BIR Ruling [DA-531-04]

October 19, 2004 BIR RULING [DA-531-04] Sections 106 & 108 BIR Ruling No. DA-040-2002 Centro Escolar University 9 Mendiola Street San Miguel, Manila Attention: Mr. Eracisimo C. Veranga Gentlemen : This refers to your letter dated July 22, 2004 requesting for a ruling on whether your University is subject to value-added tax (VAT). It is represented that Centro Escolar University is a proprietary educational institution; that incidental to your business, you also sell school supplies and uniforms to your students; and that in order to augment the cost of maintaining the parking area in the school premises, you charge parking fees to students and teachers alike who come to school with their vehicles. In reply, please be informed that Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added (VAT) imposed in Section 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity (BIR Ruling No. S30-27-2003 dated November 21, 2003). Hence, as long as the educational institution engages in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it is subject to VAT. cCAIaD Although gross receipts from the operations of government educational institutions and those of private educational institutions accredited as such by the Department of Education or by the Commission on Higher Education are exempt from the 10% VAT pursuant to Sec. 109(m) of the 1997 Tax Code, this exemption, however, does not extend to its other activities involving sale of goods and services (BIR Ruling No. DA-40-02 dated March 7, 2002). Accordingly, the sale of school supplies by proprietary educational institutions is subject to the 10% VAT imposed under Section 106 of the Tax Code of 1997 or 3% percentage tax imposed under Section 116 in relation to Section 109(z) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed P550,000.00, which tax payment may legitimately be passed on to customers (BIR Ruling No. 248-88 dated June 6, 1988). In view of the foregoing, this Office hereby holds that Centro Escolar University is subject to the value-added tax on its sale of school supplies and uniforms; and parking tickets. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service