BIR Ruling

December 11, 1974 Maasin Tailors Maasin, Southern Leyte Gentlemen : This refers to your telegram addressed to His Excellency, President Ferdinand E. Marcos requesting clarification whether a tailor shop which is registered with the NACIDA is exempt from the payment of fixed and percentage taxes. cdt In reply, I have the honor to inform you that although Section 11 of Republic Act No. 3470, as amended by Republic Act No. 5326 includes tailoring industries as among the cottage industries registerable with the NACIDA, however a tailor shop although registered with the NACIDA, which merely receives orders from customers for the sewing of a suit, pants, barong tagalog, shirt or the like and charges fees only for the service or labor of sewing, is not a cottage industry within the purview of Republic Act No. 3470, as amended. Consequently, it is subject to the payment of the fixed tax of P50.00 and the 3% contractor's tax imposed in Sections 182 (A)(1) and 191(11) both of the Tax Code, as amended by Presidential Decree No. 69. It should be noted that Republic Act No. 3470, as amended, includes within its purview only those engaged in the production, manufacture and sale of cottage industry products. In other words, the law covers industries engaged in the production, manufacture and sale of things and not of services. The tailor shop involved in this case is engaged in the sale of services. (BIR RULING No. 72-001 dated January 19, 1972) In this connection, it may be stated that the Honorable, Secretary of Justice in his letter-opinion dated January 11, 1973 (Opinion No. 8; Series 1973) and in referring to a supplemental opinion dated September 21, 1972 (Opinion No. 130-A, S. 1972), copies of which are hereto attached, has emphasized that Opinion No. 130, Series 1972 dated September 4, 1972 is limited in application to "sub-contractors" registered as cottage industries with the NACIDA, who contract for the embroidery, dressmaking or tailoring of materials furnished them by contractors who sell or export the finished products. It is therefore, clear that an ordinary tailor shop which do not fall within the category of such sub-contractor although registered with the NACIDA is not considered a cottage industry, hence, it is not exempt from the payment of fixed and percentage taxes. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATION TO THE BIR."