BIR Ruling

February 17, 1967 Mr. Antonio Avacilla President, Avecilla Bldg. Corp. 2128 Lamayan St., Sta. Ana Manila S i r : This refers to your letter dated October 27, 1966 stating the following: "A", a general contractor contracts with "B" to construct its office building. "A" furnishes all materials for which amount he is reimbursed by "B". "B" pays the 5% contractor's tax on this amount received. However, in case of "extra work" to be done by "A", in which no agreement as to cost has been reached between "A" and "B" payment shall be done in accordance with the following provisions of the contract: cdt "G" 138 Extra and Force Account work G 138.1a For all labor teams, and foreman in direct charge of the specific operation, the Contractor shall receive the actual current local rate of wage, as evidenced by certified copies of the payrolls, for each and every hour said labor, teams, and foreman are actually engaged in such work to which shall be added in amount equal to 15% of the sum thereof The wages of any foreman who is employed partly on force account work and partly on other work shall be prorated between the two classes of work according to the number of men employed under the supervision of said foreman on each class of work." Query: Is the amount received by "A" from "B" in payment of the "extra work" under the force account basis subject to the 3% Contractor's Tax? In reply, I have the honor to inform you that based on the foregoing facts, this Office is of the opinion as it hereby holds that the amount received by "A" from "B" in payment of the extra work under the force account basis forms parts of the gross receipts of the contractor subject to the contractor's tax. cdll In this connection, we are also constrained to take cognizance of the representation that contractor "A" is reimbursed by contractee "B" for the cost of materials furnished and that "B" pays for the 3% on this amount. Please be informed that the cost of materials allegedly reimbursed as well as the 3% tax absorbed by the contractee also form part of the taxable gross receipts of "A". Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue