Deduction of the Sales Tax Paid from the Gross Sales of Assembled Radios

No date supplied BIR RULING NO. 064-58 The Regional Director B.I.R. Regional District No. 3 Manila S i r : This is with reference to the memorandum of the Chief, Legal Branch of that Regional District dated July 16, 1957, requesting opinion on the question of whether or not the cost of radio spare parts on which the 30% sales tax was paid instead of the legal rate of 7% may be deducted from the gross sales of assembled radios. cdpr The pertinent portion of Section 186 provides that "where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section and section one hundred and eighty-nine, the total cost of such materials as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles." In order that the cost of the raw materials can be deducted from the gross selling price of the manufactured article, the law requires that the said raw materials shall also be subject to tax under Section 186 or Section 189, both of the National Internal Revenue Code. If the raw material is properly taxable under Section 186 of the Tax Code, the cost thereof may be deducted from the gross selling price of the manufactured article. In the instant case, the radio spare parts are legally subject to the 7% sales tax prescribed in Section 186 of the Tax Code but the 30% sales tax was erroneously paid by the importer. aisadc Under the facts of this case, the cost of the imported radio spare parts (purchase price) is deductible from the gross selling price of the assembled radios. This will not be tantamount to refunding the overpayment of the sales tax inasmuch as what is allowed to be deducted from the gross selling price of the assembled radios is the cost of the raw materials and not the tax paid thereon. Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue