g.

Prohibition re: appropriation of proceeds of taxation The use of tax levied for special purpose

Thus, the petitioner seeks the corrective, prohibitive and coercive remedies provided by Rule 65 of the Rules of Court. Issues:

Osmena v Orbos (31 March 1993) Ponente: Narvasa, CJ. Facts: On October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). It was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Later, the OPSF was reclassified into a "trust liability account," by virtue of Executive Order (E.O.) 1024, and ordered released from the National Treasury to the Ministry of Energy. President Corazon C. Aquino, amending PD 1956, promulgated Executive Order No. 137, expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred due to the reduction of domestic prices of petroleum products, the amount of the under recovery being left for determination by the Ministry of Finance. Petitioner argues, among others, that "the monies collected pursuant to P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another government objective." Further, that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created." He also contends that the "delegation of legislative authority" to the Energy Regulatory Board (ERB) violates Section 28 (2) of Article VI of the Constitution and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits, limitations and restrictions must be quantitative, that is, the law must not only specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax." Petitioner assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes and the increases thereon.

1.

Were the reimbursements made to the oil companies out of the OPSF legal? No.

Held & Ratio: 1. The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.) because not authorized by law. Petitioner contends that "these claims are not embraced in the enumeration in 8 of P.D. 1956 . since none of them was incurred 'as a result of the reduction of domestic prices of petroleum products,'" and since these items are reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." It is argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used in 8 of P.D. 1956) . can only include such 'other factors' which necessarily result in the reduction of domestic prices of petroleum products." The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of domestic prices of petroleum products. Under the same provision, however, the payment of inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher price. Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations as held in Caltex 29 and which have been pointed to by the Solicitor General. At any rate, doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A. 6952, establishing the Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation." Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the so-called overpayment refunds. To be sure, the absence of any argument for or against the validity of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the overpayment refund has been clearly and specifically shown, there can be no basis upon which to nullify the same.

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Disposition: WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects. Vote: Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Bellosillo, Melo, Campos, Jr., and Quiason, JJ., concur. Gutierrez, Jr., J., is on leave. -Wiggy GASTON v. REPUBLIC PLANTERS BANK (March 15, 1988) Doctrine: Revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. Date: March 15, 1988 Nature: Petition for writ of mandamus before the Supreme Court Ponente: Melencio-Herrera, J. Facts: 1. Petitioners and intervenors are sugar producers, sugarcane planters and millers, who have come to the Court in their individual capacities and in representation of other sugar producers, planters and millers for the issuance of writ of mandamus, praying that respondent Philippine Sugar Commission (PHILSUCOM), superseded by its co-respondent Sugar Regulatory Administration (SRA), and Republic Planters Bank (RPB), a commercial banking corporation, be ordered to implement the privatization of the Bank by the transfer and distribution of the shares of stock of the said Bank, which is in the name of PHILSUCOM, to the sugar producers, millers and planters, who are the true and beneficial owners thereof. a. Petitioners: The sugar producers, millers and planters from whom the sugar levy was collected were the true and beneficial owner of the shares of stock of RPB, purchased using the [Sugar]Development and Stabilization Fund. The monies collected were held in trust PHILSUCOM. b. Respondents: PHILSUCOM and SRA argued that no trust results and that the stabilization fees collected are considered government funds, that the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal. Whether the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds. They are PUBLIC FUNDS

2.

Whether the shares of stock of respondent Bank paid for with said stabilization fees belong to PHILSUCOM, or to the different sugar planters and millers from whom the fees were levied. It belongs to PHILSUCOM The monies are public funds. The Supreme Court held that the stabilization fees collected are in the nature of a tax which constitutes public funds, which is within the power of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State. a. Special purpose of the levy: "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market b. The fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. c. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. d. The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law. There is no resulting trust. That the fees were collected from sugar producers, planters and millers, and that the funds were channelled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust formed for their benefit nor make them the beneficial owners of the shares so purchased. a. To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest. b. There is no resulting trust. While the element of intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of the statute. The doctrine of resulting trust, as

Held: 1.

2.

Issue: 1.

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c.

a general rule, arises where, and only where, such may be reasonably presumed to be the intention of the parties. There is no implied trust either. The essential idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee, even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character. It is not clearly shown from the statute that PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar produces. It must be categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself.

Vote: 14-0 (Fernan, J. took no part) - Sandy (from the digest made by Wiggy) h. Prohibition against taxation of religious, charitable entities and educational entities ABRA VALLEY COLLEGE V. AQUINO (June 15, 1988) ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents. NOTES: Tax Involved: Real Estate Tax on the college lot and building Real Property Tax (Mamalateo) imposed on real property such as land, buildings, machinery and other improvements not otherwise exempted. (Gee! Thanks Captain Obvious! Also, sister said Real Estate Tax and Real Property Tax are one and the same thing so if maam objects blame my sister not me, okay?) DOCTRINE: The exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. It must be stressed however, that while this Court allows a more liberal and nonrestrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. NATURE: This is a petition for review on certiorari of the decision * of the defunct Court of First Instance PONENTE: PARAS, J.:

ISSUES: Whether or not the lot and building in question are used exclusively for educational purposes and therefore exempt from paying real estate taxes. HELD: Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved. RATIO/RULING: Petitioner's Contention the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution Respondent's Contention private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for

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Dispositive: The Writ of mandamus is denied and the Petition hereby dismissed. No costs.

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. The trial court among others, found the following: o that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; o That the Director with his family is in the second floor of the main building; o that the annual gross income of the school reaches more than one hundred thousand pesos. The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes. The trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision.

the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation COURT'S RULING Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes ... o Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides that "(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes." The Court also cited a series of jurisprudence which dealt with the issue at hand: o YMCA of Manila vs. Collector of lnternal Revenue: this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation. o Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte: It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions. o Herrera vs. Quezon City Board of assessment Appeals and Commissioner of Internal Revenue vs. Bishop of the Missionary District: Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. It must be stressed however, that while this Court allows a more liberal and nonrestrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. o Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose educational, the lease of the first floor thereof to the Northern Marketing

Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. o Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter.

VOTE: SECOND DIVISION; Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur. -David LUNG CENTER OF THE PILIPPINES vs QUEZON CITY and CONSTANTINO P. ROSAS (June 29, 2004) Doctrine: Under the 1987 Constitution and RA 7160, in order to be entitled to exemption, the taxpayer is burdened to prove, by clear and unequivocal proof that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY, an EXCLUSIVELY used for charitable purposes. Nature: Petition for review on certiorari of a decision of the Court of Appeals Ponente: Callejo, Sr. J. Facts: Petitioner is a non-stock and non-profit entity established on Jan. 16, 1981 by virtue of PD 1823. It is the registered owner of a parcel of land at Q. Ave corner Elliptical Road, QC. The lot has an area of 121, 46 square meters. Erected on the said lot is a hospital known as the Lung Center of the Phils. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics. One half of the entire area of the left side of the building is vacant and idle, while a big portion on the right side, at the corner of Q. Ave ad Elliptical Road, is being leased for commercial purposes to Elliptical Orchids and Garden Center. Petitioner accepts paying and non-paying patients. Aside from its income, from paying patients, it also receives annual subsidies from the government. June 7, 193: the land AND hospital building of the petitioner were assessed for real property taxes1 in the amount if Php4,554,860 by the City Assessor of QC. On August 25, 1993, the petitioner filed a Claim for Exemption from

A property tax on local real estate

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DISPOSITION: PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner.

real property taxes because it is a charitable institution, which was denied by the respondent. A petition was thereafter filed by petitioner before the Local Board of Assessment Appeals of QC (QC-LBAA), contending that a minimum of 60% of its hospital beds are exclusively used for charity patients and that as a charitable institution, it is exempt from real property taxes. QC-LBAA denied. Central Board of Assessment of Appeals of QC (CBAA) affirmed the decision. CA also affirmed.

In this case, the petitioner adduced substantial evidence that it spent its income, including the subsidies from the government for 1991 and 1992 for its patients and for the operation of the hospital. It even incurred a net loss in 1991and 1992 from its operation. 2. Those portions of land leased to private entities (Elliptical Orchids and Garden Center) as well as those parts of the hospital leased to private individual (medical professionals etc.) are not exempt from real property taxes as these are not actually, directly, and exclusively used for charitable purposes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying are exempt from real property taxes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer. a. Petitioner relies on Sec. 2 of PD 1823. However, under the decree, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon.

Issues: WON the petitioner is a charitable institution within the context of PD 1823 and the 1987 Constitution and R 7160 Sec 234(b) YES WON the real properties of the petitioner are exempt for taxation. PARTLY Held: 1. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose reorganized in law as charitable or whether it is maintained for gain, profit, or private advantage. Under PD 1823, the petitioner is a non-profit and non-stock corporation which is to be administered by the Office of the President with the Ministry of Health and the Ministry of Human Settlements. The raison detre for the creation of the petitioner is stated in the decree

Whereas, for decades, respiratory diseases have been a priority concern, having been the leading cause of illness and death in the Philippines Whereas, there is an urgent need to consolidate and reinforce existing programs and efforts at preventing and treating of people affected by lung disease.. through a Lung Center which will house and nurture the above related activities Whereas to achieve the purpose, the Government intends to provide material and financial support towards the establishment and maintenance of a Lung Center for the welfare and benefit of the Filipino people. The purpose for which the petitioner was created was spelled out in its Articles of Incorporation, thus: Second: That the purpose for which such corporation is formed is as follows: 1. To construct, establish, administer, and conduct an integrated medical institution which shall specialize in the treatment, care, and rehabilitation of lung and allied diseases 2. To promote the undertaking of scientific research related to the prevention of lung or pulmonary ailments 3. To facilitate the dissemination of ideas and public acceptance of information on lung consciousness or awareness It is clear that the medical services of the petitioner are rendered to the public in general, as any person, rich or poor, may fall sick or be injured or wounded and become a subject of charity. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.

Sec 2: Tax Exemptions and Privileges: Being a non-stock and non-profit corporation organized primarily to help combat the high incidence of lung and pulmonary diseases in the Phils, all donations, contributions, endowments, and equipments and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines, for the actual use and benefit of the Lung Center shall be exempt from income and gift taxes, the same further deductible in full for the purpose of determining the maximum deductible amount under Sec 30 par (h) of the NIRC. The Lung center of the Phils shall be exempt from the payment of taxes, charges, and feed imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases made by, or for Lung Center. The rule of expressio unius est exclusion alterius does not apply. The exemption must not be enlarged by construction since the reasonable presumption is that the State granted in express terms all it intended to grant at all and that unless the privilege is limited to the very terms of the Statute the favor would be intended beyond what was meant. On the other hand, under Sec 28(3), Article 6 of the Constitution, the tax exemption covers property taxes only. According to CJ Davide, then a member of the 1986 ConCom, what is exempted is not the institution itself. Those exempted from real estate taxes are lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes. Consequently, this constitutional provision is implemented by RA 7160 (Local Government Code) Sec 234(b). b. Petitioner also relies on the ruling in Herrera v Quezon City Board of Assessment Appeals but it should be noted that the said decision was promulgated on September 30, 1961 before the 1973 an 1987 Constitution took effect.

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Facts: Under the 1935 Constitution, all lands, buildings, and improvements used exclusively for charitable purposes shall be exempt from taxation. However, under the 1973 and the present Constitution, for lands, buildings, and improvements of the charitable institution to be considered exempt, the same should not only be exclusively used for charitable purposes; it is required that such property be used actually and directly for such purposes. Exclusive is defined as possessed and enjoyed to the exclusion of others. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purpose but is subject to taxation. The words dominant use and principal use cannot be substituted for the words exclusively. What is meant by actual, direct, and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purpose for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. In this case, while portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether paying or non-paying, other portions thereof are being leased to private individuals for their clinics and canteen. A portion of the land was also leased to Elliptical Orchids and Garden Center, Indeed, the petitioners evidence showed that it collected Php1,136,483.45 as rentals in 1991 and Php1,679,999.28 for 1992 from the said leases. Under the 1987 Constitution and RA 7160, in order to be entitled to exemption, the petitioner is burdened to prove, by clear and unequivocal proof that (a) it is a charitable institution; and (b) its real properties are ACTULLY, DIRECTLY, an EXCLUSIVELY used for charitable purposes. Petitioner failed to discharge its burden. Disposition: The petition is partially granted. Vote: Davide, Puno, Panganiban, Quisumbing, Sandoval, Gutierrez, Carpio, Corona, CarpioMoraes, Azcuna, and Tinga concur. Concurring/Dissenting Opinion: None. -Dana i. Prohibition against taxation of non-stock, non-profit institution CIR vs CA and YMCA (Oct 14, 1998) Ponente: Panganiban Doctrine: In order to claim exemption from income tax, a corporation or association must show that it is organized and operated exclusively for religious, charitable, scientific, athletic, cultural or educational purposes or for the rehabilitation of veterans, and that no part of its income inures to the benefit of any private stockholder or individual. Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA. CTA issued this ruling in favor of the YMCA. CA affirmed. Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 30) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption does not apply to income derived from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income. "Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives." ISSUE: WON the income derived from the rentals of real property owned by YMCA (a welfare, educational and charitable non-profit corporation) is subject to income tax under NIRC and the constitution. HELD: YES. The exemption claimed by YMCA is expressly disallowed by the very wording of the last paragraph of the then section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. The last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property. Thus the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. The CA committed reversible error when it allowed on reconsideration, the tax exemption claimed by YMCA on income it derived from renting out its real property, on the solitary but unconvincing ground that the said income is not collected for profit byt is merely incidental to its operation. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should we.

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On YMCAs argument that the constitution gives tax exemption on charitable institutions, the Court is not persuaded. Justice Hilario Davide, Jr., stressed during the Concom debates that what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious charitable or education purposes. Father Joaquin Bernas adhered to the same view (in short, only property taxes). YMCA is only exempt from payment of property tax, but not income tax on the rentals from its property. Laws allowing tax exemptions are construed strictissimi juris as taxes are the lifeblood of the government. ADDITIONAL: For YMCA to be granted the exemption it claims, it must prove with substantial evidence that 1) it falls under the classification non-stock, non-profit educational institution; and 2) the income it seeks to be exempted from taxation is used actually, directly and exclusively for educational purposes. Such was not proven by the YMCA. Sec. 27 of the NIRC (NOW SEC. 26) provides: Exemptions from tax on corporations- the following organizations shall not be taxed under this title in respect to income received by them as such(g) Civic league organization not organized for profit but operated exclusively for the promotion of social welfare (h) club organized and operated exclusively for pleasure, recreation, and other nonprofittable purposes, no part of the net income of which inures to the benefit of any private stockholder or member xxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this code. -Kester j. Others i. Grant of tax exemption ii. Veto of appropriation, revenue, tariff bills by the president Gonzales v. Macaraig, Jr. (Nov. 19. 1990) Petitioners : Members and ex-officio members of Committee on Finance of the Senate ; as substantial taxpayers

Respondents : Members of the Cabinet tasked with the implementation of General Appropriations Act of 1989 FACTS December 16, 1988 Congress passed House Bill 19186 or the General Appropriations Bill for 1989 o Congress eliminated or decreased certain items included in the proposed budget of the President Congress presented the Bill to the President for approval December 29, 1988 President signed the HB into law RA 6688 o But 7 Special Provisions + Section 55 (a general provision) were vetoed.

Section 55 of Appropriations Act of 1989 (kindly refer to SCRA p. 459) Reasons for the Presidential veto: o That it violates Sec. 25 (5) of Art. VI of the Constitution o Section would nullify the constitutional and statutory authority of the President (as well as the Senate Pres, Speaker, Chief Justice and Heads of Constitutional Commissions) to augment any item in the general appropriations law for their respective offices from savings in other items of their respective appropriations. o Careful view shows that in almost all cases, the budgets of agencies have been reduced = consequence is the inability to augment any item of appropriation even in cases of calamity or in the event of urgent need .

Issue : WON the veto by the President of Sec 55 and subsequently of Sec 16 of 1990 Appropriations bills is unconstitutional and without effect? NO. Court upheld the Executive veto. PET Presidents line-veto power is limited items and does not cover provisions When a President objects to a provision, she cannot exercise item-veto but should veto the entire bill Item veto does not carry with it the power to strike out conditions or restrictions Power of augmentation must be provided for by law

SOL GEN Political question Petitioners had a political remedy override the veto Sec 55 is a rider because it is extraneous to the Appropriations Act, therefore, veto is proper Power to augment items had already been provided by the Budget Law President is empowered to veto provisions or other distinct and severable parts of an Appropriations Bill

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CASE Petition for Prohibition/ Mandamus assailing the constitutionality or legality of the Presidential veto of Section 55

COURT 1. 2. Judicial determination there is an actual case between the Congress and the Executive Dept. the Court does not assert is superiority over other co-ordinate departments but only discharges its solemn and sacred duty to determine esentially the scope of intersecting powers. The extent of Presidents item-veto power REFER to Article VI Section 27 of 1987 Constitution: o Par 1 refers to the general veto power of the President and if exercised would result in the veto of the entire bill, as a general rule o Par 2 referres to the item veto power or the line-veto power ; it allows the exercise of the veto over a particulat item/s in an appropriation, revenue, or tariff bill ; the Pres. may not veto less then all of an item in an Appropriations Bill o The power given to the Executive to disapprove any item or items does not grant the authority to veto a part of an item and to approve the remaining portion of the same item. item refers to the particulars, the details, the distinct and severable parts of the bill ; it is an indivisible sum of money dedicated to a stated purpose ; means an item which in itself is a specific appropriation of money, not some general provision of law Notwithstanding the elimination in Article VI Sec 27 (2) of the any reference to the veto of a provision, the extent of the veto power defined by the 1935 Consti2 has not changed. The eliminated proviso merely pronounces the basic principle that a distinct and severable part of a bill may be the subject of a separate veto. Inappropriateness of the so-called Provisions Section 55 and Section 16 (FY 90) are not provisions in the budgetary sense of the term. REFER to Article VI Sec 25 (2). A provision should relate specifically to some particular appropriation therein ; the challenged provisions fall short of the requirement because : o Does not relate to any particular or distinctive appropriation o Disproved or reduced items are nowhere to be found on the face of the Bill o Vetoed sections are more of an expression of a Congressional policy on augmentation from savings rather then a budgetary appropriation o Although labeled as provisions the should be treated as items for the purpose of the Presidents veto power. Inappropriateness of the so-called Conditions/Restrictions The Legislature may include in Appropriation Bills qualifications, conditions, limitations or restrictions on expenditure of funds and the Executive is not -

allowed to veto a condition or provision of an appropriation while allowing the appropriation itself to stand Bolinao case veto of a condition not including veto of the items to which the condition related was invalid and without effect. o Case is inapplicable because the vetoed provisions are actually general law measures more appropriate for substantive and separate legislation, neither of the contested provisions shows necessary connection with a schedule of expenditures, thefore, not in the budgetary sense of the term, conditions or restrictions The power of augmentation and the validity of the veto Statutory authority (by virtue of the Budget Reform Decree of 1977) has been granted to the heads of different branches of government and constitutional commissions and they are granted with considerable flexibility in the use of public funds and resources. It does not vest the executive to rewrite the entire budget, the leeway granted being delimited to transfers within the department or branch concerned from sourcing to come only from savings. Power of augmentation from savings cannot be considered a specific appropriation of money.

5. -

6. If the legislature indeed believed that the exercise of veto powers were unconstitutional, the remedy is laid down by the Constitution that is to override by two-thirds of members of the Congress but they made no attempt to override the Presidential veto. -Mae iii. Non-impairment of the jurisdiction of the Supreme Court San Miguel Corporation v. Avelino SAN MIGUEL CORPORATION, petitioner, vs. HONORABLE CELSO AVELINO, PRESIDING JUDGE OF CFI CEBU, BRANCH XIII and THE CITY OF MANDAUE, respondents. (March 14, 1979) NOTES: Kind of tax: specific tax on total volume of beer produced (imposed by City through Mandaue City Tax Code) Justice Fernando was basically saying, nice try, SMC. Even though your good counsel was careful not to in effect imply that the judiciary has no power to rule on the validity of the tax ordinance and instead focused on the failure of the respondent judge to rule properly on its motion to dismiss (judge did not say anything about the ground raised by SMC that it was without jurisdiction, but instead said there was nothing at this stage of the proceeding which merited the granting of an MTD. An unusual way to put it, as SC couldnt very well decipher the grounds relied upon by the judge to deny the same.). Even Congress cant remove from judiciary the power to decide validity of tax and impost laws, because its in the Constitution. CFI Judge does have jurisdiction to entertain the collection of suit of City against SMC.

3. -

4. -

xxx When a provision of an appropriation bill affects one or ore items of the same, the President can not veto the provisions without the same vetoing the particular item or items to which it relates xxx

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DOCTRINE: A judge of the Court of First Instance has the authority to decide on the validity of a city tax ordinance even after its validity had been contested before the Secretary of Justice and an opinion thereon had been rendered. NATURE: Petition for certiorari and prohibition after MTD was denied by Respondent Judge PONENTE: FERNANDO FACTS: 1. Mandaue City, in accordance with PD 231 (which ordered local governments to implement its own tax code), enacted in 1973, to take effect January1974, the challenged ordinance, the Mandaue City Tax Code. 2. The City Treasurer, on April 1974, demanded from petitioner payment of the said specific tax on the total volume of beer it produced in the City of Mandaue. 3. On April 8, 1974, SMC contested the collection of said specific tax on the ground that Section 12 (e) (7) in relation to Section 12 (e) (1) and (2), Mandaue City Ordinance No. 97 (Mandaue City Tax Code) is illegal and void because it imposed a specific tax beyond its territorial jurisdiction. 4. The matter was then referred by the City to its City Fiscal, pursuant to the PD 231 Section 473. City Fiscal sustained the ordinances validity. 5. Then came appeal to the Secretary of Justice, then Acting Justice Secretary Macaraig, who opined that it is :of doubtful validity. 6. A suit of collection was filed by City, where it squarely put in issue the validity of said ordinance, thus contesting the opinion of Secretary. 7. Motion to dismiss by SMC was denied by judge, saying there was no justifiable reason at this stage of the proceedings to dismiss the case. 8. SMC filed present petition for certiorari and prohibition. Argument of SMC: the collection suit is not the appeal provided for in the last sentence of Section 47 of PD 231. City: collection suit cannot be viewed as anything other than an appeal of the Secretarys opinion. ISSUES: (1) Whether the filing of such action after such opinion was rendered may be considered "an appeal" under the Presidential Decree. Hence, the denial of the respondent judge of SMCs motion to dismiss was actually proper. More properly, issue is whether the City can still file the case in court for collection of the tax it wished to impose on SMC after the Acting Secretary had already rendered an opinion that the ordinance was of doubtful validity. HELD/RATIO: (1) Denial of motion to dismiss was proper.

Petitioner would deny jurisdiction of respondent judge to pass upon the validity of a challenged ordinance in an appropriate action. It is opposed to and is not in conformity with the accepted juridical norm that the validity of a statute, an executive order or ordinance is a matter for the judiciary to decide and that whenever in the disposition of a pending case such a question becomes unavoidable, then it is not only the power of the court but the duty of the Court to resolve such a question. In the pending suit by respondent City, sought to be dismissed by petitioner corporation, it specifically prayed "that Ordinance No. 97, Series of 1973, of the herein plaintiff is valid, legal, and enforceable in accordance with law; Since both under the Constitution and the Judiciary Act, respondent Judge is vested with jurisdiction to make such a declaration, it would be, at the very least, premature for the corrective power of this Tribunal to be interposed , just because he did not, "at [that] stage of the proceedings," grant the motion to dismiss on the allegation that there was lack of jurisdiction. The authorities support squarely the procedure followed by respondent City to remove doubts as to the validity of the ordinance in question. Even more in point are these two decisions with reference to the municipal power to impose specific taxes on beverages manufactured within its territorial boundaries, City of Bacolod v. Gruet and City of Naga v. Court of Appeals. There is this reinforcement to the conclusion reached. To so construe Section 47 would be to raise a serious constitutional question For it would in effect bar what otherwise would be a proper case cognizable by a court precisely in the exercise of the conceded power of judicial review just because the procedure contended for which is that of an "appeal" under the circumstances a term vague and ambiguous, was not followed. Petitioner may not be sufficiently aware of the implications of such a proposition. It would run counter to the well-settled doctrine that between two possible modes of constructions, the one which would not be in conflict with what is ordained by the Constitution is to be preferred. Every intendment of the law should lean towards its validity, not its invalidity. The judiciary, as noted by Justice Douglas, should favor that interpretation of legislation which gives it the greater chance of surviving the test of constitutionality. The inherent weakness of this suit for certiorari and prohibition is likewise discernible from the fact that the then Acting Secretary of Justice Macaraig limited himself to a finding that the ordinance in question was "of doubtful validity. That is far from a categorical declaration of its being repugnant to the Constitution or its being ultra vires. That betrays a realization that unless and until the judiciary speaks in no uncertain terms, the presumption of validity continues. Misgivings as to the likelihood of an alleged infringement of any binding norm do not suffice. There is this aphorism from Justice Malcolm "To doubt is to sustain. That is merely to accord recognition to the well-settled and binding doctrine that only in a very clear case is the judiciary justified in nullifying a statute, or ordinance. COURTS RULING: Petition dismissed. Case before judge should be conducted as speedily as circumstances permit.

Section 47 of the Local Tax Code (PD 231) provides that any question or issue raised against the legality of any tax ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose decision shall be final and executory unless contested before a competent court within thirty (30) days.

DISPOSITION: VOTE: 2nd Division; Barredo, Antonio, Aquino, Concepcion, Santos and Abad Santos, JJ., concur. -Ann

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iv. Revenue bills shall originate from the House of Representatives v. Infringement of press freedom vi. Grant of franchise ARTURO M. TOLENTINO vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE G.R. No. 115455 October 30, 1995 Mendoza, J. Doctrine: Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense. Facts: These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases. CREBA (Chamber of Real Estate and Builders Association, Inc), one of the petitioners, asserts that R.A. No. 7716 impairs the obligations of contracts. It is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract. Issue/Held: WON R.A. No. 7716 impairs the obligations of contracts NO Ratio: In a previous case, this Court has held: Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca GoTauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a

postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)) Disposition: motions for reconsideration are denied with finality -Barbie 5. Who may question the validity of a tax measure of expenditure of taxes taxpayers suit JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, vs. THE COMMISSION ON ELECTIONS (January 27, 1983) DOCTRINE:As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the socalled taxpayer suit may be allowed.What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute. NATURE: Petition for mandamus/representative suit PONENTE: DE CASTRO, J.: FACTS: This is a petition for mandamus filed by Lozada and Igot as a representative suit for and in behalf of those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special election to fill up the existing 12 vacancies in the Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution: (2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term. Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing sCOMELEC: 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to

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entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa. ISSUES: W/N: Lozada and Igot has standing to sue as taxpayers. They do not W/N: they have standing to sue as voters. They do not W/N: the court has jurisdiction over the COMELEC. They do not. W/N: The Contitutional provision requiring a special election applies to the Interim Batasang Pamabansa? It does not. RATIO: 1. As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute. 2.As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition. The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement. In the case before Us, the alleged inaction of the COMELEC to call a special election to fill-up the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here, which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. When the asserted harm is a "generalized grievance" shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction. 3. The court only has jurisdiction to review decisions by certiorari. It was not shown that the petitioners asked the COMELEC to perform its alleged duty and the court denied the same. Even mandamus will not lie as there was no clear showing that it has unlawfully neglected the performance of a ministerial duty or that the petitioners had the right to said duty. It is obvious that the holding of special elections in several regional districts where vacancies exist, would entail huge expenditure of money. Only the Batasan Pambansa can make the necessary appropriation for the purpose, and this power of the Batasan Pambansa may neither be subject to mandamus by the courts much less may COMELEC compel the Batasan to exercise its power of appropriation. From the role Batasan Pambansa has to play in the holding of special elections, which is to appropriate the funds for the expenses thereof, it would seem that the initiative on the matter must come from said body, not the COMELEC, even when the vacancies would occur in the regular not interim Batasan Pambansa. The power to appropriate is the sole and exclusive

prerogative of the legislative body, the exercise of which may not be compelled through a petition for mandamus. What is more, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in the regular National Assembly, now Batasan Pambansa, not to the Interim Batasan Pambansa, as will presently be shown. 4. Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to apply to the Interim National Assembly as originally envisioned by the 1973 Constitution is the fact that as passed by the Constitutional Convention, the Interim National Assembly was to be composed by the delegates to the Constitutional Convention, as well as the then incumbent President and Vice-President, and the members of the Senate and House of Representatives of Congress under the 1935 Constitution. With such number of representatives representing each congressional district, or a province, not to mention the Senators, there was felt absolutely no need for filing vacancies occurring in the Interim National Assembly, considering the uncertainty of the duration of its existence. DISPOSITIVE: WHEREFORE, the petition is hereby dismissed. SO ORDERED. VOTE: Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez, Jr., JJ., concur. Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result. Teehankee, J., took no part. Abad Santos, J., I reserve my vote. -Jamie MACEDA v. MACARAIG (May 31, 1993) DOCTRINE: As a taxpayer petitioner may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. NATURE: : Petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction PONENTE: Gancayco, J. FACTS: The National Power Corporation was created by CA 120. In 1949, it was given tax exemption by RA 358. NPC was further strengthened by RA 6395 in 1971. In 1984, PD 1931 was passed removing the tax exemption of NPC and other GOCCs. There was a reservation, however, that the president or the Minister of Finance upon recommendation by the Fiscal Incentives Review Board may restore or modify the exemption. In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of EO 93 w/c again provided that upon FIRB recommendation it can again be restored. In the same year, FIRB resolved to restore the exemption. The same was approved by Cory through exec sec Macaraig acting as her alter ego. Petitioner is now questioning the grant of tax exemptions to NPC, among other issues.

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It is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a dulyelected Senator of the Philippines." Public respondent argues that petitioner must show he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public. ISSUE: WON petitioner Maceda has legal standing to file this suit. HELD: The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs. Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section 11 of said law provides Sec. 11. Who may appeal; effect of appealAny person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs (Commissioner of Customs) or any provincial or City Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after receipt of such decision or ruling.

Facts: -

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this category. -Jenin GONZALES v MARCOS (July 31, 1975) Doctrine: In this case, there was that absence of the "requisite pecuniary or monetary interest." The petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be entertained." The lower court thus did not err in so viewing the situation. Nature: An appeal by certiorari from an order of dismissal by the Court of First Instance of Manila. Ponente: FERNANDO, J.

President Marcos issued Executive Order No. 30 of a trust for the benefit of the Filipino people under the name and style of the Cultural Center of the Philippines entrusted with the task to construct a national theatre, a national music hall, an arts building and facilities, to awaken our people's consciousness in the nation's cultural heritage and to encourage its assistance in the preservation, promotion, enhancement and development thereof, with the Board of Trustees to be appointed by the President, the Center having as its estate the real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming in the future. The Board of Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development Corporation as well as $3.5 million received from President Johnson of the United States in the concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. First there was an order of dismissal of a suit for prohibition filed in the Court of First Instance of Manila, with stress laid on the funds administered by the Center as coming from donations and contributions, with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from those of the general public. Moreover, reference was made to the admission by petitioner of the desirability of the objective of Executive Order No. 30, his objection arising from the alleged illegality of its issuance. It was contended that Executive Order No. 30 represented the legitimate exercise of executive power, there being no invasion of the legislative domain and that it was supplementary to rather than a disregard of Republic Act No. 4165 creating the National Commission on Culture. It was likewise raised that petitioner did not have the requisite personality to contest as a taxpayer the validity of the executive order in question, as the funds held by the Cultural Center came from donations and contributions, not one centavo being raised by taxation. There was a second motion to dismiss on the part of respondents (2) On October 5, 1972, Presidential Decree No. 15 ... was promulgated creating the Cultural Center of the Philippines, defining its objectives, powers and functions and other purposes. Section 4, thereof was amended by Presidential Decree No. 179 ... enacted on April 26, 1973. It is submitted that it is now moot and academic to discuss the constitutionality of Executive Order No. 30 considering the promulgation of PD Nos. 15 and 179, done by the President in the exercise of legislative powers under martial law. Executive Order No. 30 has ceased to exist while PD Nos. 15 and 179 meet all the constitutional arguments raised in the petition at bar.

Issues: WON that Executive Order No. 30 represented the legitimate exercise of executive power, there being no invasion of the legislative domain. WON the petitioner did not have the requisite personality to contest as a taxpayer the validity of the executive order in question, as the funds held by the Cultural Center came from donations and contributions, not one centavo being raised by taxation.

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Held: -

The petition cannot succeed. Both on procedural and substantive grounds, a case for prohibition was not made out, notwithstanding the valiant efforts of petitioner. With this latest manifestation, that Executive Order No. 30 had been superseded by Presidential Decree Nos. 15 and 179, the moot and academic character of this appeal by certiorari became rather obvious. To repeat, the petition must fail. There was that absence of the "requisite pecuniary or monetary interest." The stand of the lower court finds support in judicial precedents. This is not to retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by People v. Vera where the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be entertained." The lower court thus did not err in so viewing the situation. There was soe exchange of diplomatic notes between the Republic of the Philippines and the United States as to the use of a special fund coming from the latter for a Philippine cultural development project. Then, as set forth in the order of dismissal, it explained why no constitutional objection could be validly interposed. Thus: "When the President, therefore, acted by disposing of a matter of general concern (Section 63, Rev. Adm. Code) in accord with the constitutional injunction to promote arts and letters (Section 4, Article XIV, Constitution of the Philippines) and issued Executive Order No. 30, he simply carried out the purpose of the trust in establishing the Cultural Center of the Philippines as the instrumentality through which this agreement between the two governments would be realized. Needless to state, the President alone cannot and need not personally handle the duties of a trustee for and in behalf of the Filipino people in relation with this trust. He can do this by means of an executive order by creating as he did, a group of persons, who would receive and administer the trust estate, responsible to the President. As head of the State, as chief executive, as spokesman in domestic and foreign affairs, in behalf of the estate as parens patriae, it cannot be successfully questioned that the President has authority to implement for the benefit of the Filipino people by creating the Cultural Center consisting of private citizens to administer the private contributions and donations given not only by the United States government but also by private persons. It would be an unduly narrow or restrictive view of such a principle if the public funds that accrued by way of donation from the United States and financial contributions for the Cultural Center project could not be legally considered as "governmental property." They may be acquired under the concept of dominium, the state as a persona in law not being deprived of such an attribute, thereafter to be administered by virtue of its prerogative of imperium. As contended by the Solicitor General, the matter, as of that date, became moot and academic. Executive Order No. 30 was thus superseded. The institution known as the Cultural Center is other than that assailed in this suit.

Ratio: -

Disposition: WHEREFORE, this appeal by certiorari to review the lower court's order of dismissal dated December 4, 1969 is dismissed. No costs. Vote: Makalintal, C.J., Barredo, Esguerra, Muoz Palma, Aquino, Concepcion Jr. and Martin JJ., concur. Castro and Makasiar, JJ., took no part. Teehankee and Antonio, JJ., are on leave. Concurring/Dissenting Opinion: None. -JP DIAZ V. SECRETARY G.R. No. 193007 19 July 2011 Renato V. Diaz and Aurora Ma. F. Timbol petitioners v. The Secretary of Finance and the Commissioner of Internal Revenue, respondents Abad, J. DOCTRINE: "The Court has ample power to waive technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite." NATURE: Petition for Prohibition under R65 FACTS: Petitioners Diaz and Timbol filed a petition for declaratory relief assailing the validity of the pending imposition of VAT on the collection of tollway operators

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In that sense a coup de grace was administered to this proceeding. The labored attempt of petitioner could thus be set at rest. This particular litigation is at an end. There is, too, relevance in the observation that the aforesaid decree is part of the law of the land. So the Constitution provides. It only remains to be added that respondents as trustees lived up fully to the weighty responsibility entrusted to them. The task imposed on them was performed with competence, fidelity, and dedication. That was to be expected. From the inception of the Marcos Administration, the First Lady has given unsparingly of herself in the encouragement and support of literary, musical, and artistic endeavors and in the appreciation of our rich and diverse cultural heritage. The rest of the then Board of Trustees, named as the other respondents, were equally deserving of their being chosen for this worthy project. Constitutional provision that arts and letters shall be under State patronage. For equally important as the encouragement and support for talented Filipinos with a creative spark is the diffusion of the opportunity for the rest of their countrymen to savour the finer things in life. Who knows, if state efforts along these lines are diligently pursued, that what was said by Justice Holmes about France could apply to the Philippines. Thus: "We have not that respect for art that is one of the glories of France."

Petitioners claim that since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action. Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of Representatives. Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration Petitioners claim that o o o o Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" That are subject to VAT; that a toll fee is a "users tax," not a sale of services; That to impose VAT on toll fees would amount to a tax on public service; And that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause

4. W/N the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will impair the tollway operators right to a reasonable return of investment under their TOAs; and c) is not administratively feasible and cannot be implemented? HELD/RATIO 1. YES The Court has treated the action as one for prohibition despite being filed as a petition for declaratory relief This is notwithstanding the opposition of the OSG saying that the Court has not original jurisdiction over petitions for declaratory relief The OSG further claims that the requirement that the petitioners have no other plain speedy and adequate remedy in the ordinary course of law has not been met. Petitioners may appeal to the Secretary of Finance But the Court declared that there have been precedents for treating the action as one for prohibition especially if the action raises far-reaching and important questions which need to be resolved for the public good This is so in the case of VAT on toll roads. Its imposition will not only impact the half million motorists who use these roads daily but more so the governments effort to raise revenue

The Court issued a TRO to enjoin implementation The government through the OSG contends that: o The NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise; o o That the Court should seek the meaning and intent of the law from the words used in the statute; And that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars It further claims that the petitioners have no right to invoke the nonimpairment clause as they have no interest in existing Toll Operating Agreements (TOAs) between the government and the tollway operators. And at any rate, the non-impairment clause cannot limit the States taxing power which is deemed written into every contract

Treating this issue together with the second, that of standing, the Court held: 2. YES The Court did not declare in categorical language that the petitioners are possessed of standing to file the action Instead, it held that to dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the tax-paying public and the government. A belated declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution. Consequently, it is not only the right, but the duty of the Court to take cognizance of and resolve the issues that the petition raises. Further, even if the petition does not strictly comply with the requirements of a Rule 65 petition for prohibition, the Court has ample power to disregard such technicalities when the legal questions to be resolved are of such great importance to the public Such wide latitude is also true of the requirements for standing in similar actions

ISSUES: 1. W/N a petition for declaratory relief can be treated as one for prohibition? 2. W/N petitioners have standing to file the action? 3. W/N he government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms "franchise grantees" and "sale of services" under Section 108 of the Code?

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NOTES (use at own risk): While the Court did not make a categorical pronouncement of possession of standing, it may be inferred that petitioners, being motorists, have the requisite standing. They are stand to be directly prejudiced by the imposition of VAT on tolls for such burden is shifted to the motorist (albeit the liability is on the tollway operator). This issue on standing is similar to the case of KMU Labor Center v. Garcia (GR No. 115381) where the petitioners were members of the riding public. The Court in that case held:
Petitioner, whose members had suffered and continue to suffer grave and irreparable injury and damage from the implementation of the questioned memoranda, circulars and/or orders, has shown that it has a clear legal right that was violated and continues to be violated with the enforcement of the challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains and jeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares. They are part of the millions of commuters who comprise the riding public. Certainly, their rights must be protected, not neglected nor ignored.

Hence the imposition of the VAT does not expand the NIRC coverage as toll operators are properly franchise grantees and transactions with them are properly sales of service

4. NO Petitioners, basing their argument on the case of MIAA v. CA contend that the VAT is in essence a tax on a tax However, the Court clarified that the decision in MIAA did not establish the rule that toll fees were in the nature of taxes. The issue in that case was whether airport lands were subject to public auction to satisfy tax liability

It is worth noting that petitioners in this case (as in the KMU case) qualify even when measured using the standard of real-party in interest in civil cases. Not only do they have a material interest in the case but they stand to suffer direct injury as a result of government action. However, from the standpoint of a tax-payer suit, it does not seem clear that petitioners may sue. For it has been held in the case of Lozada v. COMELEC that the actual or imminent expenditure of public funds is indispensable to the maintenance of a taxpayer suit. In this case, nowhere is it alleged that the Government will or is disbursing funds. In fact it is the reverse. However, the Court also held in Gonzales v. Narvasa(G.R. No. 140835) that a taxpayer may maintain a suit when there is an exercise of Congress taxing or spending power. In any event, the importance of the question involved in this case leads the Court to adopt a liberal stance as to procedure and standing. 3. NO The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration including xxx services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Code. The enumeration in the code is not exclusive. It encompasses all other services subject only to the qualification that it is rendered in the Philippines PD 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense. In consideration for constructing tollways at their expense, the operators are allowed to collect fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the tollway operator is no different from the service providers under Section 108 who allow others to use their properties or facilities for a fee Further, toll operators are franchise grantees. While they may not posses legislative franchises, they are nonetheless granted franchises by the regulatory body also known as Toll Operation Certificates

A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Furthermore, even assuming that toll fees are a tax, the VAT cannot be classified as a tax on a tax due to its very nature. It is an indirect tax. The seller is primarily liable for the payment of the tax but he may shift the burden of the tax to the enduser. That is to say that the operator must be the one to pay the government the tax (hence is liable). However, he may add the cost of the tax to the cost of the service, the total of which is paid by the end-user. In effect the end-user suffers the burden of the tax. Once shifted, it loses its character of a tax and merely becomes part of the price of the services or goods. The user never becomes directly liable for the tax. Thus it cannot be deemed as a tax on a tax Also, petitioner Timbol does not possess the standing to invoke the nonimpairment clause. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to the private tollway investors. Furthermore, the allegation that the investors rate of recovery will be affected is presumptuous and speculative. In any case, it is the investors themselves who have the right to question the exaction should their interest be so affected

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Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the government.

Finally, the allegation that the imposition will be administratively impossible to implement is premature. BIR has not yet laid out the manner in which it is to be implemented. Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid "except to the extent that specific constitutional or statutory limitations are impaired."

ISSUES: 1. Does the constitutional attack on EO 73 have legal basis? NO. 2. Does the tax amount to a confiscation of property? NO. RATIO: 1. The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. 2. Executive Order No. 73 merely fixed the problem of collecting taxes based on previous valuations. The government recognized the financial burden to the taxpayers resulting from an increase in real property taxes. Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, since the deferment deprived the local government units of an additional source of revenue; Without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. To continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. o Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. DISPOSITIVE: The petition and the petition-in-intervention are hereby DISMISSED. -Ice G. Classification of taxes 1. AS to the scope of the tax: National/local taxes BENGUET CORP V CBAA (June 29, 1992) Doctrine: While local government units are responsible for fixing the rate of real property taxes, it does not necessarily follow from that authority the determination of whether or not to impose the tax. When local governments are required to fix the rates, they are merely constituted as agents of the national government in the enforcement of the RPTC. Delegation of taxing power is not even involved here because the national government has

DISPOSITION: Petition DISMISSED, temporary restraining order SET ASIDE. Votes: Corona, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Peralta, Del Castillo, Villarama, Jr., Perez, Mendoza, JJ., concur -Raffy F. Tax Systems 1. Classification Progressive system v. progressive rate of tax Tolentino v. Secretary of Finance, supra 2. Basic principles of a sound tax system CHAVES vs. ONGPIN (June 6, 1990) DOCTRINE: Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. NATURE: Petition seeking to declare unconstitutional Executive Order No. 73 providing for the collection of real property taxes; PONENTE: Medialdea, J. FACTS: The petitioner is a taxpayer and an owner of three parcels of land and is claiming that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; o Chavez argues that the unreasonable increase in real property taxes by E.O. No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process; The intevenors, Realty Owners Association of the Philippines, claim that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments;

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already imposed realty tax in Sec 38, RPTC, leaving only the enforcement to be done by local governments. Facts: The Benguet Provincial Assessor, through the Itogon Municipal Assessor, assessed real property on the bunkhouses of Benguet Corp (BC) used for residential purposes by employees. According to the Provincial Assessor, PD1955 already withdrew the tax exemption provided by PD745 on law cost housing projects of domestic corporations. BC appealed to the Local Board of Assessment and Appeals (LBAA). LBAA eventually affirmed the taxability of the property. The Central Board of Assessment and Appeals (CBAA) affirmed the decision holding that the realty tax exemption under PD745 (promulgated July 1975) was withdrawn both by PD1955 (effective Oct 1984) and EO93. The CBAA also differentiated the case from another which was granted tax exemption, saying the latter was effective prior 1985, thus was not covered by PD1955 or EO93.

Issues: WON BC is liable to pay realty tax notwithstanding PD231 (Local Tax Code) and PD263 (Mineral Resources Dev Decree) which disallowed the imposition of taxes on mines by LGUs. WON the realty tax exemption granted by PD745 was withdrawn by PD1955 and EO93 Held: Ratio: Yes Yes Both PD 1955 and EO 93 operate as wholesale withdrawal of tax incentives granted to private entities so that the government may re-examine existing tax exemptions and restore through the review mechanism of the Fiscal Incentives Review Board only those that are consistent with declared economic policy. While local government units are responsible for fixing the rate of real property taxes, it does not necessarily follow from that authority the determination of whether or not to impose the tax. In fact, local governments have no alternative but to collect taxes as mandated in Sec 38, PD 464 or the Real Property Tax Code (RPTC). When local governments are required to fix the rates, they are merely constituted as agents of the national government in the enforcement of the RPTC. Delegation of taxing power is not even involved here because the national government has already imposed realty tax in Sec. 38, RPTC, leaving only the enforcement to be done by local governments. In Meralco Securities v. CBAA the Court said: o Realty tax has always been imposed by the lawmaking body and later by the President of the Philippines in the exercise of his lawmaking powers.

-Ivan 2. As to who shoulders the burden of the tax: Direct/Indirect taxes Tolentino v. Sec. of Finance, supra. Philippine Acetylene Co. Inc. vs CIR (17 August 1967) Doctrine: It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser. Ponente: CASTRO, J. FACTS: Petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases

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The realty tax is enforced throughout the Philippines and not merely in a particular municipality or city; but the proceeds of the tax accrue to the province, city, municipality and barrio where the realty taxed is situated (Sec 86, RPTC). In contrast, a local tax is imposed by the municipal or city council by virtue of PD 231 or the Local Tax Code (LTC), which took effect on July 1, 1973. As such, the MRDD and the LTC are mere limitations on the taxing power of local governments and could not affect the imposition of real property tax by the national government. Finally, petitioner claims that EO93 does not repeal PD745, since Sec 1 (e) (iv), EO93 does not withdraw the exemptions in the RPTC. Petitioner likewise points out that Sec 40 (g), RPTC on the other hand maintains the tax exemption of real property under other laws. He concludes then that PD745 is one of the 'other laws' referred to. However, this argument is untenable. The intent is to limit the application of the 'exception clause' only to those conferred by the RPTC. This is only a logical construction since tax exemptions are to be construed against the taxpayers, and as such they cannot be created by mere implication, they must be clearly provided by law. When in doubt, non-exemption is favored. o

June 2, 1953 to June 30, 1958 - Phil Acetylene made various sales of its products to the National Power Corporation, an agency of the Philippine Government, and to the Voice of America an agency of the United States Government The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683 Respondent Commission of Internal Revenue assessed against such amounts, and demanded from the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to: Sec. 186. Percentage tax on sales of other articles.There shall be levied, assessed and collected once only on every original sale, barter, exchange, and similar transaction either for nominal or valuable considerations, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four and one hundred and eighty-five a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered exchanged, or transferred, such tax to be paid by the manufacturer or producer: . . . . Sec. 183. Payment of percentage taxes.(a) In general.It shall be the duty of every person conducting business on which a percentage tax is imposed under this Title, to make a true and complete return of the amount of his, her, or its gross monthly sales, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due thereon: Provided, That any person retiring from a business subject to the percentage tax shall notify the nearest internal revenue officer thereof, file his return or declaration and pay the tax due thereon within twenty days after closing his business. If the percentage tax on any business is not paid within the time specified above, the amount of the tax shall be increased by twenty-five per centum, the increment to be a part of the tax.

The assessment was revised and the petitioner's liability was reduced from P12,910.60, as assessed by the respondent commission, to P12,812.16

ISSUE/S: WoN Philippine Acetylene is liable for tax on its sales to NPC and VoA (which are both exempt from taxes) o Corollarily, WoN the tax imposed on Sec 186 of the NIRC is a tax on the manufacturer or the buyer HELD + RATIO: YEP, Philippine Acetylene is liable for sales tax, even if its purchaser (NPC) is taxexempt. The tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to taxexempt entities like the NPC is permissible. The NPC enjoys tax exemption by virtue of an act of Congress which provides as follows: Sec. 2. To facilitate the payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. Petitioner argues that the immunity thus given to the NPC would be impaired by the imposition of a tax on sales made to it because while the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former. The petitioner invokes in support of its position a 1954 opinion of the Secretary of Justice which ruled that the NPC is exempt from the payment of all taxes "whether direct or indirect." Statutes of the type under consideration, which impose a tax on sales, have been described as "act[s] with schizophrenic symptoms," as they apparently have two faces one that of a vendor tax, the other, a vendee tax. Fortunately for us the provisions of the Code throw some light on the problem. The Code states that the sales tax "shall be paid by the manufacturer or producer" Many years ago, Mr. Justice Oliver Wendell Holmes expressed dissatisfaction with the use of the phrase "pass the tax on." Writing the opinion of the U.S. Supreme Court in Lash's Products v. United States, he said: "The phrase 'passed the tax on' is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all. . . . The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of the price . . .". It may indeed be that the incidence of the tax ultimately settles on the purchaser, but it is not for that reason alone that one may validly argue that it is a tax on the purchaser. The exemption granted to the NPC may be likened to the immunity of the Federal Government from state taxation and vice versa in the federal system of government of the United States.

Petitioner says nope, were not liable, both NPC and VOA are exempt from taxes, bitchezzzz Phil Acetylene asked for a reconsideration of the assessment and, failing to secure one, appealed to the CTA CTA ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and not on the buyer with the result that the "petitioner Philippine Acetylene Company, the manufacturer or producer of oxygen and acetylene gases sold to the National Power Corporation, cannot claim exemption from the payment of sales tax simply because its buyer the National Power Corporation is exempt from the payment of all taxes." With respect to the sales made to the VOA, the court held that goods purchased by the American Government or its agencies from manufacturers or producers are exempt from the payment of the sales tax under the agreement between the Government of the Philippines and that of the United States, provided the purchases are supported by certificates of exemption

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But Justice Holmes dissents, says that If the plaintiff in error had paid the tax and added it to the price the government would have nothing to say. It could take the gasoline or leave it but it could not require the seller to abate his charge even if it had been arbitrarily increased in the hope of getting more from the government than could be got from the public at large. . . . It does not appear that the government would have refused to pay a price that included the tax if demanded, but if the government had refused it would not have exonerated the seller. . . . . . . I am not aware that the President, the Members of the Congress, the Judiciary or to come nearer to the case at hand, the Coast Guard or the officials of the Veterans' Hospital [to which the sales were made], because they are instrumentalities of government and cannot function naked and unfed, hitherto have been held entitled to have their bills for food and clothing cut down so far as their butchers and tailors have been taxed on their sales; and I had not supposed that the butchers and tailors could omit from their tax returns all receipts from the large class of customers to which I have referred. The question of interference with Government, I repeat, is one of reasonableness and degree and it seems to me that the interference in this case is too remote.

BUT WITH REGARD TO VOA: The Court here ruled that sales to the VOA are subject to the payment of percentage taxes under section 186 of the Code. Voice of America is an agency of the United States Government and as such, all goods purchased locally by it directly from manufacturers or producers are exempt from the payment of the sales tax under the provisions of the agreement between the Government of the Philippines and the Government of the United States, (See Commonwealth Act No. 733) provided such purchases are supported by serially numbered Certificates of Tax Exemption issued by the vendee-agency, as required by General Circular No. V-41, dated October 16, 1947. . . . Circular says that, [g]oods purchased locally by U.S. civilian agencies directly from manufacturers, producers or importers shall be exempt from the sales tax. But we find nothing in the language of the Agreement to warrant the general exemption granted by that circular. ARTICLE V. Exemption from Customs and Other Duties No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or goods, including food stores and clothing, for exclusive use in the construction, maintenance, operation or defense of the bases, consigned to, or destined for, the United States authorities and certified by them to be for such purposes. ARTICLE XVIII.Sales and Services Within the Bases

Soon it became obvious that to test the constitutionality of a statute by determining the party on which the legal incidence of the tax fell was an unsatisfactory way of doing things. But if a complete turnabout from the rule announced in Panhandle was yet to be made, it was so made in 1952 in Esso Standard Oil v. Evans11 which held that a contractor is not exempt from the payment of a state privilege tax on the business of storing gasoline simply because the Federal Government with which it has a contract for the storage of gasoline is immune from state taxation. PLEASE LOOK AT THE US CASES CITED IN THIS DECISION because the fucking point of all of those is that, we have determined the current status of the doctrine of intergovernmental tax immunity in the United States, by

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(Take note of the developments in the US cases; itll all be clear later, PRAMIS.) In Panhandle Oil Co. v. Mississippi the doctrine of intergovernment mental tax immunity was held as prohibiting the imposition of a tax on sales of gasoline made to the Federal Government. US Supreme Court says, A charge at the prescribed. rate is made on account of every gallon acquired by the United States. It is immaterial that the seller and not the purchaser is required to report and make payment to the state. Sale and purchase constitute a transaction by which the tax is measured and on which the burden rests. . . . The necessary operation of these enactments when so construed is directly to retard, impede and burden the exertion by the United States, of its constitutional powers to operate the fleet and hospital. . . . To use the number of gallons sold the United States as a measure of the privilege tax is in substance and legal effect to tax the sale. . . . And that is to tax the United States to exact tribute on its transactions and apply the same to the support of the state.

showing the drift of the decisions following announcement of the original rule, to point up the that fact that even in those cases where exemption from tax was sought on the ground of state immunity, the attempt has not met with success. If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim resting on statutory grant. It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser.

1. It is mutually agreed that the United States Shall have the right to establish on bases, free of all licenses; fees; sales, excise or other taxes, or imposts; Government agencies, including concessions, such as sales commissaries and post exchanges, messes and social clubs, for the exclusive use of the United States military forces and authorized civilian personnel and their families. The merchandise or services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. . . . It is a familiar learning in the American law of taxation that tax exemption must be strictly construed and that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention of the parties. Hence, in so far as the circular of the Bureau of Internal Revenue would give the tax exemptions in the Agreement an expansive construction it is void. We hold, therefore, that sales to the VOA are subject to the payment of percentage taxes under section 186 of the Code.

discretion is tainted with arbitrariness and grave abuse as to go beyond statutory authority. TYPE OF TAX INVOLVED: Indirect Tax and Duties NATURE: Petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties. PONENTE: Gancayco, J.

Disposition: Accordingly, the decision a quo is modified by ordering the petitioner to pay to the respondent Commission the amount of P12,910.60 as sales tax and surcharge, with costs against the petitioner. Votes: Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Angeles and Fernando, JJ., concur. Concepcion, C.J., and Dizon, J., took no part. Concurring and/or Dissenting opinions: NONE. -Kriszanne ERNESTO M. MACEDA, petitioner, -versusHON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the President, HON. VICENTE JAYME, ETC., ET AL., respondents. (May 31, 1993 | GR No 88291 ) DOCTRINE: XXX The Court (however) agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs. XXX Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the Commissioners of Internal Revenue and Customs when the exercise of

A Chronological review of the relevant NPC laws, especially with respect to its tax exemption provisions, at the risk of being repetitious is, therefore, in order. Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the production of power from other sources. On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. He was also authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate objectives and for the reconstruction and development of the economy of the country. It was expressly stated that: Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows: To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes. On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended. A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares the non-profit character and tax exemptions of NPC as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared exempt: library (a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and

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FACTS:

duties to the Republic of the Philippines, its provinces, cities, and municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities; virtual law library (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and (d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. PD 380 (1974) specified that NAPOCORs exemption includes all taxes, etc. imposed directly or indirectly. PD 938integrated the exemptions in favor of GOCCs including their subsidiaries; however, empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely effective 1July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-87 (24 June 1987) restoring NAPOCORs exemption, which was approved by the President on 5 October 1987. Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of delivery ISSUE: (a) Does petitioner have the standing to challenge the questioned orders and resolution? HELD: (a) YES, as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. REASONING: A. XXX First the preliminary issues. Public respondents allege that petitioner does not have the standing to challenge the questioned orders and resolution.

