Sawmills Manufacturing Lumber from Logs, Taxability Before and after R.A. 6110

July 21, 1970 BIR RULING NO. 037-70 Sawmills manufacturing lumber from logs, taxability before and after R.A. 6110 FACTS: "1. In the case of a sawmill manufacturing lumber from logs which it buys from forest concessionaires who pay their corresponding forest charges and 7% sales tax as producer, and also from log dealers (C-13), what is the basis of the deductible cost of material used? Is it the invoice value of logs of either the concessionaire or the log dealers, depending on who supplies the logs to the sawmill? Will this include freight? 2. S Corporation, a sawmill, had the following transactions in 1969: Purchases of Logs: Jan. 1 to Aug. 31, 1969 900,000 bd. ft. @20 P180,000.00 Sept. 1 to Nov. 30, 1969 None Dec. 1 to Dec. 31, 1969 100,000 bd. ft. @20 20,000.00 Total 1,000,000 bd. ft. P200,000.00 Sales of manufactured lumber: Jan. 1 to Aug. 31, 1960 500,000 bd. ft. @40 P200,000.00 Sept. to Dec. 31, 1960 500,000 bd. ft. @40 200,000.00 Total 1,000,000 bd. ft. P400,000.00 Other facts: (1) There were no beginning or ending inventories of logs or manufactured lumber. (2) The sawmill, S Corporation, paid the corresponding sales tax on all the purchases of logs from Jan. to Dec. 1969 based on the old provision of the Tax Code, that is, 7% on 33 1/3% of the cost of logs purchased = P4,666.69 (assuming there were no freight, insurance and similar charges). (3) From the facts of the case above, it could be concluded that 400,000 bd. ft. of lumber were manufactured and sold from Jan. 1 to Aug. 31, 1969, prior to the effectivity of the Omnibus Tax Law on which the sawmill already paid the corresponding sales tax. QUERY: From the foregoing facts, what is the computation of the deficiency sales tax, surcharge, and compromise?" REPLY: You are advised that since the sales tax payable by sawmill operators are no longer based on 33 1/3% of the cost of logs purchased by them, but on the gross sales of lumber manufactured by them, pursuant to Section 186 of the Tax Code, as amended by Republic Act No. 6110, they should be allowed to deduct from their gross sales of lumber the cost of the logs purchased by them. The invoice value of the logs purchased by them from either the concessionaire or log dealer should be considered the deductible cost of materials used in their manufacture of lumber. However, under said Section 186, as amended, freight, insurance and similar charges are not considered part of the deductible cost of the logs. As regards the case of S Corporation, you are advised that considering that it had already paid 7% sales tax on 33 1/3% of the gross cost of logs purchased during the period from Jan. 1, 1969 to August 31, 1969, it is no longer subject to the sales tax on its sales of lumber produced from said logs, even if sawn and sold after September 1, 1969, payment of sales tax on said lumber having been effected in accordance with the law, then in force. However, its sales of lumber sawn from logs purchased after September 1, 1969 are subject to the 7% sales tax, said to be based on its gross sales after deducting therefrom the cost of the logs purchased by it from the concessionaire or dealers, in accordance with Section 186 of the Tax Code, as amended by Republic Act No. 6110.