The Episcopal Church in the Philippines National Office

February 22, 2007 BIR RULING [DA-116-07] Secs. 27 (A), 105; 121-91 The Episcopal Church in the Philippines National Office ECP Mission Center, 275 E. Rodriguez Sr., Avenue Quezon city Attention: The Most Rev. Ignacio C. Soliba Prime Bishop Gentlemen : This refers to your letter dated May 10, 2006 requesting on behalf of the National Cathedral and Collegiate Church of St. Mary and St. John, Inc ., for a ruling whether or not income from its sale of crypts or vaults is subject to income tax and value-added tax. It appears that the National Cathedral and Collegiate Church of St. Mary and St. John, Inc . is a local congregation of the Episcopal Church in the Philippines, Inc.; that it is duly registered with the Securities and Exchange Commission under SEC Registration No. AN093-00170 dated January 13, 1993; that its main objective is for the administration of its affairs, properties and temporalities and to become more efficient in pursuing the realization of the purposes of the Episcopal Church in the Philippines which it forms part; that at the basement of the Cathedral building is a morgue and a columbarium for interment of ash remains, both of which are expressive of the church mission to provide continuing prayer offerings for and spiritual nourishment to the faithful departed; that sometime in 2004, due to the strong clamor of its members, the Cathedral expanded its columbarium and constructed new vaults or crypts within its premises called as "Elysium Gardens"; and that these crypts or vaults are now offered for sale. CSAaDE In reply, please be informed that the last paragraph of Section 30 of the Tax Code of 1997, as amended, clearly subjects to tax the income of whatever kind and character derived by any organization from any of its properties real or personal, or activities conducted for profit, regardless of the disposition made of such income. Specifically, the Tax Code provides thus: "SEC. 30. Exemptions from Tax on Corporations . The following organizations shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx (E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or assets shall belong to or inure to the benefit of any member, organizer, officer or any specific person; IATSHE xxx xxx xxx Notwithstanding, the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any properties, real or personal, or from any of the activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code ." (Emphasis supplied.) The above-quoted provision is literal in its language and plain and categorical in its meaning. The last paragraph of Section 30, supra , particularly, does not leave any room for interpretation, hence, the income from any of the organization's properties is subject to tax under the Tax Code of 1997, as amended, regardless of the disposition made of such income. In relation to this, Section 30 of Revenue Regulations No. 2, as amended, provides, among others, that the income of such tax-exempt corporation which is considered as income from its properties, real or personal, includes profits from the sale of property. In other words, the sale by National Cathedral and Collegiate Church of St. Mary and St. John, Inc . of its vaults or crypts is an activity conducted for profit and considered as sale of services, hence, subject to income tax and value-added tax imposed under Section 105 the Tax Code of 1997, as amended. The Constitution mandates that "charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation ." [Section 28 (3), Article VI, Constitution] (Emphasis supplied) Although the above-quoted constitutional provision seems to grant a sweeping tax exemption, the Supreme Court of the Philippines, in the case of Lladoc vs. Commissioner of Internal Revenue (L-19201) decided on June 16, 1965, held that the phrase "exempt from taxation'' similarly contained in the 1935 Constitution should not be interpreted to mean exemption from all kinds of taxes. Thus, although in that case the cash received was actually spent by the parish priest for the intended purpose of constructing a new Catholic church, the Court nevertheless ruled against the exemption applied for in view of the interpretation it has given the Constitutional provision. The Highest Tribunal ruled that the exemption provided by the Constitution is only from the payment of taxes assessed on such properties enumerated as property or realty taxes. Finally, it held that there was no clear, positive or express grant of exemption privilege by law in favor of petitioner therein, hence, the denial. HTaIAC Considering that vaults or crypts are built in the said Cathedral building the same remain property of the church. However, be that as it may, we have to look into the last paragraph of Section 30 of the Tax Code of 1997, as amended, that notwithstanding . . . the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax. In view of the foregoing, this Office hereby rules that the sale by National Cathedral and Collegiate Church of St. Mary and St. John, Inc . of vaults or crypts is subject to income tax pursuant to Section 27 (A) of the Tax Code of 1997, as amended, and value-added tax (VAT) pursuant to Section 105 of the same Code, considering that it is engaged in the sale of services. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service