In the petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must show he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public. The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

Sec. 11. Who may appeal; effect of appealAny person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Collector of Customs (Commissioner of Customs) or any provincial or City Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after receipt of such decision or ruling. From the foregoing, it is only the taxpayer adversely affected by a decision or ruling of the Commissioner of Internal Revenue, the Commissioner of Customs or any provincial or city Board of Assessment Appeal who may appeal to the Court of Tax Appeals. Petitioner does not fall under this category. Public respondents also contend that mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not found by him to be proper. It would be tantamount to a usurpation of executive functions. Even in Meralco, this Court recognizes the situation when mandamus can control the discretion of the Commissioners of Internal Revenue and Customs when the exercise of discretion is tainted with arbitrariness and grave abuse as to go beyond statutory authority. Public respondents then assert that a writ of prohibition is not proper as its function is to prevent an unlawful exercise of jurisdiction or to prevent the oppressive exercise of legal authority. Precisely, petitioner questions the lawfulness of the acts of public respondents in this case. XXX DISPOSITIVE: WHEREFORE, the petition is DISMISSED for lack of merit. No pronouncement as to costs. Sarmiento, J. and Cruz, J. DISSENT but not as to LEGAL STANDING of petitioner. -Poy

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Assuming petitioner has the personality to file the petition, public respondents also allege that the proper remedy for petitioner is an appeal to the Court of Tax Appeals under Section 7 of R.A. No. 125 instead of this petition. However Section 11 of said law provides

COMMISSIONER OF INTERNAL REVENUE v. GOTAMCO (February 27, 1987) DOCTRINE: The contractors tax is a form of indirect tax. Although payable by the contractor, it is the owner who shoulders the burden since the same is shifted by the contractor to the owner. NATURE: Appeal from the decision of the Court of Tax Appeals PONENTE: Yap, J. FACTS: The World Health Organization, an international organization entered into a Host Agreement with the RP. According to Sec 11, the Organization, its assets, income and other properties shall be (a) exempt from all direct and indirect taxes xxx In inviting contractors for the construction of its building, WHO informed the bidders that the org is exempt from payment of all fees, licenses and taxes, and therefore their bids must take this into account The construction contract was awarded to respondent Gotamco Sometime in May 1958, WHO received an opinion from the Commissioner of the BIR stating that the 3% contractors tax is an indirect tax and is exempt from tax On June 3, 1958, the Commissioner reversed his opinion stating that the 3% contractors tax is not a direct nor indirect tax on the WHO but a tax that is primarily due from the contractor, same is not covered by the Host Agreement. The WHO issued a certification stating that the contractors were informed that there would be no taxes levied on them; they relied on this on good faith; they should be exempt. The Commissioner sent a letter of demand to Gotamco for P16,970.40 representing the 3% contractors tax plus surcharges Respondent appealed the Commissioners decision to the CTA which rendered a decision in favor of Gotamco.

DISPOSITION: CTA decision is affirmed. VOTE: Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco, Sarmiento, concur. -Steph CIR v. PLDT (December 15, 2005) TAXES INVOLVED: Compensating taxes; Advance sales taxes; VAT; Direct vs. Indirect Taxes DOCTRINE: It is important to determine if the tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax exemption embraces only those taxes for which the buyer is directly liable. PONENTE: Garcia, J. FACTS: In March 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082. BIR issued a ruling stating that the "in lieu of all taxes" provision under said section clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the aforementioned enumerated taxes for which PLDT is expressly made liable. PLDT then filed a claim for tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying "in connection with its importation of various equipment, machineries and spare parts needed for its operations". With its claim not having been acted upon by the BIR, PLDT filed with the CTA a petition for review, therein seeking a refund of, or the issuance of a tax credit certificate in, the amount of P280,552,286.00, representing compensating taxes, advance sales taxes, VAT and other internal revenue taxes alleged to have been erroneously paid on its importations from October 1992 to May 1994.

ISSUE: WON the 3% contractors tax is an indirect tax? HELD: Yes, it is an indirect tax. Respondent is exempt from payment. RATIO/RULING: Although the Host Agreement was not ratified by the Senate, it is still valid. Less formal types of international agreements may be entered into by the Chief Executive and become binding without concurrence of the legislative body. Petitioner argues that the 3% contractors tax is not an indirect tax but is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or engaging in an occupation. It is a tax due primarily on the contractor not the owner of the building. However, Court agreed with the CTA in rejecting this. o Direct taxes- demanded from the very person who it is intended or desired, should pay them o Indirect taxes- demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else

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The contractors tax is payable by the contractor, but it is the owner of the building that shoulders the burden because the same is shifted by the contractor to the owner as a matter of selfpreservation. It is an indirect tax. Petitioner cites Philippine Acetylene Comp v CIR which involved tax on sales of goods which under the law had to be paid by the manufacturer; fact that they added it to the price did not make it a tax on the purchaser. Thus, tax must be paid by the manufacturer even if the sale is made to tax-exempt entities. But the case is not controlling since the Host Agreement exempts WHO from indirect taxes. The 3% contractors tax should be viewed as a form of indirect tax on t he WHO as the payment thereof or its inclusion in the bid price would have meant an increase in the construction cost of the building. o

CTA ruled that the petitioner is entitled to the reduced amount of P223,265,276.00 after excluding from the final computation those taxes that were paid prior to December 16, 1992 as they fell outside the two-year prescriptive period for claiming for a refund as provided by law. BIR Commissioner filed an MTD (denied), and then filed a petition for review with the CA (dismissed). Hence this petition. 2.

direct liability. Accordingly, indirect taxes, not being taxes on PLDTs franchise or earnings, are outside the purview of the "in lieu" provision. All told, we fail to see how Section 12 of RA 7082 operates as granting PLDT blanket exemption from payment of indirect taxes, which, in the ultimate analysis, are not taxes on its franchise or earnings. PLDT has not shown its eligibility for the desired exemption. None should be granted. Pursuant to EO No. 273 which took effect in 1988, a multi-stage value-added tax was put into place to replace the tax on original and subsequent sales tax. It stands to reason then, as urged by PLDT, that compensating tax and advance sales tax were no longer collectible internal revenue taxes under the NILRC when the Bureau of Customs made the assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994. Given the above perspective, the amount PLDT paid in the concept of advance sales tax and compensating tax on the 1992 to 1994 importations were, in context, erroneous tax payments and would theoretically be refundable. It should be emphasized, however, that, such importations were, when made, already subject to VAT. Accordingly, it behooves the BIR to grant a refund of the advance sales tax and compensating tax in the total amount of P94,673,422.00, subject to the condition that PLDT present proof of payment of the corresponding VAT on said transactions.

ISSUES/HELD: 1. WON PLDT, given the tax component of its franchise, is exempt from paying indirect taxes NO 2. WON PLDT is entitled to a tax refund YES, since pursuant to EO 273, PLDT was no longer under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994 RATIO/RULING: 1. The 10% VAT on importation of goods partakes of an excise tax levied on the privilege of importing articles. It is not a tax on the franchise of a business enterprise or on its earnings. It is imposed on all taxpayers who import goods (unless such importation falls under the category of an exempt transaction under Sec. 109 of the Revenue Code) whether or not the goods will eventually be sold, bartered, exchanged or utilized for personal consumption. The VAT on importation replaces the advance sales tax payable by regular importers who import articles for sale or as raw materials in the manufacture of finished articles for sale. Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw materials to be processed into merchandise can shift the tax or lay the "economic burden of the tax", on the purchaser, by subsequently adding the tax to the selling price of the imported article or finished product. Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in the course of business or not. The rationale for compensating tax is to place, for tax purposes, persons purchasing from merchants in the Philippines on a more or less equal basis with those who buy directly from foreign countries. It bears to stress that the liability for the payment of the indirect taxes lies only with the seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke ones exemption privilege to avoid the passing on or the shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased. Hence, it is important to determine if the tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to him as part of the purchase price, otherwise it is presumed that the tax exemption embraces only those taxes for which the buyer is directly liable. As may be noted, the clause "in lieu of all taxes" in Section 12 of RA 7082 is immediately followed by the limiting or qualifying clause "on this franchise or earnings thereof", suggesting that the exemption is limited to taxes imposed directly on PLDT since taxes pertaining to PLDTs franchise or earnings are its

DISPOSITION: Petition partially granted; CA Decision modified VOTE: Panganiban, Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur. (THIRD DIVISION) -Nem Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch v CIR (January 19, 2011) Doctrine: The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of which may fall on a person other than he who actually bears the burden of the tax. Citing CIR v PLDT: [I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold or services rendered. As early as the 1960s, this Court has ruled that the proper party to question, or to seek a refund of, an indirect tax, is the statutory taxpayer, or the person on whom the

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tax is imposed by law and who paid the same, even if he shifts the burden thereof to another. Nature: Petition for review on certiorari under Rule 45 filed by petitioner Exxon to set aside decision of the CTA-En Banc and its resolution denying petitioners motion for reconsideration. Ponente: Mendoza 1. Petitioner Exxon is a foreign corporation duly organized and existing under the laws of the State of Delaware, United States of America. It is authorized to do business in the Philippines through its Philippine Branch. Exxon is engaged in the business of selling petroleum products to domestic and international carriers. Exxon purchased from Caltex and Petron Jet A-1 fuel and other petroleum products, the excise taxes on which were paid for and remitted by both Caltex and Petron. Said taxes, however, were passed on to Exxon which ultimately shouldered the excise taxes on the fuel and petroleum products. From November 2001 to June 2002, Exxon sold a total of 28,635,841 liters of Jet A-1 fuel to international carriers, free of excise taxes amounting to Php105,093,536.47. On various dates, it filed administrative claims for refund with the BIR amounting to Php105,093,536.47. Exxon filed a petition for review with the CTA claiming a refund or tax credit in the amount of Php105,093,536.47, representing the amount of excise taxes paid on Jet A-1 fuel and other petroleum products it sold to international carriers from November 2001 to June 2002. During Exxons preparation of evidence, the CIR filed a motio n to first resolve the issue of whether or not Exxon was the proper party to ask for a refund. CTA First Division issued a resolution sustaining the CIRs position and dismissing Exxons claim for refund. Exxon filed a MR but was denied Exxon filed a petition for review with the CTA En Banc

2.

3.

WON the petitioner can claim a refund of the excise taxes paid thereon? Held: 1. Exxon argues that having paid the excise taxes on the petroleum products sold to international carriers, it is a real party in interest consistent with the rules and jurisprudence. a. The subject of the exemption is neither the seller nor the buyer of the petroleum products, but the products themselves, so long as they are sold to international carriers for use in international flight operations, or to exempt entities covered by tax treaties, conventions and other international agreements for their use or consumption, among other conditions. b. Thus, as the exemption granted under Section 135 attaches to the petroleum products and not to the seller, the exemption will apply regardless of whether the same were sold by its manufacturer or its distributor for two reasons. i. Section 135 does not require that to be exempt from excise tax, the products should be sold by the manufacturer or producer. ii. The legislative intent was precisely to make Section 135 independent from Sections 129 and 130 of the NIRC, stemming from the fact that unlike other products subject to excise tax, petroleum products of this nature have become subject to preferential tax treatment by virtue of either specific international agreements or simply of international reciprocity. Respondent CIR, on the other hand, posits that Exxon is not the proper party to seek a refund of excise taxes paid on the petroleum products.

4.

5. 6. 7.

CTA En Banc Ruling 8. CTA En Banc dismissed the petition for review and affirmed the two resolutions of the First Division Exxon filed a MR but was denied. 9. Citing Sections 130 (A)(2) and 204 (C) in relation to Section 135 (a) of the NIRC, the CTA ruled that in consonance with its ruling in several cases, only the taxpayer or the manufacturer of the petroleum products sold has the legal personality to claim the refund of excise taxes paid on petroleum products sold to international carriers. 10. Section 130(A)(2) makes the manufacturer or producer of the petroleum products directly liable for the payment of excise taxes. Therefore, it follows that the manufacturer or producer is the taxpayer. 11. This determination of the identity of the taxpayer designated by law is pivotal as the NIRC provides that it is only the taxpayer who "has the legal personality to ask for a refund in case of erroneous payment of taxes." 12. Further, the excise tax imposed on manufacturers upon the removal of petroleum products by oil companies is an indirect tax, or a tax which is

2.

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primarily paid by persons who can shift the burden upon someone else. With indirect taxes, "although the burden of an indirect tax can be shifted or passed on to the purchaser of the goods, the liability for the indirect tax remains with the manufacturer." Moreover, "the manufacturer has the option whether or not to shift the burden of the tax to the purchaser. When shifted, the amount added by the manufacturer becomes a part of the price, therefore, the purchaser does not really pay the tax per se but only the price of the commodity." 13. CTA concluded that a refund of erroneously paid or illegally received tax can only be made in favor of the taxpayer, pursuant to Section 204(C) of the NIRC. As categorically ruled in the Cebu Portland Cement and Contex cases, in the case of indirect taxes, it is the manufacturer of the goods who is entitled to claim any refund thereof. 14. Therefore, it follows that the indirect taxes paid by the manufacturers or producers of the goods cannot be refunded to the purchasers of the goods because the purchasers are not the taxpayers. 15. The CTA also emphasized that tax refunds are in the nature of tax exemptions and are, thus, regarded as in derogation of sovereign authority and construed strictissimi juris against the person or entity claiming the exemption.

a. b.

c.

Excise taxes are indirect taxes, the liability for payment of which falls on one person, but the burden of payment may be shifted to another. Here, the sellers of the petroleum products or Jet A-1 fuel subject to excise tax are Petron and Caltex, while Exxon was the buyer to whom the burden of paying excise tax was shifted. While the impact or burden of taxation falls on Exxon, as the tax is shifted to it as part of the purchase price, the persons statutorily liable to pay the tax are Petron and Caltex. As Exxon is not the taxpayer primarily liable to pay, and not exempted from paying, excise tax, it is not the proper party to claim for the refund of excise taxes paid.

