BIR Ruling

February 4, 1997 Luz M. Villamor and Associates, Inc. 133 J. Ruiz corner J. Guzman Sts. San Juan, Metro Manila Attention: Luz M . Villamor President Gentlemen : This refers to your request for reconsideration of our assessment in the amount of P21,241.60 representing 3% deficiency contractor's tax for 1980 covered by Assessment Notice No. 01-822-80B-86-B-2 dated January 17, 1986. Records show that Luz M. Villamor and Associates, Inc. is a management consultancy firm whose clients are mostly government agencies. On January 20, 1986, the Bureau mailed to the taxpayer the aforesaid assessment informing the latter of its tax liabilities. Due to the taxpayer's refusal and/or failure to pay the tax due despite repeated demands, the Bureau issued the Warrant of Distraint and/or Levy dated June 15, 1987 on the property of taxpayer. The corresponding notice of lien was filed with the Register of Deeds of Quezon City. LexLib In your letters dated October 17, 1988 and November 21, 1984, you disagreed with our assessment on the ground that the 3% contractor's tax does not apply to management consultancy firms. It is alleged that your firm is composed of professionals whose services include the preparation of post-audit manuals, personal audit, reorganization and installation of control systems. The members pay professional taxes in their individual capacities. Further, it is claimed that your firm never received our assessment since it has virtually no business in 1986 and is no longer at the address where the notice was mailed. In reply, please be informed that after a careful review of the facts of the case and the laws and jurisprudence applicable thereto, we find your request to be without merit. The scope of the term "contractor" as defined under Revenue Regulations No. 4-83 dated March 15, 1983 clearly embraced your management consultancy business. Thus, "independent contractor" is defined to wit: "The term "independent contractors" includes persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity includes essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. [All emphasis supplied] In the case of Arches vs. Bellosillo. 20 SCRA 32, it was held that "A revenue regulation, the issuance of which is authorized by statute, has the force and effect of law." The only organizations or associations for profit which are exempt from business taxes are general professional partnerships formed for the sole purpose of exercising a COMMON PROFESSION. [Sec. 23, Tax Code; as amended] Clearly, your tax liability is based on the foregoing, it appearing that you failed to show that your management consultancy services firm is engaged in the exercise of a common profession or is among those enumerated under Section 12 of the Tax Code. Moreover, you cannot escape the arm of taxation by alleging non-receipt of our notice because you are no longer at the address stated therein. We have consistently ruled that "deficiency assessment is deemed made when notice to this effect is RELEASED, MAILED or SENT by the collector to the taxpayer, for the purpose of giving effect to said assessment." [Collector vs. Bautista, May 27, 1959] Our records reveal that Assessment Notice No. 01-822-80B-86-B-2 dated January 17, 1986 was mailed on January 20, 1986. Besides, it is the duty of the taxpayer under the Tax Code to inform the Bureau of any change in its business address. Lastly, the fact that the firm is inoperative in 1986 is no reason to justify tax abatement or cancellation under Section 204 of the Tax Code. If indeed there was closure of business, you are, likewise, mandated under Section 235 of the same Code to notify the Bureau. In view of the foregoing, your request for reconsideration is hereby DENIED. You are, therefore, requested to pay the amount of P21,241.60 representing deficiency contractor's tax, plus interest that may have accrued thereon, to the Revenue District Office nearest your place of business within ten (10) days from receipt thereof, in order that this case may be closed and terminated. This constitutes the final decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue