BIR Ruling No. 060-64

August 27, 1964 BIR RULING NO. 060-64 The Regional Director BIR Regional District No. 1 Baguio City S i r : This refers to the franchise tax case of the Urbano Banez Electric Company of Bangued, Abra. LLjur Opinion is requested as to whether or not the franchise tax paid by the Urbano Banez Electric Company under Section 7 of its charter (Act No. 3406) accrues entirely to the municipality where it conducts business. Section 7 of Act No. 3406 provides, viz: "Sec. 7 . . . Provided, That in consideration of the franchise hereby granted, the grantee shall pay quarterly into the municipal treasury of the municipality above-named, one per centum of the above gross earnings of his electrical business during the first thirty years, and two percentum during the remaining twenty years of the life of this franchise." It is contended that as the tax accrues entirely to the municipality, the municipal treasurer was right in not remitting to the National Treasury the tax paid by the Urbano Banez Electric Company. The franchise tax is an internal revenue tax. In fact, in a case where one of the issues squarely raised was whether or not the franchise tax imposed by the charter of the petitioner is an internal revenue tax, the Supreme Court held that since franchise tax is enumerated in Section 18 of the Tax Code as one of the national internal revenue taxes, there can be no question as to its nature as an internal revenue tax, whether it be imposed by the National Internal Revenue Code itself or by special charters. The said Court further stated in said case, that Section 359 of the Revenue Code provides for the disposition of franchise taxes as other national internal revenue taxes. (Panay Electric Co. v. Collector of Internal Revenue, G.R. No. L-10574, May 28, 1958). cdt Since the franchise tax is indubitably established as an internal revenue tax, and since the Supreme Court in effect had ruled that the disposition of the tax shall be made in accordance with Section 359 of the Tax Code, the contention that the tax accrues entirely to the municipality is obviously without legal basis. It may be stated further that Act No. 3406 provided for the payment of the tax to the municipal treasury because at that time until the enactment of Republic Act No. 2655 on June 18, 1960, the treasurers were the collectors of national internal revenue taxes as deputies of the Collector (now Commissioner of Internal Revenue). As a matter of fact, after the assumption of the collection of internal revenue taxes by the collection agents of the Bureau of Internal Revenue, the Urbano Banez Electric Company should have paid its franchise tax to said collection agents, and the municipal treasurer should not have accepted payment thereof. You are therefore directed to advice the Urbano Banez Electric Co. to pay its franchise tax to our collection agent. The matter of remittance to the national treasury of the franchise tax collected by the municipal treasurer shall be taken up with the Secretary of Finance. cdpr Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue