BIR Ruling

September 15, 1977 Kameraworld, Inc. 406 Escolta, Manila Attention: Mr . Pacifico M . Castro President Gentlemen : This refers to your letter dated August 13, 1977 requesting a ruling based on the following facts, to wit: "Kameraworld, Inc. as organized for, and is actually engaged in the principal business of selling at retail and wholesale films, cameras, photo equipments and accessories in its various stores located in the greater Manila area. "Incidental to its business of selling films and cameras, the corporation accepts from its customers coming into the store the films that it sells for processing. No other films is accepted except the type of film that Kameraworld, Inc. sells and promote in connection with its business as a merchant. "It is respectfully stated that the processing of film is not done by Kameraworld. The films accepted from customers are channelled to another company, Kodak Philippines, Ltd., which has the necessary facilities and which is principally engaged in such business. "The agreement between "A" and "B" is that the latter would sell to the former the picture developed by it at a fixed price of P1.20/ In turn, Kameraworld sells these pictures to its customers at various prices, depending upon quantity and competitive criteria. Further, it is agreed between Kameraworld and Kodak Philippines, that the former can not return picture delivered and Kameraworld is obliged to pay the corresponding invoices 45 days after invoice. The basis of all transactions between Kameraworld and Kodak, and between Kameraworld and its customers, is that Kameraworld and Kodak's customers shall be obliged to pay for the pictures actually delivered. The picture not sold or claimed by customers are destroyed by burning, because they became useless and represents a loss of Kameraworld corporation, as no one would buy them. "QUERY: Considering that the acceptance of films for processing is merely incidental to the principal business of Kameraworld, primarily to attract customers and considering that the nature of the transaction between all parties concerned is a sale of pictures, is Kameraworld, Inc. liable for contractor's tax?" From the abovementioned facts, it would seem that "A" and "B" are identified as Kameraworld and Kodak, respectively. In reply, I have the honor to inform you that under the foregoing circumstances the acceptance of film for processing is indeed merely incidental to principal business of Kameraworld, Inc. It is not a separate and distinct business for which it would be liable for the payment of separate taxes. Under the facts, Kodak is the party liable for the payment of the 3% contractor's tax imposed by Section 191 of the Tax Code on its gross receipts which consist of the fixed price of P1.20 per picture. Such being the case, the receipts of Kameraworld derived from the sale of processed pictures is not subject to the 3% contractor's tax, but said receipt shall be included in its gross annual sales for purposes of determining is graduated annual fixed tax under Section 182(a) (2) of the Tax Code. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8