BIR Ruling

October 12, 1973 Miss Rosalina A. Llantero Certified Public Accountant Rm. 309 Capt. Gonzaga Bldg. 414 Rizal Ave., Manila M a d a m : This refers to your letter dated September 4, 1973 stating that your client, Cool Air Philippines, Inc. is engaged in the business of selling car air conditioning units; that is maintains a shop for the repaid of car air conditioning units; that it maintains a spare part department which is independent of the repair shop and sells indiscriminately to the general public. For purposes of collection in case of purchase and installation, your client bills the customers a consolidated account indicating separately the cost of materials taken from the spare part department and the cost of labor as follows: cdtech Air conditioning unit (materials) P1,000.00 Installation charges 100.00 P1,100.00 On the basis of the foregoing facts, you would like to be informed of the following: 1. What is the basis of the 3% contractor's tax payable by the corporation with respect to the receipts of spare part department? 2. What taxes are payable by the corporation as far as the transactions made by the repair department and spare part department are concerned. In reply, I have the honor to inform you as follows: For maintaining a repair department, your aforesaid client is subject to the P50.00 annual fixed tax prescribed in Section 182(A)(1) of the Tax Code and its receipts derived therefrom is subject to the 3% contractor's tax prescribed in Section 191 of the same Code. However, it being represented that the spare part department is independent of the repair shop, selling spare parts to the general public and billing separately the cost of materials obtained from the spare parts department, the cost of such materials does not form part of the taxable receipts for purposes of the 3% contractor's tax. Thus, in the illustration above only the amount of P100.00 is subject to the 3% tax. If your client imports the car air conditioning units that is sells to the public, it is subject to the importer's P50.00 annual fixed tax prescribed in Section 182(A)(1) of the Tax Code and its importation of car air conditioning units, parts and accessories thereof shall be subject to the 40% advance sales tax, the tax to be based on the landed cost thereof plus 50% mark-up pursuant to Section 183 (b) in relation to Section 185-A, both of the Tax Code. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."