6.

3.

4.

5.

Excise taxes a. The excise tax, when passed on to the purchaser, becomes part of the purchase price. b. Excise taxes are imposed under Title VI of the NIRC. They apply to specific goods manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition, and to those that are imported. c. In effect, these taxes are imposed when two conditions concur: i. that the articles subject to tax belong to any of the categories of goods enumerated in Title VI of the NIRC; and ii. that said articles are for domestic sale or consumption, excluding those that are actually exported. Petroleum products sold to international carriers and exempt entities or agencies are exempted from the coverage of excise taxes a. Under Section 135, petroleum products sold to international carriers of foreign registry on their use or consumption outside the Philippines are exempt from excise tax, provided that the petroleum products sold to such international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. Nature of excise taxes a. The confusion here stems from the fact that excise taxes are of the nature of indirect taxes, the liability for payment of which may fall on a person other than he who actually bears the burden of the tax. b. CIR v PLDT: [I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold or services rendered. c. Accordingly, the party liable for the tax can shift the burden to another, as part of the purchase price of the goods or services.

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Courts Ruling

Although the manufacturer/seller is the one who is statutorily liable for the tax, it is the buyer who actually shoulders or bears the burden of the tax, albeit not in the nature of a tax, but part of the purchase price or the cost of the goods or services sold. As petitioner is not the statutory taxpayer, it is not entitled to claim a refund of excise taxes paid. a. As early as the 1960s, this Court has ruled that the proper party to question, or to seek a refund of, an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if he shifts the burden thereof to another. b. In Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, the Court held that the sales tax is imposed on the manufacturer or producer and not on the purchaser, "except probably in a very remote and inconsequential sense." i. Discussing the "passing on" of the sales tax to the purchaser, the Court therein cited Justice Oliver Wendell Holmes opinion in Lashs Products v. United States wherein he said: 1. "The phrase passed the tax on is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the sellers obligation, but that is all. x x x The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore it is part of the price x x x." ii. It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. x x x The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the sellers obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. c. Cebu Portland Cement Company v. Collector (now Commissioner) of Internal Revenue - As the sales tax is imposed upon the manufacturer or producer and not on the purchaser, "it is petitioner and not its customers, who may ask for a refund of whatever amount it is entitled for the percentage or sales taxes it paid before the amendment of section 246 of the Tax Code." d. Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue The proper party to question, or to seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.

Dispositive: Petition denied -Zoilo 3. As to the object or subject matter of the tax: Property/personal/poll or capitation/excise

EUSEBIO VILLANUEVA, ET AL., vs. CITY OF ILOILO, (Dec. 28, 1968) CASTRO, J.: Municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Villanueva, owners of four tenement houses containing 34 apartments. SC, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing, that with the passage of RA 2264 (Local Autonomy Act), it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960 By virtue of the ordinance City collected from spouses Villanueva, P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property. plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. Lower Court declared the ordinance illegal The issues posed in this appeal are: 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? NO 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? YES 1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:

(a) Residence tax; (b) Documentary stamp tax; (c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published primarily for the purpose of publishing advertisements; (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power; (e) Taxes on forest products and forest concessions; (f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa; (g) Taxes on income of any kind whatsoever; (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other kinds of customs fees, charges and duties; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies. A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or

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SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or impose any of the following:

imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended. In such event, the municipal board or city council in the case of cities and the municipal council or municipal district council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest. It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti. Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? SC: contrary to the appellees' contention, that the tax in question is not a real estate tax. A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted, and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners. It is a fixed proportion of the assessed value of the property taxed, and requires, therefore, the intervention of assessors. It is collected or payable at appointed times, and it constitutes a superior lien on and is enforceable against the property subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearlythe tax in question is not a real estate tax. the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." . 2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as

"income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual income.20. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax. With regard to uniform taxation, This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished. NB: w.r.t. Res Judicata, SC says the parties are different plus in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva LGC was not yet in effect Lower court decision reversed -Justin Commissioner of Internal Revenue v Court of Tax Appeals (Mar 10, 1995 | G.R. No. 104151) DOCTRINE: An ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources. NATURE: Petition for review on certiorari filed by both parties. PONENTE: Regalado, J. FACTS: Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation which owns and operates a mining concession at

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Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes, including increments, for the taxable year 1975 against ACMDC. Also, on the basis. of the BIR examiner's report in another investigation separately conducted, the Commissioner had another assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. ACMDC protested both assessments but the. same were denied, hence it filed two separate petitions for review in the Court of Tax Appeals (also, tax court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially identical in most respects except for the taxable periods and the amounts involved, were eventually consolidated. However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and contractor's tax. As a consequence, both parties elevated their respective contentions to respondent Court of Appeals in two separate petitions for review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP No. 25945, questioned the portion of the judgment of the tax court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency assessment. CIR: The actual market value of the mineral products should be the gross sales realized from copper concentrates, deducting there from mining, milling, refining, transporting, handling, marketing or any other expenses. ACMDC: The actual market value of the mineral products should be price which the same before or without undergoing a process of manufacture would command in the ordinary course of business. ISSUES/HELD: WON cost of production should be deducted to the manufactured products price in the calculation of ad valorem? Yes WON ACMDC is liable for manufacturers tax? No RATIO/RULING: The relevant provisions of the NIRC are Sec. 243 and 246. Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease. There is hereby imposed on the actual market value of the annual gross output of the minerals mineral products extracted or produced from all mineral lands not covered by lease, an ad valorem tax in the amount of two per centum of the value of the output except gold which shall pay one and one-half per centum.

Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. (As amended by Rep. Act No. 6110.) Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral products." Disposition of royalties and ad valorem taxes. The term "gross output" shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, That if the minerals or mineral products are sold or consigned. abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claim shall not be subdivided. The word "minerals" shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the-mines are situated, and eighty per centum to the National Treasury." To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands not covered by lease. In computing the tax, the term "gross output" shall be the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity, without any deduction for mining, milling, refining, transporting, handling, marketing or any other expenses. If the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. In other words, the assessment shall be based, not upon the cost of production or extraction of said minerals or mineral products, but on the price which the same before or without undergoing a process of manufacture would command in the ordinary course of business. AD VALOREM TAX The issue of whether the ad valorem tax should be based upon the value of the finished product, or the value upon extraction of the raw materials or minerals used in the manufacture of said finished products, has been passed upon by us in several cases wherein we held that the ad valorem tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before it undergoes a chemical change through manufacturing process, as distinguished from a purely physical process which does not necessarily involve the change or transformation of the raw material into a composite distinct product. An ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources. Therefore, the imposable ad valorem tax should be based on the selling price of the quarried minerals, which is its actual market value, and not on the price of the manufactured product. If the market value chosen for the reckoning is the value of the

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manufactured or finished product, as in the case at bar, then all expenses of processing or manufacturing should be deducted in order to approximate as closely as is humanly possible the actual market value of the raw mineral at the mine site. The Court based their decision on an old CTA case. They go on to stress that as a matter of practice and principle, the Supreme Court will not setaside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part. Manufacturers Tax Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These "privilege taxes on business" are taxes imposed upon the privilege of engaging in business. They are essentially excise taxes. "To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single act or a single transaction; it involves some continuity of action. A manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Section 186 of the tax code, must be 'engaged' in the sale, barter or exchange of; personal property. Under a statute which imposes a tax on persons engaged in the sale, barter or exchange of merchandise, a person must be occupied or employed in the sale, barter or exchange of personal property. A person can hardly be considered as occupied or employed in the sale, barter or exchange of personal property when he has made one purchase and sale only. In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It asserts that it is not engaged in the business of selling grinding steel balls, but it only produces grinding steel balls solely for its own use or consumption, However, it admits having lent its grinding steel balls to other entities but only in very isolated cases. After a careful review of the records and on the basis of the legal concept of "engaging in business" hereinbefore discussed, we are inclined to agree with ACMDC that it should not and cannot be held liable for the payment of the manufacturer's tax. DISPOSITION: WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No. 25945, subject of the present petition in G.R. No. 104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the payment of manufacturer's sales tax, surcharge and interest during the taxable year 1975. VOTE: 2nd Division. Narvasa, C.J., Bidin, concur.CONCURRING/DISSENTING OPINION: Puno and Mendoza, JJ.,

Association of Customs Brokers v. Municipal Board (May 22, 1953) Doctrine: The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in such business, or on the gross receipts of the business

Facts:

The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the trucks in said City, challenge the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila on March 24, 1950 on the ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation. The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that this power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city limits. The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation. CFI ruled that petition valid. Hence this appeal.

ADDITIONAL NOTES: A big part of the case involves an explanation of the process of mining, basically to show that there is a long process in getting it from the ground before selling it. -Miggy

Issues: 1. Considering the wording used in the ordinance in the light in the purpose for which the tax is created, can we consider the tax thus imposed as property tax, as claimed by respondents? No. Its a license. 2. Is the said tax constitutional? No. It infringes the rule of uniformity of taxation.

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Nature:Appeal from a judgment of the CFI of Manila Ponente: Bautista Angelo, J.

Held & Ratio: 1. In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal corporation to impose tax on motor vehicles operating in any highway in the Philippines. The pertinent provisions are contained in section 70 (b) which provide in part: a. No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. . . . that under the above section no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refer to property tax as a different interpretation would make it repugnant to the Motor Vehicle Law. Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges." While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also been held that The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property

tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated according to the property used in such business, or on the gross receipts of the business. (37 C.J., 172) The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to. 2. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

Disposition: We hereby declare the ordinance null and void. Vote: Paras, C.J., Bengzon and Tuason, JJ., concur. Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result. -Wiggy

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4. As to the manner of computing the tax a. Ad valorem b. Specific WE WA YU v. CITY OF LIPA (Sept. 27, 1956) Doctrine: A tax which imposes a specific sum by the head or number, or some standard of weight or measurement, and which requires no assessment beyond a listing and classification of the objects to be taxed, is a specific tax. Date: September 27, 1956 Nature: Appeal from judgment of CFI Batangas Ponente: Bautista Angelo, J. Facts: 1. 2. We Wa Yu is the owner and manager of a gasoline station located in Lipa City where gasoline, kerosene, oil and the like are sold. City of Lipa passed Ordinance 457-A, as amended by Ordinance No. 462, which provides: a. There is hereby imposed a tax of one tenth (1/10) centavo per liter on the sale of gasoline and one-half (1/2) centavo per liter on the sale of alcohol, gas, petroleum, or all of any kindred type of combustible liquid made in any store or establishment by any person or entity within the City of Lipa. (emphasis added) We Wa Yu paid under protest the amount of P733.84 as taxes pursuant to said Ordinance. He brought the present action before the CFI of Batangas to recover the amount paid on the ground that the two Ordinances are ultra vires, imposing taxes that the LGU of Lipa has no power to impose. a. In its defense, Lipa City invokes Sec.15, paragraph (p) of RA 162, a.k.a. the Charter of the City of Lipa, which gives the Municipal Board the power to tax, fix the license fee for, regulate the businessof oil, gasoline,petroleum or any of the products thereof CFI: Tax imposition is ultra vires. Hence, this appeal to the Supreme Court.

2.

Dispositive: Decision appealed from is AFFIRMED. Voting: 9-0 Resolution on MR: Decision above is REVERSED. Grounds: On June 14, 1956, Congress enacted RA 1435, allowing Municipal Councils to levy an additional tax of not exceeding twenty-five per cent of the rates fixed in Sec.142 and 145 of the NIRC, on manufactured oils sold or distributed within the limits of the city or municipality Municipal taxes levied on gasoline, etc. were ratified and declared valid by Sec. 4 of said Act. Revenue acts, retroactively applied, are not open to the objection that they infringe upon the due process of law clause of the Constitution. Hence, the Decision appealed from is reversed. -Sandy 5. As to graduation or rate a. Proportional b. Progressive TOLENTINO v. SEC. OF FINANCE October 30, 1995 DOCTRINE: The Constitution does prohibit the imposition of indirect taxes which, like the VAT, are regressive. The constitutional provision has been interpreted to mean simply that "direct taxes are to be preferred and as much as possible, indirect taxes should be minimized."

3.

4.

Issue: Do the ordinances impose merely a tax on the business of selling and storing oil, gasoline, or petroleum, or a specific tax on the article therein enumerated? If tax on business tax in question can be imposed by City of Lipa If specific tax beyond the powers of City of Lipa Held: It is a specific tax. 1. From RA 162, City of Lipa is given the power and authority: (1) to tax, (2) to fix the license fee for, (3) to regulate the business, and (4) to fix the location of the storage and sale of oil, gasoline and the like. Its power is to impose a tax, among others, on the business of selling oil, gasoline, etc. It does not possess the power to impose a tax on specific articles which may take the form of a specific tax.

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A tax which imposes a specific sum by the head or number, or some standard of weight or measurement, and which requires no assessment beyond a listing and classification of the objects to be taxed, is a specific tax. b. The tax in question is imposed by some standard of weight or measurement and not regardless of it. Thus the tax imposed is 1/10 centavo per liter for sale of gasoline and centavo per liter on the sale of alcohol, gas or petroleum It is in the sense that the tax on manufacture of oils and other fuels is imposed by the NIRC a power that belongs to the NG and not the LGU. A municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. The charter or statute must plainly show an intent to confer that power or the municipality cannot assume it. And the power when granted is to be construed strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power must be resolved against the municipality. Inferences, implications, deductionsall thesehave no place in the interpretation of the taxing power of municipal corporations. (Citing Icard v. City Council of Baguio and Medina et al. v. City of Baguio)

a.

