William C. Reagan v.

Commissioner of Internal Revenue

G.R. No. L-26379, December 27, 1969
Judge Fernando

Facts
William C. Reagan is a US citizen employed under the Bendix Radio, Division
of Bendix Aviation, a company that provides technical assistance to the US
Air Force. And on April 22, 1960, The petitioner imported a tax-free 1960
Cadillac car including its accessories that amounts to $6,443.83 which
includes the freight, insurance and other charges. July 11,1960, the
petitioner requested the Base Commander for a permission to sell the car
which was granted. And on the same day, the petitioner sold his car to
Private First Class Willie Johnson for the price of $6,600, the deal was
executed in the Clark Air Base. Eventually, on the same day, Johnson sold
the car to a Fred Meneses for P32,000. The Commission of Internal Revenue
saw the petitioner liable an income tax worth of P2,979.00 after deducting
the landed cost of the car and the petitioners personal tax exemption.
Reagan paid the said income tax but eventually demanded a refund claiming
that he is exempted of such tax because the transaction took place inside
the Clark Air Base which he presumed a foreign soil, therefore beyond our
jurisdiction; he filed a case against the CoIR demanding a refund including
the legal interest rate.

Issue
Main: Whether or not the petitioner will be given refund for the income tax
collected by the respondent due to a transaction that took place inside the
Clark Air Base
Topic related: whether or not Clark Air Base is still a Philippine Soil

Held
In May 12, 1966, the Court of Tax Appeals denied the demand of the
petitioner for a refund amounting P2,979.00, the income tax which the
petitioner paid, including costs against the petitioner. The reason for
which is based on the principle of auto-limitation: Philippine is a
sovereign country that has the capacity of self-determination and self-
restriction. Therefore, Ph have the power to exempt or impose taxes
supported by laws and agreements. To refute the petitioners claim, there
are no laws or any part of the Military Bases Agreement that supports it;
disproving his reason to get a refund. With all that being said, Clark Air
Base is still a Philippine soil even if the US Air Force leases it, giving
the country a power to impose tax on non-military related transactions.
Important words:

Auto-limitation: Sovereignty is the property of the state-force due to

which it has the exclusive capacity of legal self-determination and self-
restriction.

Express and Implied Powers: The powers granted to the national government
by the Constitution are of two types: express powers and implied powers.
Express powers are those explicitly and expressly mentioned in the
Constitution. Implied powers are those which can reasonably be assumed to
flow from express powers. For example, the Constitution expressly
authorizes the Congress to "coin Money [and] regulate the Value
thereof" (see Article I, Section 8). The formation of a national bank is an
implied power, one which is "necessary and proper for carrying into
Execution the foregoing Power." (American Govt)

Bendix Radio, Division of Bendix Aviation Corporation: employment

background of petitioner, a corporation provides technical assistance to
the United States Air Force. He was Assigned on July 7, 1957 at the Clark
Air Base, PH.

Obiter dictum: Words of an opinion entirely unnecessary for the decision of

the case. A remark made or opinion expressed by a judge in a decision upon
a cause, "by the way", that is, incidentally or collaterally, and not
directly upon the question before the court or upon a point not necessarily
involved in the determination of the cause, or introduced by way of
illustration, or analogy or argument. Such are not binding as precedent.

Military Bases Agreement: The Military Bases Agreement of 1947 (MBA) is a

joint agreement between the Philippines and the United States signed on
March 16, 1947. This treaty officially allowed the US to establish,
maintain and operate air and naval bases in the country. It provided for
about 23 listed bases and utilities for use by Americans for a period of 99
years. Most important of these bases were the 180,000 acres Clark Air Base
in Pampanga, the biggest American airbase outside of the continental USA;
and the Subic Naval Base in Zambales.