Gross Receipts for Purposes of Computing the 4% Contractor's Tax

February 23, 1987 BIR RULING NO. 056-87 170 066-83 056-87 Gentlemen : This refers to your letter dated December 18, 1986 stating that corporation is engaged in general merchandising business, more specifically in the buying and selling of carpets, rugs, underlays and other carpeting materials; that as such, you are provided with an annual fixed tax on P200.00 files a monthly percentage tax return and pays the corresponding 1 subsequent sales tax on all merchandise sold, that you are also engaged in the business of installing carpets, rugs, underlays and other carpeting materials and as such, your shop is registered with the B.I.R. as a contractor with a separate annual fixed tax of P200.00 and pays the corresponding 4% contractor's tax; that your services are guaranteed and open to the general public although in most cases your services are rendered principally to your customers; that to insure the quality of rugs, carpets, etc., your customers usually employ the services of your company's shop personnel to perform the installation; that in some instances, you refer the installation of carpets to some of your accredited installation companies and advance the payment as a matter of convenience for your customers and clients to promote goodwill; and that for services rendered, you issue official receipts thereof and pay the 4% contractor's tax. Based on the foregoing, you now request confirmation of your opinion that the business of selling carpets, rugs, etc. is separate and distinct from the business of installing the same and therefore for purposes of computing the 4% contractor's tax, only the gross receipts derived from installation service will be used as basis. In reply, please be informed that your opinion is confirmed. In other words, only the cost of labor shall be considered as your gross receipts for purposes of computing the 4% contractor's tax imposed by Section 170(n) of the Tax Code, as amended. asiacd On the other hand, you are not considered a contractor with respect to your business referring the installation service to some of your accredited installation companies wherein you advance the payment for the services rendered by the latter. This is so because you are not rendering any service. The theory of the 4% contractor's tax is that it is a tax on the sale of services or labor. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner