BIR Ruling

February 10, 1976 Mr. Angel C. Cabebe Certified Public Accountant 414 Bangoy St., Davao City S i r : This refers to your letter dated August 25, 1975 requesting opinion on the following: cdt "l. 'A' is a ship owner, a shipping company. 'B' is a shipping agent. 'B' leased or chartered from 'A' a boat or a ship for P100,000. 'C' a SAWMILL COMPANY from Luzon also leased or chartered from 'B' the same boat for P200,000. 'C' loaded the boat with logs from Mindanao to Manila. QUESTION What is the nature of the P200,000 collected by 'B' from 'C', is it freight income subject to the carrier tax of 2% or rent income? "2. X is engaged in the manufacture of furniture by order only. The license is a contractor subject to the 3% tax. QUESTION What is the basis of' the 3% tax, is it based on the gross sales or on the gross receipts or collection? Example During the quarter there is total sales of P100,000. During the quarter there is also a collection of P40,000. What is now the basis of the 3% tax, is it on the P100,000 or the P40,000? "3. Y is engaged in the manufacture of furniture. The license here is a manufacturer, no longer a contractor. QUESTION In computing the 7% tax what is the allowable deduction as cost of materials, is it 60%, 70% or 80% considering the high cost of materials? "4. For every 200 worth of shares of stock, a P0.50 documentary stamp is affixed on the stub of the original certificate of stock issued. Do we have to affix a corresponding P0.50 science stamp? acd In reply, I have the honor to inform you as follows: 1. The P200,000 derived by 'B' under the foregoing facts is a rental income, subject to the 3% tax prescribed in Section 191(17) of the Tax Code. 2. X, being a manufacturer of furnitures as represented in your letter, is not a contractor for internal revenue purposes. He remains a manufacturer of furniture. For although he manufactures furnitures only upon previous orders of his customers, such fact does not divest him of his character as a manufacturer. The rule is, unless an activity is covered by Section 191 of the Tax Code, one who manufactures articles, although upon a previous order and subject to the specifications of the buyer, constitutes the maker, nonetheless, a manufacturer. (See Celestino Co and Company vs. Collector, GR No. L-8506, August 31, 1956). Accordingly, the sale of X of furnitures is subject to the 7% sales tax prescribed in Section 186 of the Tax Code. 3. The total cost of raw materials used by Y in the manufacture of his furniture products, as duly established is deductible from the gross selling price of the finished products, provided, however, that the raw materials have been subjected to the same rate of tax as the finished products. However if the raw materials used in the manufacture of the furniture were subjected to the tax prescribed in Section 189 or are tax-free product as contemplated in Section 186-A the value of such raw materials shall also be deductible from the gross selling price of the finished products. Cost of raw materials is never deducted on a fixed percentage basis. 4. Your fourth query is answered in the affirmative. aisadc Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3