BIR Ruling

August 24, 1970 2nd Indorsement Returned to the Chief, Audit Division, thru the Revenue Operations Head (Special Operations), the basic letter dated June 16, 1970 of Senior Revenue Examiner Artemio Reyes stating the following: "The second paragraph of Section 186 of the National Internal Revenue Code has been deleted by the provisions of the Omnibus Tax Law, so that sawmill owners or operators thereof are now subject to the sales tax prescribed in said section as manufacturers. Previous to the passage of the Omnibus Tax Law, sawmill owners or operators thereof were made to pay the sales tax (7%) based on 33-1/3% of their monthly purchases. cdt "What then would be the treatment on the log inventories as of September 1, 1969 of these sawmill owners or operators thereof when the log inventories are used as raw materials in the manufacture of lumber, when the 7% sales tax had already been paid on 33-1/3% of the monthly purchases? Will the sales taxes previously paid on 33-1/3% of the log purchases be credited to the sawmill owners or operators thereof in the computation of the sales tax due on taxable sales of manufacturers? Below is an example of such transactions, to wit: Total cost of logs inventory 8-31-69 P300,000.00 33-1/3% thereof 100,000.00 7% sales tax paid on above P7,000.00 Sales manufactured lumber Sept. 1969 P500,000.00 Raw materials used 300,000.00 Taxable sales P200,000.00 7% sales tax due thereon P14,000.00 "It should be taken into consideration that the 7% sales tax on the cost of logs purchased by the sawmill owners or operators thereof had already been paid by the concessioner and the sawmill operator paid an additional sales tax of 7% on 33-1/3% of the cost or the selling price of the concessioner, what now should the sawmill owner or operator thereof pay as the sales tax for the month of September, 1969? Shall it be P14,000.00 based on the taxable sales as shown above or only P7,000.00 after a tax credit of P7,000.00 paid as sales tax on his raw materials which constituted inventory as of September, 1, 1969?" In this connection, he is advised that owners or operators of sawmills who have already paid the 7% sales tax on 33-1/3% of the gross cost of logs purchased prior to September 1, 1969 (the date of effectivity of Republic Act No. 6110) are no longer subject to the sales tax on their sales of lumber produced from said logs, even if sawn and sold after September 1, 1969, payment of the sales tax on said lumber having been effected in accordance with the law then in force. (BIR Ruling No. 70-037, dated July 21, 1970). Thus, in the example given above, the sawmill operator whose sales of lumber (amounting to P500,000.00) for September 1, 1969 (out of logs purchased prior to September 1, 1969 for which the 7% sales tax based on the 33-1/3% of the gross cost thereof has already been paid) is no longer subject to the sales tax imposed in Section 186 of the Tax Code, as amended by Republic Act No. 6110. cdta CONRADO P. DIAZ Commissioner of Internal Revenue