BIR Ruling [DA-643-04]

December 21, 2004 BIR RULING [DA-643-04] 117; 002-91 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your letter dated August 24, 2004 requesting on behalf of your client, Manila Peninsula Hotel, Inc. (MPHI) for a confirmation that its revenues from the transport of passengers using hotel cars and limousines is subject to the 3% common carrier's tax provided under Section 117 of the 1997 Tax Code. It is represented that MPHI is a domestic corporation operating the Manila Peninsula Hotel in Makati City; that in the course of its business, MPHI transports some hotel guests to and from the hotel and to any destination of their choice during their stay in the hotel using hotel-owned cars and limousines; that MPHI also transports non-hotel guest who hire the said cars and limousines and thus, the transportation service can be said that it is likewise available to the general public who might want to avail of the aforestated services; and that it has been customary for the hotel to earn revenues from the transportation services not only from its paying guest but also from other customers. In view of the foregoing, you believed that MPHI is a public carrier subject to the common carrier's tax of 3% on its gross receipts. In reply, please be informed that the transport of passengers is subject to percentage tax under Section 117 of the Tax Code of 1997, which provides that: "Sec. 117. Percentage Tax on Domestic Carriers and Keepers of Garages . Cars for rent or hire driven by the lessee, transportation contractors, including persons who transport passengers for hire, and other domestic carriers by land, air or water, for the transport of passengers, except owners of bancas and owners of animal-drawn two-wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts. xxx xxx xxx It is worthwhile to mention that the Civil Code defines "common carriers" in the following terms: "Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." The above provision makes no distinction between one whose principal business activity is the carrying of persons or goods, or both, and one who does such carrying only as an ancillary activity. Neither does it distinguish that a person or enterprise offering transportation services on a regular or scheduled basis or merely on an occasional or unscheduled basis offers such services to the general public or solicits business only from a narrow segment of the general population. Applying the principle to MPHI, the renting out of cars although incidental rather than a primary service of the hotel still falls within the definition of a common carrier. In the case of Pedro de Guzman vs. CA , GR No. L-47822 dated December 22, 1988, as cited in Asia Lighterage and Shipping, Inc. vs. CA , G.R. No. 147246 dated August 19, 2003, the Supreme Court held that: ". . . we considered private respondent Ernesto Cendana to be a common carrier even if his principal occupation was not the carriage of goods for others, but that of buying used bottles and scrap metal in Pangasinan and selling these items in Manila. We therefore hold that petitioner is a common carrier whether its carrying of goods is done on an irregular rather than scheduled manner, and with an only limited clientele. A common carrier need not have fixed and publicly known routes. Neither does it have to maintain terminals or issue tickets. To be sure, petitioner fits the test of a common carrier laid down in Bascos vs. Court of Appeals . The test to determine a common carrier is "whether the given undertaking is a part of the business engaged in by the carrier which he has held out to the general public as his occupation rather than the quantity or extent of the business transacted." It is evident that the renting out of hotel cars and limousines not only to hotel guests but also to the public makes MPHI a common carrier, regardless of whether or not it has been issued a certificate of public convenience. STADIH Based on the foregoing, this Office is of the opinion that MPHI's transportation services though merely incidental to its hotel business shall be subject to 3% common carrier's tax under Section 117 of the 1997 Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group