (Sec. 139)

Examples of other fees and charges that can be charged by the municipality/city:
- Fees for sealing and licensing of weights and measures,
- Fishery rentals, fees, and charges in municipal waters

5. Situs of Tax (Sec. 150) – Where to pay business tax?

(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:

(1) 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

(2) 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:
 (1) Sixty percent (60%) to the city or municipality where the factory is located; and

(2) 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 located in different localities, the seventy percent
(70%) sales allocation mentioned in subparagraph (b) of 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 plantation is located.

For purposes of collecting local business taxes, we have to know to which city or municipality the
said taxes accrue to.

1. When the sale was made in a certain municipality or city

(a) If there is a branch (or sales office or warehouse) where the sale was made, the sale shall be
recorded in the said branch (or sales office or warehouse), and the tax shall accrue and be paid
to the municipality (or city) where the branch is located.
(b) If there is no branch (or sales office or warehouse) where the sale was made, the sale shall be
recorded in the principal office and taxes shall accrue and be paid to the municipality (or city)
where the principal office is located.

2. If there is no branch (or sales office of warehouse), and the company has a factory, plants,
plantations, project office.
(a) 30% of sales - taxable where principal office is located.
(b) 70% of sales - taxable where factory, plant, plantation, project office is located.

3. Sales allocation in case factories and plantations located in different places.

(a) 30% of sales - taxable where principal office is located.
(b) 70% distributed as follows:
60 % - taxable where the factory is located
40% - taxable where plantation is located

4. In case there are two or more factories and plantations located in different localities
(a) Prorate the 70% according to the volume of production

5. In case of route sales

(a) Made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has a branch
or sales office or warehouse, the sale 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.
(b) Made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has no
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.

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
manufacturers’ products shall be considered as the factory or plant and warehouse of the
manufacturer.

Fixing the Amount of Special Levy. – The special levy authorized herein shall be apportioned,
computed, and assessed according to the assessed valuation of the lands affected as shown by the
books of the assessor concerned, or its current assessed value as fixed by said assessor if the property
does not appear of record in his books. Upon the effectivity of the ordinance imposing special levy, the
assessor concerned shall forthwith proceed to determine the annual amount of special levy assessed
against each parcel of land comprised within the area especially benefited and shall send to each
landowner a written notice thereof by mail, personal service or publication in appropriate
cases.(ART. 243)

(39) Shell Co vs. Mun. Of Sipocot – 105 Phil. 1263

The ordinance in question imposes a levy of an additional tax not exceeding 25% of the rates fixed
under Republic Act 1435, on manufactured oil sold or distributed within the limits of the territorial
jurisdiction of the Municipality of Sipocot.

The decision is assailed in so far as it sustains the imposition and collection of the additional tax upon
sales of manufactured oils and other petroleum products stored in the Sipocot depot, for delivery
outside the said municipality. The evidence presented shows that the customers place their orders
either at the Sipocot depot, or at the main office of the appellant company in Manila, depending on the
volume of gas intended to be purchased. The invoice is prepared in the meantime, wherein, among
other things, the place of delivery is stated.

Said invoice is given to the truck driver, who upon arrival at the destination, is instructed to present
the same to the customer, requiring the latter to acknowledge receipt of the products delivered, in the
condition upon which they were received. Payment is made after delivery and acceptance of the goods
by the buyer. It is evident that delivery to the carrier is not considered by the parties as amounting to a
delivery to the consumer within the meaning of Article 1423 of the Civil Code of the Philippines; here
the carrier is merely an agent of the appellant company. Accordingly, these sales should not be
subjected to additional tax, being transactions effected outside the municipality's territorial limits.
Appellee questions the propriety of this action for declaratory relief, contending that the issue had
become moot on account of the payments made by the company to the municipality pursuant to the
tax ordinance.

This contention is incorrect for even if payment was so made on any particular sales, uncertainty on
the applicability of the ordinance to future sales would still remain.

(40) Phil. Match vs. City of Cebu – L-30745 – Jan. 1888, 197778

This case is about the legality of the tax collected by the City of Cebu on sales of matches stored by
the Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the city.

Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved by the
provincial board) is “an ordinance imposing a quarterly tax on gross sales or receipts of merchants,
dealers, importers and manufacturers of any commodity doing business” in Cebu City. It imposes a
sales tax of one percent (1%) on the gross sales, receipts or value of commodities sold, bartered,
exchanged or manufactured in the city in excess of P2,000 a quarter.

