BIR Ruling

August 6, 1976 Liability to the 3% Contractor's Tax This refers to your letter dated April 8, 1976 stating that the GASVEN is a Manufacturer of Commercial ovens, ranges, rice cookers, soup boilers and other cooking equipment and pays percentage tax under Section 186; that it is expanding its operations into the fabrication of stainless steel carts, cooling system, and others; and that it will bid for contracts from hotels and restaurants for the planning, fabrication and installation of kitchen systems. With the foregoing as a premise, this Office is requested to reclassify the tax status of the corporation to that of a contractor subject to the percentage tax imposed by Section 191, instead of the sales tax imposed by Section 186. In reply, I have the honor to inform you that your request cannot be granted for lack of legal basis. It is admitted that GASVEN manufactures and subsequently sells commercial ovens, ranges, rice cookers, soup boilers and other cooking equipments, and is paying the corresponding sales tax on its sales of the aforesaid articles. The mere fact that the corporation expands its manufacturing operation to include stainless steel carts, cooling systems and other stainless steel kitchen equipment, it remains a manufacturer and when it bids for contracts from hotels and restaurants to install its manufactured products for a separate fee, it is engaged in another taxable activity that of a contractor, subject to the contractor's tax of 3% of its gross receipts pursuant to Section 191 of the Tax Code. Moreover, as a contractor GASVEN is subject to fixed annual tax of P50.00 pursuant to Section 182(A)(1) of the same Code. It may be stated that the Supreme Court held in an analogous case that although the manufacturer of asbestos cement products is exempt from tax in the manufacture and sale of the same under R. A. 901, it is not exempt from paying the contractor's tax on the cost of installation of sheets it had sold and delivered because in this latter respect it is performing the work of a contractor, which is subject to another tax provision. (Collector of Internal Revenue vs. Eternit Corporation, L-11891 and L-11913, April 29, 1959; 105 Phil. 565). cdtech