BIR Ruling

October 16, 1969 Messrs. Gonzalo Alcantara & Nestor Muoz Specific Tax Zone No. 13 Bureau of Internal Revenue Cebu City Gentlemen : This refers to your telegram dated September 18, 1969 requesting Information as to whether or not a non-profit organization is exempt from payment of B-licenses on its sale of imported liquor, beer and cigarettes. In reply, please be informed that a civic, social, fraternal, non-profit organization duly incorporated under the laws of the Philippines which sells liquor, beer, cigarettes, etc. to its members and their guests on a limited scale in pursuance only of its general purpose as a fraternal, social or civic club is considered not engaged in business, and therefore, not liable to the payment of privilege taxes under the Tax Code. The fact that such person or persons (non-profit organization) sells imported articles subjected to specific taxes, like liquor and tobacco is immaterial in the determination of its tax liability. "In order that persons selling articles subject to specific taxes, like liquor and tobacco should be subjected to privilege taxes imposed by Section 193 (now Section 182) of the Tax Code, it is necessary that they be engaged in the 'business' of selling liquor and tobacco, otherwise the privilege taxes as a dealer of liquor and tobacco can not attach. The plain and ordinary meaning of 'business' is restricted to activities or affairs where profit is the purpose or livelihood is the motive. The term "business" being used without any qualification in Section 193 (now Section 182) of the Tax Code in relation to Section 178 of the same, should therefore be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood." (Collector of Internal Revenue vs. Manila Lodge No. 261 of the Benevolent & Protective Order of Elks and The Court of Tax Appeals, G.R. No. L-1176, June 29, 1959; Collector of Internal Revenue vs. J. N. Sweeney, A.O. Baigrie, and Ramon Burgas, G.R. No. L-12178, August 21, 1959; Collector of Internal Revenue vs. Club Filipino Inc. de Cebu, G.R. No. L-12719, May 31, 1962). aisadc Accordingly, where a social club was organized to develop and cultivate sports of all class and denomination. for the healthful recreation and entertainment of its stockholder and members; that upon its dissolution, its remaining assets after paying debts shall be donated to a charitable Philippine institution in Cebu; that it is operated mainly with funds derived from membership fees and dues that the clubs bar and restaurant catered only to its members and their guests that there was in fact no cash dividend distribution to its stockholders and that, whatever was derived on retail from its bar and restaurant was used to defray its overall overhead expenses and to improve its golf course (cost-plus-expenses-basis), it was held "that the club is not engaged in the business of an operator of bar and restaurant. The liability for fixed and percentage taxes as provided by Sections 182, 183 and 191, of the Tax Code does not ipso facto attach by mere reason of the operation of a bar and restaurant.. For the liability to attach the operator thereof must be engaged in the business as a barkeeper and restauranteur. The fact that the club derived profit from the operation of its bar and restaurant, does not necessarily convert it into a profit-making enterprise. The bar and restaurant are necessary adjuncts of the club to foster its purposes and the profits derived therefrom and necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment of the stockholders and members. (Collector of Internal Revenue vs. The Club Filipino Inc. de Cebu, G.R. No. L-12719, May 31, 1962, 62 G. R. 1377, See also Manila Polo Club vs. Meer, G.R. No. L-10854, January 27, 1960) Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue