BIR Ruling

January 3, 1974 The President and General Manager J.R.M. & Co., Inc. 1843 Taft Avenue Pasay City S i r : This refers to your letter dated December 26, 1973 requesting information as to the internal revenue taxes (apparently business taxes) that you should pay for your operation of the Tropicana Apartment-Hotel and of the Copacabana Apartment-Hotel which will open for business along the same lines as the Tropicana Apartment-Hotel on February 1, 1974. acd Your operation of the Tropicana-Apartment-Hotel is best explained by yourselves, and, therefore, we are quoting in full your own explanation as follows: "TROPICANA is a 9-storey concrete building composes of several apartments or rooms and publicly advertised as an "apartment-hotel". "Each apartment is an independent and separate unit completely furnished and provided, among others, with kitchen and cooking appliances, including a stove, oven, kitchen utensils, china and silverwares. It is also furnished with a safe for valuables and telephone. Among the services provided in common for all tenants are a 24-elevator and 24-hour security guard services and swimming pool privileges." "Occupancy is by contract. We have reserved "the right to select its (our) tenants". Every occupant signs a "Lease Contract" and a monthly rental is agreed upon ranging P1,750.00 for regular one bedroom apartment to P2,050.00 for one deluxe bedroom apartment and from P2,900.00 for a regular two bedroom apartment to P3,300.00 for a deluxe two bedroom unit. Rental is "payable in advance within the first five (5) days of each and every month . . . without the necessity of demand". Arrears in rentals earn interest at the rate of 1% a month. Each apartment is required to pay a security deposit of one month rental refundable after termination of the lease contract. However, since the lease contract is for a definite period no refund of rental is made even if the tenant vacates his apartment before the expiration of the contracted period." "There are 88 separate and independent apartments located in the second to the ninth floors of the building. They are leased to tenants on a monthly basis at an average duration of one to two months. One of our tenants has been leasing his apartment for the last three and a half (3) years. Occasionally however, and only in exceptional cases as to accommodate some friends and business associates, a few units are leased on a weekly and sometimes daily business." "About 80% of our tenants are foreigners; only 20% are Filipinos. Most of them are representatives of business firms, prearranged employees, businessmen; and self-employed persons." "The cost of electrical consumption and other service charges are billed to and are for the account of the tenant. Each apartment has a separate meter." "To maintain the apartments in good and tenantable condition at all times, cleaning and linen services are arranged for the occupant and a 10% service charge is added on the rental which, in turn, is turned over to a concessioner for said services." "For the convenience of our tenants, and at their request, TROPICANA makes the necessary arrangements for the following: laundry and dry cleaning service, long distance and toll calls, rent a car service; shoe-shining; daily newspapers and other publications; catering and room service; and photo-processing." "Within the same building are located a restaurant/automat, coffee and snack bar, a grocery and novelty store, stands for magazines, books, stamps, etc., a gift shop and a department store, all operated by concessionaires and catering to the general public. A guarded parking space is also available at P60.00 a month for each car." In reply, I have the honor to inform you as follows: Proprietors of hotels are subject to a fixed tax of P50 per annum and to 3% tax on their gross receipts pursuant to Sections 182(A)(1) and 191(14) of the Tax Code. On the other hand, proprietors of apartment houses are considered real estate dealers subject to affixed tax ranging from P150 to P1000 per annum depending upon the amount of their gross annual rental income. As to whether you are, for business tax purposes, considered a hotel operator or a real estate dealer depends upon whether the Tropicana and Copacabana Apartment-Hotel are to be classified as hotels or apartment houses. From a close perusal of your explanation as to the operation of the Tropicana and Copacabana Apartment-Hotels, particularly the terms and conditions of lease, it is the opinion of this Office, as it hereby holds, that you are an operator of an apartment house, and, therefore, considered a real estate dealer. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5