Section 9 of the ordinance provides that, for purposes of the tax, “all deliveries of goods or
commodities stored in the City of Cebu, or if not stored are sold” in that city, “shall be considered as
sales” in the city and shall be taxable.

Thus, it would seem that under the tax ordinance sales of matches consummated outside of the city are
taxable as long as the matches sold are taken from the company’s stock stored in Cebu City.

The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the manufacture of
matches. Its factory is located at Punta, Sta. Ana, Manila. It ships cases or cartons of matches from
Manila to its branch office in Cebu City for storage, sale and distribution within the territories and
districts under its Cebu-branch or the whole Visayas-Mindanao region. Cebu City itself is just one of
the eleven districts under the company’s Cebu City branch office.

The company does not question the tax on the sales of matches consummated in Cebu City, meaning
matches sold and delivered within the city.

It assails the legality of the tax which the city treasurer collected on out-of-town deliveries of matches,
to wit:
(1) sales of matches booked and paid for in Cebu City but shipped directly to customers outside of the
city;
(2) transfers of matches to salesmen assigned to different agencies outside of the city and (3)
shipments of matches to provincial customers pursuant to salesmen’s instructions.

ISSUE: Whether the City of Cebu can tax sales of matches which were perfected and paid for in Cebu
City but the matches were delivered to customers outside of the City.

The city can validly tax the sales of matches to customers outside of the city as long as the orders
were booked and paid for in the company’s branch office in the city. Those matches can be regarded
as sold in the city, as contemplated in the ordinance, because the matches were delivered to the carrier
in Cebu City. Generally, delivery to the carrier is delivery to the buyer. A different interpretation
would defeat the tax ordinance in question or encourage tax evasion through the simple expedient of
arranging for the delivery of the matches at the outskirts of the city although the purchases were
effected and paid for in the company’s branch office in the city. The municipal board of Cebu City is
empowered “to provide for the levy and collection of taxes for general and special purposes in
accordance with law.”

(41) Iloilo bottlers vs. City of Iloilo GR No. 52019 – Aug. 18, 1988

Iloilo Bottlers Inc., a company in the business of bottling and selling demanded by the City of Iloilo to
pay an amount of 59,505 in the form of a license tax the city claims were due to it under an ordinance
which was enacted on January 11, 1960 known as Ordinance No. 5 series of 1960; which provides
that manufacturers, bottlers, and distributors of softdrinks in Iloilo are subject to a municipal license
tax of 10 centavos per case of 24 bottles. Iloilo Bottling Inc asserted however that since their plant
base was moved to the municipality of Pavia shortly after the aforementioned ordinance was enacted,
they are not liable for any taxes. The city however, still demanded taxes and also demanded back
taxes under the claim that Iloilo demanded license tax and back taxes under protest. After bringing the
case to court, the courts ruled in favor of Iloilo Bottlers and declared that Iloilo Bottlers is free from
liability. The city of Iloilo then appealed this ruling, hence this case.

ISSUE: Whether An entity engaged in the principal business of manufacturing, is likewise engaged in
the separate business of selling.

HELD:

The Court had occasion to distinguish two marketing systems:

Under the first system, the manufacturer enters into sales transactions and invoices the sales at its
main office where purchase orders are received and approved before delivery orders are sent to the
company’s warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor
are separate stores maintained where products may be sold independently from the main office. The
warehouses only serve as storage sites and delivery points of the products earlier sold at the main
office.

Under the second system, sales transactions are entered into and perfected at stores or warehouses
maintained by the company. Any one who desires to purchase the product may go to the store or
warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers.
Entities operating under the first system are NOT considered engaged in the separate business of
selling or dealing in their products, independent of their manufacturing business. Entities operating
under the second system are considered engaged in the separate business of selling.

In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which
went directly to customers in the different places in Iloilo province. Sales transactions with customers
were entered into and sales were perfected and consummated by route salesmen. Truck sales were
made independently of transactions in the main office. The delivery trucks were not used solely for
the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were
what were called, until recently, “rolling stores”. The delivery trucks were therefore much the same as
the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the
second category above.

That is, the corporation was engaged in the separate business of selling or distributing softdrinks,
independently of its business of bottling them.

c. Cities (Sec. 151)

Cities may levy taxes, fees and charges which the province or municipality may impose.
- The rates may exceed the maximum rates allowed for the province or municipality by not
more than 50% except the rates of professional and amusement rates.
- In other words, what the province or municipality may impose, so can the city.
- But provinces and municipalities cannot tax the same thing.