"Gross Receipts" Defined

June 4, 1979 BIR RULING NO. 030-79 "Gross receipts" defined This refers to your letter dated October 10, 1978 requesting a ruling on the meaning of "gross receipts" for purposes of the 3% contractor's tax prescribed by Section 205 of the Tax Code, as amended, in respect of the members of that Association. It is represented, among others, that the common provisions of contracts for embroidery and apparel for export are: "1. The Principal (Consignor) provided the materials like synthetic and cotton piece goods, leather, necessary trimmings, thread and accessories, etc. for conversion by the contractor into finished products; "2. The Principal reimburses the contractor for the cost of locally purchased raw materials, accessories, packing cost and brokerage fees; and "3. The Principal reimburses the contractor for the full amount of labor expended and at least 50% mark-up for overhead and profit." On the basis of the foregoing, you would like us to rule that the following do not form part of the taxable gross receipts viz: 1. Materials supplied by the Principal (Consignor) to the Contractor; 2. locally purchased raw materials, accessories, packing cost and brokerage fees reimbursed by the Principal to the Contractor; 3. cost of labor and overhead expense paid to the Contractor, inclusive of the 1% special assessment paid to the Embroidery Board. In reply, you are informed as follows: 1. Materials supplied by the contractee to the contractor do not form part of the taxable gross receipts of the contractor. 2. The cost of locally purchased raw materials, accessories, packing cost and brokerage fees which the principal reimburses the contractor do not also form part of the taxable gross receipts of the contractor because in such case, the principal, in effect, supplies the locally purchased materials. Moreover, the agreement between the members of your association on the one hand and their principals abroad on the other hand essentially provides that the principal shall furnish all the raw material needed to produce the embroidery and apparel for export. 3. However, the cost of labor and overhead expense, even if reimbursed by the Principal to the embroidery contractor, inclusive of the 1% special assessment paid to the Embroidery Board, form part of the taxable gross receipts of the embroidery contractors, on the ground that under the agreement, the contractor will supply the labor.