NATURE: reconsideration of our decision dismissing the petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716 PONENTE: Mendoza FACTS: 1. Petitioners claim that R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI, Sec. 24 of the Constitution. o Among the petitioners are the IBP, several publishing houses and printing presses,, and other book sellers. o H. No. 11197 was filed in the House of Representatives where it passed three readings and that afterward it was sent to the Senate where after first reading it was referred to the Senate Ways and Means Committee; o However, they complain that the Senate did not pass it on second and third readings. Instead what the Senate did was to pass its own version (S. No. 1630) Petitioner adds that what the Senate committee should have done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of S. No. 1630. TOPICAL ISSUE (Progressive Taxation): 1. Is VAT unconstitutional for being a regressive system of taxation? NO. OTHER ISSUESISSUES: 2. Was the bill properly passed through Senate? YES. 3. Does the bill suppress press freedom and religious liberty by removing the tax exception? NO. 4. Is the tax on the press a form of taxation on constitutionally guaranteed freedom, thus unconstitutional? NO. RATIO: 1. Petitioners (CREBA, Cooperative Union of the Philippines, Inc., and Juan David) argue that the law contravenes the mandate of Congress under Art. VI 28(1) which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation" because the law imposes a flat rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay. o Equality and uniformity of taxation means that all taxable articles or kinds of property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons, forms and corporations placed in similar situation. o The Constitution does prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has been interpreted to mean simply that "direct taxes are to be preferred and as much as possible, indirect taxes should be minimized." o Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the o

law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions while granting exemptions4 to other transactions. The transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups. These include real properties held primarily for sale to customers or for lease in the ordinary course of trade or business, the right or privilege to use patent, copyright, and other similar property or right, the right or privilege to use industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television, satellite transmission and cable television time, hotels, restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services of franchise grantees of telephone and telegraph.

AS TO THE OTHER ISSUES: 2. The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions during the Eighth Congress, the Senate passed its own version of revenue bills, which, in consolidation with House bills earlier passed, became the enrolled bills. o The enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of its power to propose amendments to bills required to originate in the House, passed its own version of a House revenue measure. While Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, " but the Senate may propose or concur with amendments." As petitioner Tolentino states in

The following are the exemptions: (a) Goods for consumption or use which are in their original state (agricultural, marine and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the manufacture of feeds). (b) Goods used for personal consumption or use (household and personal effects of citizens returning to the Philippines) and or professional use, like professional instruments and implements, by persons coming to the Philippines to settle here. (c) Goods subject to excise tax such as petroleum products or to be used for manufacture of petroleum products subject to excise tax and services subject to percentage tax. (d) Educational services, medical, dental, hospital and veterinary services, and services rendered under employer-employee relationship. (e) Works of art and similar creations sold by the artist himself. (f) Transactions exempted under special laws, or international agreements. (g) Export-sales by persons not VAT-registered. (h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
4

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a high school text, a committee to which a bill is referred may do any of the following: o (1) to endorse the bill without changes; o (2) to make changes in the bill omitting or adding sections or altering its language; o (3) to make and endorse an entirely new bill as a substitute, in which case it will be known as a committee bill; or o (4) to make no report at all. o Petitioners' basic error is that they assume that S. No. 1630 is an independent and distinct bill. Because the Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the Senate on second and three readings. The press is not exempt from the taxing power of the State and that what the constitutional guarantee of free press prohibits are laws which single out the press or target a group belonging to the press for special treatment or which in any way discriminate against the press on the basis of the content of the publication, and R.A. No. 7716 is none of these. o Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses have long ago been subject. o Other exemptions from the VAT, such as petroleum concessionaires, enterprises registered with the Export Processing Zone Authority, and many more are likewise withdrawn in an effort to broaden the base of the tax. Petitioners are claiming it does not really matter that the law does not discriminate against the press because "even nondiscriminatory taxation on constitutionally guaranteed freedom is unconstitutional citing the US case of Murdock v. Pennsylvania: o The fact that the ordinance is "nondiscriminatory" is immaterial. The protection afforded by the First Amendment is not so restricted. A license tax certainly does not acquire constitutional validity because it classifies the privileges protected by the First Amendment along with the wares and merchandise of hucksters and peddlers and treats them all alike. Such equality in treatment does not save the ordinance. Freedom of press, freedom of speech, freedom of religion are in preferred position. However, The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the exercise of its right. o As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon." o The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or

subject it to general regulation is not to violate its freedom under the Constitution.

DISPOSITIVE: the motions for reconsideration are denied with finality and the temporary restraining order previously issued is hereby lifted. -David (edited from Ices digest) ABAKADA GURO PARTY LIST vs. ERMITA (September 1, 2005)

3.

Nature: Petition for review on certiorari of a decision of the Court of Appeals Ponente: Austria-Martinez J. Facts: Congress enacted RA 9337 which amended some sections of the Internal Revenue Code. o The 10% VAT rate would be retained until certain conditions arise i.e., (1) the value-added tax collection as a percentage of gross domestic product (GDP) of the previous year exceed 2 4/5%, and (2) National Government deficit as a percentage of GDP of the previous year exceed %. Upon fulfillment of the conditions, the President, upon recommendation of the Secretary of Finance shall raise the rate of VAT to 12%. o The VAT imposed on electricity generation, transmission, and distribution companies and the VAT imposed on the sale of petroleum products cannot be passed on to the consumers. In short, the no pass on provisions were deleted. o The amount of input tax that may be credited against the output tax is limited. The Bill provided the amount of limitation on input tax credits and the manner of computing the same by providing: (A) Creditable Input Tax. . . . Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the estimated useful life of the capital good is less than five (5) years,

4.

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Doctrine: The principle of progressive taxation has no relation with the VAT system. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and as much as possible, indirect taxes should be minimized.

as used for depreciation purposes, then the input VAT shall be spread over such shorter period: . . . (B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, . . . o Further amendments to provisions of the NIRS on corporate income tax, franchise, percentage, and excise taxes. Petitioners contend that the limitation on the creditable input tax-output tax ratio is anything but regressive. It claimed that the smaller business with higher input tax-output tax ratio that will suffer the consequences.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4 amending 103 of the NIRC) Disposition: All things considered, there is no raison detre for the unconstitutionality of RA 9337. -Dana CHAVES vs. ONGPIN (June 6, 1990) DOCTRINE: to continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. NATURE: Petition seeking to declare unconstitutional Executive Order No. 73 providing for the collection of real property taxes; PONENTE: Medialdea, J. Notes:(this is a supra so I used ice's previous digest cuz it was really good na, couldnt have made one better but to clear some stuff up, here are my notes on the matter. Now the material issue for our purposes is the property valuation on which the Property taxes are going to depend on) Property taxes are assesed based on the assesed value of the property, but properties become more valuable over time, thus PD 464 was enacted to make new assesments of property values once every 5 years for tax valuation purposes. Again this is because lands appreciate over time and as it appreciates, the taxes must also appreciate with it. Now, at the time of this case, the 1984 property values were just recently completed and so they were still using the 1976 property valuations to assess taxes. A prior EO stated that the 1984 valuations will be used starting on Jan 1, 1988. However, EO 73 was issued which accelerated the application of the general revision of assessments to January 1, 1987. - Kester FACTS: The petitioner is a taxpayer and an owner of three parcels of land and is claiming that Executive Order No. 73 accelerated the application of the general revision of assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by 100% to 400% on improvements, and up to 100% on land; o Chavez argues that the unreasonable increase in real property taxes by E.O. No. 73 amounts to a confiscation of property repugnant to the constitutional guarantee of due process; The intevenors, Realty Owners Association of the Philippines, claim that Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional

Issues (relevant to the topic): WON the limitation on the creditable input tax-output tax ratio is regressive. NO Held: The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or businesses with low-profit margins that is always hardest hit. Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation. The Court said in the Tolentino case: The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art. VI, 28 (1) was taken. Sales taxes are also regressive.

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one percent (1%) tax on all property owners to raise funds for education, as real property tax is admittedly a local tax for local governments; ISSUES: 1. Does the constitutional attack on EO 73 have legal basis? NO. 2. Does the tax amount to a confiscation of property? NO. RATIO: 1. The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against said decree. 2. Executive Order No. 73 merely fixed the problem of collecting taxes based on previous valuations. The government recognized the financial burden to the taxpayers resulting from an increase in real property taxes. Executive Order No. 1019 was issued on April 18, 1985, deferring the implementation of the increase in real property taxes resulting from the revised real property assessments, from January 1, 1985 to January 1, 1988. The issuance of Executive Order No. 73 which changed the date of implementation of the increase in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive Order No. 1019, since the deferment deprived the local government units of an additional source of revenue; Without Executive Order No. 73, the basis for collection of real property taxes win still be the 1978 revision of property values. To continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. o Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. DISPOSITIVE: The petition and the petition-in-intervention are hereby DISMISSED. -Kester c. Regressive H. Some Fundamental Doctrines in Taxation 1. Situs of Taxation a. Meaning of situs of taxation b. Situs of subjects of taxation

Commissioner of Internal Revenue v. British Overseas Airways COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents. (April 30, 1987) NOTES: Kind of Tax Involved: Income Tax a direct tax on the income of persons or other entities. DE LEON: Income Tax is a tax on the net income or the entire income realized in one taxable year. It is levied upon corporate and individual incomes in excess of specified amounts, less certain deductions and/or specified exemption in cases permitted by law. Where was income tax imposed? On the ticket sales of British Airways made in the Philippines, which was coursed through their local agents and not on the actual exercise of transportation (which would have been an excise tax). An issue was raised, however, that the tax assessment was ACTUALLY a common carriers excise tax, which is a tax on transporting or removing passengers and cargo from one place to another. But, the main decision reiterated that the tax in this case is on the income derived from the ticket sales made in the Philippines. The distinction is important because, while excise tax may only be collected where the services or activities were performed, income tax is collected on whatever source derived in the Philippines. DOCTRINE: NATURE: Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax Appeals (CTA), which set aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation PONENTE: MELENCIO-HERRERA, J.: FACTS: 9. BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is engaged in the international airline business. 10. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and necessity. 11. Consequently, it did not carry passengers and/or cargo to or from the Philippines. 12. Although during the period covered by the assessments, it maintained a general sales agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering passengers and cargoes. 13. First CTA Case Petitioner (CIR, for brevity) assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963 and subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79.

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ISSUES: (1) Whether or not during the fiscal years in question BOAC is a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines. (2) Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable. HELD/RATIO/RULING: (1) It is our considered opinion that BOAC is a resident foreign corporation. Under Section 20 of the 1977 Tax Code: (h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization, such as the appointment of a local agent, and not one of a temporary character BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines that was engaged in activities that were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. (See enumeration p. 405 last par.) In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period covered by the assessments.

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BOAC paid this new assessment under protest. BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR. 14. Second CTA Case BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise penalties for the requirement to file corporate returns. BOAC's request for reconsideration was denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971. 15. CTAs DECISION: Reversed CIR MAIN POSITION: The CTA position was that income from transportation is income from services so that the place where services are rendered determines the source. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, These do not constitute BOAC income from Philippine sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines" Therefore, said income is not subject to Philippine income tax.

Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines.

(2) RESPONDENTS CONTENTION: Income derived from transportation is income for services, with the result that the place where the services are rendered determines the source since BOAC's service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws COURTS RULING: Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines. The Tax Code "Gross income" as gains, profits, and income derived from x x x business, commerce, sales, or x x x transactions of any business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3] o The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words 'income from any source whatever' disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws." The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. o In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. o The tickets exchanged hands here and payments for fares were also made here in Philippine currency. o The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. o And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines. It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. o For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed on their income from Philippine sources. The 2- % tax on gross Philippine billings is an

income tax. If it had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business. RESPONDENTS LAST CONTENTION Cites JAL v. CIR: that the mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax. COURTS RULING: The subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source." The common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. It purports to tax the business of transportation. Being an excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. The tax in this case is imposed on the income not the activity of transportation. DISPOSITION: VOTE: EN BANC; Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur. Fernan, J., took no part; Feliciano, Narvasa, Gutierrez, Jr., and Cruz, JJ., dissent. CONCURRING/DISSENTING OPINION (I tried to summarize the dissent as much as I could and this is the best I can do. She likes Feliciano kasi di ba so I dont know how detailed this should be. In case of doubt read the original na lang. Especially in No. 3, medyo interrelation of tax provisions yun kung paano sya nagarrive sa conclusions nya which would make this digest super long if I dont cut it. also, I dont think Teehankees dissent would matter just because he pointed out na dahil sa baging PD na naissue rendered moot na ang conflict of interpretation ng dalawang justices.): FELICIANO, J., dissenting: 1. Whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it is liable to income tax only to the extent that it derives income from sources within the Philippines. The circumtances that a foreign corporation is resident in the Philippines yields no inference that all or any part of its income is Philippine source income. Similarly, the non-resident status of a foreign corporation does not imply that it has no Philippine source income. Conversely, the receipt of Philippine source income creates no presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present purposes, is thereforewhether of not BOAC is deriving income from sources within the Philippines. 2. For purposes of income taxation, it is well to bear in mind that the "source of income" relates not to the physical sourcing of a flow of money or the physical situs of payment but rather to the "property, activity or service which produced the income." 3. We turn now to the question what is the source of income rule applicable in the instant case. There are two possibly relevant source of income rules that must be 4. -

confronted; (a) the source rule applicable in respect of contracts of service; and (b) the source rule applicable in respect of sales of personal property. Where a contract for the rendition of service is involved, the applicable source rule may be simply stated as follows: the income is sourced in the place where the service contracted for is rendered: Section 37. Income for sources within the Philippines: (a) Gross income from sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: (3) Services. Compensation for labor or personal services performed in the Philippines;... (Emphasis supplied) It should be noted that the portion of Section 37 (e) was derived from the 1939 U.S. Tax Code which "was based upon a recognition that transportation was a service and that the source of the income derived therefrom was to be treated as being the place where the service of transportation was rendered. o Section 37 (e) of the Tax Code quoted above carries a strong wellnigh irresistible, implication that income derived from transportation or other services rendered entirely outside the Philippines must be treated as derived entirely from sources without the Philippines. The appropriate characterization, in my opinion, of the BOAC transactions is that of entering into contracts of service, i.e., carriage of passengers or cargo between points located outside the Philippines. The phrase "sale of airline tickets," while widely used in popular parlance, does not appear to be correct as a matter of tax law. The airline ticket in and of itself has no monetary value, even as scrap paper. The value of the ticket lies wholly in the right acquired by the "purchaser" the passenger to demand a prestation from BOAC, which prestation consists of the carriage of the "purchaser" or passenger from the one point to another outside the Philippines. The ticket is really the evidence of the contract of carriage entered into between BOAC and the passenger. The money paid by the passenger changes hands in the Philippines. But the passenger does not receive undertaken to be delivered by BOAC. The "purchase price of the airline ticket" is quite different from the purchase price of a physical good or commodity such as a pair of shoes of a refrigerator or an automobile; it is really the compensation paid for the undertaking of BOAC to transport the passenger or cargo outside the Philippines. The very existance of "source rules" specifically and precisely applicable to the rendition of services must preclude the application here of "source rules" applying generally to sales, and purchases and sales, of personal property which can be invoked only by the grace of popular language. On a slighty more abstract level, BOAC's income is more appropriately characterized as derived from a "service", rather than from an "activity" (a broader term than service and including the activity of selling) or from the here involved is income taxation, and not a sales tax or an excise or privilege tax. -David

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Wells Fargo Bank and Union Trust Co. v. CIR Wells Fargo Bank and Union Trust Co., petitioner, vs. Commissioner of Internal Revenue, respondent. (June 28, 1940) NOTES: Kind of Tax Involved: Inheritance Tax Question involved is whether non-resident who died in California owning stocks in Philippine corporation, whose estate was already subjected to California inheritance tax, is also subject to Philippine inheritance tax? Held: Yes. DOCTRINE: The actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The certificates of stock remained in the Philippines up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the corporation, to whom they have been delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner thereof. The owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. NATURE: Appeal from a declaratory judgment by CFI of Manila PONENTE: Moran, En Banc FACTS: 1. Lillian Eye died on 16 September 1932, at Los Angeles, California, the place of her alleged last residence and domicile. 2. Among the properties she left was her 1/2 conjugal shares of stock in the Benguet Consolidated Mining Co., an anonymous partnership (sociedad anonima), organized under the laws of the Philippines with principal office in Manila. 3. She left a will duly admitted to probate in California where her estate was administered and settled. Wells Fargo bank and Union Trust Co. was duly appointed trustee of the trust by the said will. 4. The Federal and California States inheritance taxes due thereon have been duly paid. The Collector of Internal Revenue in the Philippines, however, sought to subject the shares of stock to inheritance tax, to which Wells Fargo objected. 5. And so the petition for declaratory judgment in the CFI. CFI of Manila: The transmission by will of said 35,000 shares of stock is subject to Philippine inheritance tax. 6. Hence, petitioner appealed to SC. Petitioners Contention: Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by inheritance, and (2) that as to real and tangible personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in some way, dependent, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes place under his domiciliary laws.

Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco) Petitioner, however, invokes the rule laid down by the United States Supreme Court in four cases (Farmer Loan & Trust Co. v. Minnesota, etc.). (Basically, he invoked the ruling of US SC in earlier cases that SC found to have been overturned by later cases. So petitioner was citing overturned doctrine) ISSUES: (1) Whether the shares of stock are subject to Philippine inheritance tax considering that the decedent was domiciled in California. HELD &RATIO: (3) Yes. Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and such situs is in the domicile of the decedent at the time of his or her death. But the rule has been relaxed. The maxim mobila sequuntur personam, upon which the rule rests, has been decried as a mere fiction of law having its origin in considerations of general convenience and public policy, and cannot be applied to limit or control the right of the State to tax property within its jurisdiction and must yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so would result in inescapable and patent injustice. The relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties, and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. Herein, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. The certificates of stock remained in the Philippines up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the corporation, to whom they have been delivered and indorsed in blank. McKee had the legal title to the certificates of stock held in trust for the true owner thereof. The owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. COURTS RULING: Shares of stock subject to Philippine income tax DISPOSITION: Appeal of the petition for declaratory relief denied. Costs against petitioner. VOTE: Avancena, Imperial, Diaz and Concepcion concur. -Ann

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TAN v. DEL ROSARIO October 3, 1994 DOCTRINE: The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non resident aliens and foreign corporations to income tax on their income from Philippine sources). NATURE: Two consolidated special civil actions for prohibition PONENTE: Vitug, J. FACTS/HELD (for non-tax issues) G.R. No. 109289 Petitioners, claiming to be taxpayers adversely affected by the continued implementation of the amendatory legislations, seek a declaration of unconstitutionality of RA7496 (also known as Simplified Net Income Taxation) due to violation of the following constitutional provisions: Article VI, Section 26(1); Article VI, Section 28(1); Article III, Section 1. G.R. No. 109446 The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. PET: The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships. ISSUE: WON respondents have exceeded their authority in promulgating Section 65, Revenue Regulations No. 2-93, to carry out RA 7496. NO HELD: A general professional partnership is not itself an income taxpayer. Income tax is imposed not on the partnership (which is tax exempt), but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Sec. 23 of the Tax Code states: Section 23. Tax liability of members of general professional partnerships. (a) persons exercising a common profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the net profits of the general professional partnership to which any taxable partner would be entitled whether distributed or
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otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title. (b) In determining his distributive share in the net income of the partnership, each partner (1) shall take into account separately his distributive share of the partnerships income, gain, loss, destruction, or credit to the extent provided by the pertinent provisions of this Code, (2) shall be deemed to have elected the itemized deductions, unless he declares his distributive share of the gross income undiminished by his share of the deductions. There is no distinction in income tax liability between a person who practices his profession alone and one who does it through partnership with others in the exercise of a common profession. The law must be understood as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the NIRC. The phrase income taxpayers is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement; and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income). In the case, SNIT is not envisioned by the Congress to cover corporations or partnerships which are independently subject to the payment of income tax. DISPOSITION: WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. VOTING: En Banc. All concur (save for 2 on leave) **I just modified the digest originally made by Jenin acc to the topic it was cited under. -Barbie

Sec. 6. General Professional Partnership. The general professional partnership (GPP) and the partners comprising the GPP are covered by RA 7496. This, in determining the net profit of the partnership, only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross income.

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c. Multiplicity of Situs THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the COURT OF TAX APPEALS, respondents. (January 6, 1958) EN BANC MONTEMAYOR, J. DOCTRINE: At the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile, and that the two were used intercnangeabiy. Miller had his residence or domicile in Santa Cruz, California. During his stay in the country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time, . . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 100

ESTATE TAX: A tax levied on the net value of the estate of a deceased person before distribution to the heirs. FACTS: Miller was an American citizen born in Santa Cruz, California in 1883. He moved to the Philippines in 1905 and had numerous jobs in the Philippines. He was a public school teacher and a division superintendent from 1906-1917. He held an executive position in the local branch of Ginn & Co, Book publishers with principal offices at New York and Boston In or about the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller. Miller also used to visit his wife. He never lived in any residential house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At the time of his death in 1944, Miller owned numerous personal and real properties of which only shares of stock of a Philippine Corp was located in the Philippines6 In both the testate proceedings instituted before the Court of California in Santa Cruz County and in the CFI found that Miller was a resident of Santa Cruz, California, at the time of his death.

6 Real Property situated in Ben-Lomond, Santa Cruz, California valued at ...................................................................... P 5,000.00 Real property situated in Burlingame, San Mateo, California valued at ........................................................................................ 16,200.00 Tangible Personal property, worth............................................. 2,140.00 Cash in the banks in the United States.................................... 21,178.20 Accounts Receivable from various persons in the United States including notes ............................................................... 36,062.74 Stocks in U.S. Corporations and U.S. Savings Bonds, valued at ........................................................................................ 123,637.16 Shares of stock in Philippine Corporations, valued at .......... 51,906.45

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The Bank of America, National Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes. The Collector assessed estate and inheritance taxes,The estate of Miller protested the assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. De Lara as ancilliary administrator protested to the Board of Tax Appeals which reached the CTA These are two separate appeals, one by the CIR and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller from the decision of the CTA on June 25, 1955 which modified the assesment for estate and inheritance taxes upon the estate of the decedent Hugo H. Miller. Miller ordered to pay the amount of P2,047.22 representing estate taxes due, together with the interests and other increments. In case of failure to payw/in 30 days. 5% surcharge + corresponding interest due shall be paid as a part of the tax. CIR appeals because only the shares issued by the Philippine Corp is included in the computation De Lara appeals because he invokes the provisions of Republic Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation and Sec. 122 of the Tax Code which provides that: a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country.

RATIO: In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death. CIR: That under the tax laws, residence and domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident and non-resident, that Miller during his long stay in the Philippines had required a "residence" in this country, and his intangible personal properties situated here as well as in the United States were subject to said taxes. Ancilliary Administrator: agrees that domicile = residence

We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his stay in the country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. 2. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time, . . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtains- protection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the right to collect the estate and inheritance taxes

ISSUES: 1.W/N: Miller is a resident of the Philippines 2.W/N: Personal Property in the Philippinesshould be included in the gross estate to be taxed even if the docrtine of mobilia secuuntur persona (common law doctrine: personal property is governed by the law of that person) exists. 3.W/N: the estate was excempted from being taxed of intangible personal propertybecause of sec. 122 of the tax code? (other excemptions/deductions are also mixed with this issue) (sub issue na baka magtanong siya, ewan) HELD: 1.He is a resident of the U.S. 2.Yes. 3.Yes.

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We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without distinction. Moreover, there is reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system.

cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 3. The Ancilliary Administrator bases his claim of exemption on (a) the exemption of nonresidents from the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows: SEC. 6. The following exemption from the tax are hereby allowed: xxx xxx xxx.

Administrator invokes the provisions of Republic Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests and other increments provided in the appealed judgment should not be paid by his estate.

DISPOSITIVE: With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it unnecessary to pass upon the other points raised in the appeal. No costs. -Jamie CIR v. JULIANE BAIER-NICKEL (Aug. 29, 2006) DOCTRINE: "Source/situs of income" relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. There is therefore no merit in petitioners interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the income. NATURE: PONENTE: Ynares-Santiago, J. FACTS: 1. Respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic corporation engaged in [m]anufacturing, marketing on wholesale only, buying or otherwise acquiring, holding, importing and exporting, selling and disposing embroidered textile products. Through JUBANITEXs General Manager, Marina Q. Guzman, the corporation appointed and engaged the services of respondent as commission agent. It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts. 2. In 1995, respondent received the amount of P1,707,772.64, representing her sales commission income from which JUBANITEX withheld the corresponding 10% withholding tax amounting to P170,777.26, and remitted the same to the BIR. On October 17, 1997, respondent filed her 1995 income tax return reporting a taxable income of P1,707,772.64 and a tax due of P170,777.26. On April 14, 1998, respondent filed a claim to refund the amount of P170,777.26 alleged to have been mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent contended that her sales commission income is not taxable in the Philippines because the same was a compensation for her services rendered in Germany and therefore

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is a resident of a State or Territory of the United States or a foreign state or country which at the time of his death imposed a legacy, succession of death tax in respect of intangible personal property within the State or Territory or foreign state or country of residents of the States or Territory or foreign state or country of residence of the decedent at the time of his death contained a reciprocal provision under which non-residents were exempted from legacy or succession taxes or death taxes of every character in respect of intangible personal property providing the State or Territory or foreign state or country of residence of such non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of residence of such decedent. Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the burden of multiple taxation. As regards the exemption or reduction of P4,000 based on the reduction under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows: SEC. 85. Rates of estate tax.There shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of the following percentages of the value of the net estate determined as provided in sections 88 and 89: One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed ten thousand pesos;. . . It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other increments. Said Ancilliary

3.

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considered as income from sources outside the Philippines. She filed a petition for review with the CTA. 4. CTA: claim denied. the commissions received by respondent were actually her remuneration in the performance of her duties as President of JUBANITEX and not as a mere sales agent thereof. The income derived by respondent is therefore an income taxable in the Philippines because JUBANITEX is a domestic corporation. CA: reversed CTA decision. respondent received the commissions as sales agent of JUBANITEX and not as President thereof. And since the source of income means the activity or service that produce the income, the sales commission received by respondent is not taxable in the Philippines because it arose from the marketing activities performed by respondent in Germany.

United States Government is that income which is created by activities and property protected by this Government or obtained by persons enjoying that protection. The important factor which determines the source of income of personal services is the place where the services were actually rendered. The Court reiterates the rule that "source of income" relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income. There is therefore no merit in petitioners interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the income. As to the merits of the case: The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the taxpayer. To those therefore, who claim a refund rest the burden of proving that the transaction subjected to tax is actually exempt from taxation. In this case, respondent presented no contracts or orders signed by the customers in Germany to prove the sale transactions therein. Documents which she allegedly faxed to JUBANITEX and bearing instructions as to the products to her clients do not show whether the instructions or orders faxed ripened into concluded or collected sales in Germany. Neither did she establish reasonable connection between the orders/instructions faxed and the reported monthly sales purported to have transpired in Germany. respondent presented no evidence to prove that JUBANITEX does not sell embroidered products in the Philippines and that her appointment as commission agent is exclusively for Germany and other European markets. In sum, we find that the faxed documents presented by respondent did not constitute substantial evidence. She thus failed to discharge the burden of proving that her income was from sources outside the Philippines and exempt from the application of our income tax law. Hence, the claim for tax refund should be denied. (adapted from Barbies digest) -Jenin

5.

Arguments: Petitioner: the income earned by respondent is taxable in the Philippines because the source thereof is JUBANITEX, a domestic corporation located in the City of Makati; source of income means the physical source where the income came from; since respondent is the President of JUBANITEX, any remuneration she received from said corporation should be construed as payment of her overall managerial services to the company and should not be interpreted as a compensation for a distinct and separate service as a sales commission agent. Respondent: the income she received was payment for her marketing services; income of nonresident aliens like her is subject to tax only if the source of the income is within the Philippines; source is the situs of the activity which produced the income and since the source of her income were her marketing activities in Germany, the income she derived from said activities is not subject to Philippine income taxation. ISSUE: WON respondents sales commission income is taxable in the Philippines HELD: YES Pursuant to the Sec. 25 of the NIRC, non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of nonresident aliens is the incomes source. The intention of Congress in the 1916 and subsequent statutes was to make the test of taxability the "source," or situs of the activities or property which produce the income. The result is that, on the one hand, nonresident aliens and nonresident foreign corporations are prevented from deriving income from the United States free from tax, and, on the other hand, there is no undue imposition of a tax when the activities do not take place in, and the property producing income is not employed in, this country. Thus, if income is to be taxed, the recipient thereof must be resident within the jurisdiction, or the property or activities out of which the income issues or is derived must be situated within the jurisdiction so that the source of the income may be said to have a situs in this country. The underlying theory is that the consideration for taxation is protection of life and property and that the income rightly to be levied upon to defray the burdens of the

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