School Bus Service Exclusively for Students Not Considered as Common Carrier

August 30, 2005 BIR RULING NO. 017-05 117 Padilla Law Office 7/F Padilla-De Los Reyes, Bldg., 232 Juan Luna Street, Binondo, Manila Attention: Atty. Sabino Padilla, Jr. Counsel Gentlemen : This refers to your letter dated November 7, 2001 requesting on behalf of your client, University of the Immaculate Conception, for a ruling on whether its revenues or receipts from its operation of a bus service exclusively for its students are subject to the percentage tax on domestic carriers and keepers of garages under Section 117 of the National Internal Revenue Code of 1997. The facts, as represented, are as follows: 1. University of the Immaculate Conception ("UIC") is a non-stock, non-profit educational institution offering elementary, high school and college courses with the corresponding permits and recognition from the Department of Education for its elementary and high school courses and from the Commission on Higher Education for its college courses. 2. In answer to the clamor of many of its students and their parents who do not have the time nor the means to bring their children to school and fetch them at the end of classes, UIC operates a bus service with authority from the Land Transportation Office. The buses are owned by UIC and the bus service consists of fetching UIC students from their homes and bringing them to school for their classes, and at the end of classes transporting them back to their homes. It does not service any person other than its students and occasionally some teachers also of UIC. For this bus service, UIC charges a monthly fee from those who avail themselves of this bus service. 3. For several years now the Regional Director of the Bureau of Internal Revenue in Davao City has been collecting from UIC the percentage tax on domestic carriers and keepers of garages under Sec. 117 of the National Internal Revenue Code of 1997. 4. The Philippine Constitution provides in Art. XIV, "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of each institutions, their assets shall be disposed of in the manner provided by law." IcDCaT In the implementation of this Constitutional mandate, Department of Finance Order No. 137-87 provides: "2.2. Revenues derived from and assets used in the operations of cafeterias/canteens, dormitories, bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises." 5. That since UIC is a non-stock, non-profit educational institution and its buses, as well as the revenues derived from the operation of a bus service for its students are assets and revenues used actually, directly and exclusively for educational purposes, the same are exempt from taxes, including the percentage tax under Sec. 117 of the Tax Code of 1997. In reply, please be informed that the percentage tax on domestic carriers being contemplated by Sec. 117 of the Tax Code of 1997 is imposed on 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. Article 1732 of the New Civil Code, provides, to wit: "Art. 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." Based on the foregoing definition of common carrier, a school bus service operated and owned by UIC exclusively for its students, and not to the general public, is not considered as a common carrier within the contemplation of domestic carrier under Section 117 of the 1997 Tax Code, and thus not subject to percentage tax imposed therein. UIC is not engaged in the business of carrying goods or persons from one place to another for a fixed price, but instead caters only to its students. On the other hand, it is likewise provided in Art. XIV of the Philippine Constitution that "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . .". A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. The exemption herein contemplated refers to internal revenue taxes imposed by the National Government and in certain cases to local taxes imposed by local government units under the Local Tax Code on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. They shall, however, be subject to internal revenue taxes on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions. (Sec. 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). By transporting its students from their respective houses to the school and vice versa , UIC actually, directly and exclusively used for educational purposes its buses, hence, it is exempt from taxes and duties. Accordingly, this Office is of the opinion that the gross receipts derived by UIC from its school bus service is not subject to the percentage tax being imposed by Sec. 117 of the Tax Code of 1997 on domestic and common carriers on the ground that their operation is not one of those contemplated in the said Section of the Tax Code. aIcTCS 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, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue