Progressive Devt vs QC

Facts: The City Council of QC passed an ordinance known as the Market Code of QC, which imposed
a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC.

In case of failure of the owners of the market spaces to pay the tax for three consecutive months, the
City shall revoke the permit of the privately-owned market to operate.

Progressive Development Corp, owner and operator of Farmers Market, filed a petition for prohibition
against QC on the ground that the tax imposed by the Market Code was in reality a tax on income, which
the municipal corporation was prohibited by law to impose.

Issue: Whether or not the supervision fee is an income tax or a license fee.

Held: It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily for
purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising
revenues.

If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition
is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also obtained does
not make the imposition a tax.

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

In this case, the Farmers Market is a privately-owned market established for the rendition of service to
the general public. It warrants close supervision and control by the City for the protection of the health
of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying
public, etc.

Since the purpose of the ordinance is primarily regulation and not revenue generation, the tax is a license
fee. The use of the gross amount of stall rentals as basis for determining the collectible amount of license
tax does not, by itself, convert the license tax into a prohibited tax on income.

Such basis actually has a reasonable relationship to the probable costs of regulation and supervision of
Progressives kind of business, since ordinarily, the higher the amount of rentals, the higher the volume
of items sold.

The higher the volume of goods sold, the greater the extent and frequency of supervision and inspection
may be required in the interest of the buying public.
 LORENZO vs. POSADAS JR.
G.R. No. L-43082

June 18, 1937

FACTS: Thomas Hanley died, leaving a will and a considerable amount of real and personal
properties. Proceedings for the probate of his will and the settlement and distribution of his estate were
begun in the CFI of Zamboanga. The will was admitted to probate.

The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the
real properties which, under the will, were to pass to nephew Matthew ten years after the two
executors named in the will was appointed trustee. Moore acted as trustee until he resigned and the
plaintiff Lorenzo herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue
(Posadas) assessed against the estate an inheritance tax, together with the penalties for deliquency in
payment. Lorenzo paid said amount under protest, notifying Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its recovery. Posadas overruled Lorenzos
protest and refused to refund the said amount. Plaintiff went to court. The CFI dismissed Lorenzos
complaint and Posadas counterclaim. Both parties appealed to this court.

ISSUE:

(e) Has there been delinquency in the payment of the inheritance tax?

HELD: The judgment of the lower court is accordingly modified, with costs against the plaintiff in
both instances

YES

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedents property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiary in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. A trustee is but an instrument or agent for the cestui que
trust
The appointment of Moore as trustee was made by the trial court in conformity with the wishes of the
testator as expressed in his will. It is true that the word trust is not mentioned or used in the will but
the intention to create one is clear. No particular or technical words are required to create a
testamentary trust. The words trust and trustee, though apt for the purpose, are not necessary. In
fact, the use of these two words is not conclusive on the question that a trust is created. To constitute
a valid testamentary trust there must be a concurrence of three circumstances:

(1) Sufficient words to raise a trust;

(2) a definite subject;

(3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing.

There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his
properties be kept together undisposed during a fixed period, for a stated purpose. The probate court
certainly exercised sound judgment in appointmening a trustee to carry into effect the provisions of the
will

As the existence of the trust was already proven, it results that the estate which plaintiff represents has
been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and
surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. On
that date trust estate vested in him. The interest due should be computed from that date.

NOTES: Other issues:

(a) When does the inheritance tax accrue and when must it be satisfied?

The accrual of the inheritance tax is distinct from the obligation to pay the same.

Acording to article 657 of the Civil Code, the rights to the succession of a person are transmitted
from the moment of his death. In other words, said Arellano, C. J., . . . the heirs succeed
immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the
moment of the death of the ancestor as completely as if the ancestor had executed and delivered to
them a deed for the same before his death.

Whatever may be the time when actual transmission of the inheritance takes place, succession takes
place in any event at the moment of the decedents death. The time when the heirs legally succeed to
the inheritance may differ from the time when the heirs actually receive such inheritance. Thomas
Hanley having died on May 27, 1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in
accordance with the desire of the predecessor. xx

SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the
property.

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his
share.

The instant case does[not] fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax
should have been paid before the delivery of the properties in question to Moore as trustee.

(b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the
testators death, or on its value ten years later?

If death is the generating source from which the power of the estate to impose inheritance taxes takes
its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax
vests instantly, the tax should be measured by the value of the estate as it stood at the time of the
decedents death, regardless of any subsequent contingency value of any subsequent increase or
decrease in value

(c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due
to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for his services. But from this it does not
follow that the compensation due him may lawfully be deducted in arriving at the net value of the
estate subject to tax. There is no statute in the Philippines which requires trustees commissions to be
deducted in determining the net value of the estate subject to inheritance tax

(d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-
payer be given retroactive effect?

A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . . Act No. 3606 itself contains no provisions indicating legislative intent to give
it retroactive effect. No such effect can be given the statute by this court.