BIR Ruling

October 20, 1977 The Mabalacat Multi-Purpose Cooperative, Inc. Tabun, Mabalacat, Pampanga Attention: Mr . Leonardo T . Mendoza Special Assistant Gentlemen : This refers to your letter dated August 6, 1976 requesting exemption from the payment of the 2% miller's tax imposed by Section 189 of the Tax Code, in accordance with Section 48 of Act No. 3425, in relation to Presidential Decree No. 775. It appears from the documents submitted by you that the Mabalacat Multi-Purpose Cooperative, Inc., is a sugar cooperative marketing association organized under Act No. 3425, as amended, otherwise known as the "Cooperative Marketing Law"; that it was registered with the Agricultural Credit Administration on December 7, 1971 with Registry No. 703, with the Bureau of Commerce on December 15, 1971, and re-registered with the Sugar Quota Administration on December 11, 1975 in accordance with Presidential Decree No. 775. It also appears that the cooperative was organized by persons engaged in agricultural production such as landlords, tenants, lessors and lessees who are bonafide producers of agricultural products and therefore, may become members of that organization (Articles of Incorporation; Art. II, By-Laws); that it may handle the agricultural products of non-members for purposes of storage and disposition thereof (Sec. 4, Art. II, By-Laws; par. 10, Art. II, Article of Incorporation); that the main agricultural product delivered by the members to the cooperative is sugar cane, and secondarily, other food crops; and that among the purposes for which the cooperative is formed are: "1. To acquire, handle and market sugar, rice and other agricultural products produced by its members or any of the product derived therefrom; "2. To engage in any activity in connection with the production, harvesting, threshing, hauling, storing processing, marketing, selling, preserving drying, manufacturing, canning, packing grading, baling, handling, or utilization of any of the aforesaid products produced and delivered to it by members or in the manufacturing or marketing of the by-products thereof;" The Contract of Lease entered into by and between the LESSOR and that Cooperative as LESSEE also provides, among others, as follows: "5. That the LESSEE shall execute or enter into milling contracts with the sugar mills regarding the milling of the sugar cane to be planted in the leased premises for the period not exceeding the duration of this lease; "7. That the LESSEE shall cultivate and till the leased premises in accordance with the Cooperative Law, . . . ;" In the addendum to the said contract of lease, it is provided that the sugar cane produced from the leased premises is the exclusive property of that Cooperative. In the milling agreement entered into by and between the Pampanga Sugar Development Company (PASUDECO), Inc. and that Cooperative, it appears that it is that Cooperative which shares in the sugar produced. In other words, that Cooperative owns the sugar milled. As it appears that the Cooperative is registered with the Sugar Quota Administration pursuant to Section 4(1) of Presidential Decree No. 388, as amended by Presidential Decree No. 775, it is exempt from the payment of the merchant's sales tax, income tax and all other percentage taxes of whatever nature and description pursuant to Section 4(1) of the aforementioned law in relation to Section 48 of Act No. 3425, as amended by Republic Act No. 702. Accordingly, if after investigation, it is verified that the sugar cane that it caused to be milled into sugar are owned by the Cooperative and the resulting sugar thus milled is likewise owned by it, the share of that Cooperative in said sugar is exempt from the 2% tax. However, sugar milled from sugar cane belonging to planter-members of that Cooperative which is merely caused by that Cooperative to be milled in behalf of such planter-members is subject to the 2% tax. Very truly yours, CONRADO P. DIAZ Acting Commissioner of Internal revenue TAN-D2567-D1025-A-2 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."