BIR Ruling

June 8, 1976 Mr. Roberto C. Angeles 1151 E. de los Santos Ave. Quezon City S i r : In reply to your letter dated May 13, 1976, I have the honor to inform you that the costs of cloth, collar lining (Sanforized), collar bone made of plastic, buttons made of plastic, thread, plastic bag, box and back cardboard which are subject to the 7% sales tax under Section 186 of the Tax Code and which are used as raw material in the manufacture of your T-shirt product are deductible from the gross selling price thereof. However, the cost of labels (woven) which is also used in the manufacture of the aforesaid product is deductible only if said labels are purchased from a manufacturer who pays the 7% sales tax on the sale thereof. If the woven labels are purchased from tailorshops or dress shops, the cost thereof is not deductible from the gross selling price of the manufactured product because proprietors of tailorshops or dress shops are subject to the 3% contractor's tax and not to the sales tax. Under the law, only the cost of articles subject to the sales tax may be deducted from the gross sales of the finished articles. (See Section 186, Tax Code). Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3