Income Payments to Client for Services of Installing and/or Repairing of Carpets Not Subject to Tax; 3% Contractor's Tax Based on Total Contract Price by Total Price of Carpet and Installation Cost

January 18, 1982 BIR RULING NO. 010-82 205 000-00 010-82 Messrs. Sycip, Gorres, Velayo & Co. P.O. Box No. 589, Manila 2800 Attention: Mr . M . Gutierrez Principal Gentlemen : This refers to your letter dated March 27, 1981, requesting, on behalf of your client, the Universal Far East Corporation, for a ruling on the following queries: 1. Whether or not income payments made to your client for their services of installing and/or repairing carpets are subject to the 3% of 15% withholding tax as provided for in the Expanded Withholding Tax Regulations. 2. Whether or not the cost of the carpets bought by your client's customers is included as part of your client's gross receipts in computing the 3% contractor's tax due from your client for their business of installing carpets. You represented that your client is the exclusive distributor of the carpet products of Philippine Carpet Manufacturing Corporation (PCMC); that the same has secured a license as contractor for the installation and/or repair of carpets bought from it in line with its business of selling carpets and rugs; that it bills its customers separately for the cost of the carpets and for the cost of installation plus 3% contractor's tax in cases where its customers avail of its installation services; and that its customers, in turn, withhold 3% of 15% from their total payments, i.e., cost of carpets and installation services, to your said client. In reply, I have the honor to inform you as follows: 1. The income payments to your client for its services of installing and/or repairing of carpets are not subject to the withholding tax provided for under Revenue Regulations No. 13-78, as amended by Revenue Regulations No. 6-79, because the business of installing and/or repairing of carpets is not specifically mentioned in the said regulations. 2. Pursuant to Section 205 of the Tax Code of 1977, the term "gross receipts", for purposes of the 3% contractor's tax, means, "all amounts received by the prime or principal contractor as the total contract price, . . ." Therefore, in the case of your client, if aside from rendering installation services it also supplies the carpets it installs to its customers, the 3% contractor's tax shall be based on the total contract price represented by the total of the price of the carpet and the installation cost even if it bills the cost of the carpets separately from the cost of installing the same. Very truly yours, RUBEN B. ANCHETA Acting Commissioner