3% Contractor's Tax

August 24, 1979 BIR RULING NO. 077-79 3% Contractor's tax This refers to your letters dated July 31 and August 8, 1978 requesting information as to whether a Sugar Central is subject to the contractor's tax on receipts representing reimbursements of expenses incurred in the operations of equipment under the following facts: "The Mill was installed in a new area that was either uncultivated or planted to palay or corn. The farmers didn't have tractors nor irrigation units to cultivate and plant sugar cane on their land. The Central, therefore, included in its purchase of the mill some tractors, irrigation units and trucks inasmuch as these equipment are necessary in the cultivation of sugar cane. These equipment were, therefore, made available to the planters primarily to help them as the Mill is interested in the planter's cane. Whatever payments the planters paid to the Central were but reimbursements of expenses in the operation of said equipment, and not as a business venture of the Central. ". . . That the Sugar Central allows the planters the use of equipment necessary in the cultivation of sugar cane. This is made possible by the Central in favor of said planters who do not own or possess such equipment to attract the planters to mill their sugar cane in the Central. The Central shoulders the expenses incurred in the operation of the equipment which expense is reimbursed by the planters who avail of the use of said equipment." In an investigation conducted by an examiner of this Office, it was ascertained that the Central alluded to in your letters is the Tolong Sugar Milling Co., Inc., located at Sta. Catalina, Negros Oriental; that the agricultural machinery and equipment consist of tractors and irrigation equipment such as pumps and aluminum pipes; that these equipment were acquired for the purpose of helping the farmers in converting their agricultural land into sugar plantations; that the actual operational expenses such as fuel, oil, supplies, and the salary of operator are paid for by the corporation but charged to individual planters as advances, computed on the basis of actual expenses incurred for each without any addition; that the planters allowed to use the agricultural machinery and irrigation equipment are only those who have milling contracts with the Central. casia In reply, you are advised that under the abovequoted facts and circumstances, the Central is not considered a lessor of personal property within the purview of Section 205(17) of the Tax Code, as it is not engaged in the business of leasing its equipment for a consideration but merely makes the same available to the planters in order to induce the latter to have their sugar canes milled by the Central. Accordingly, it is not subject to the 3% contractor's tax imposed by the aforesaid law on the reimbursements of expenses for the operation of the aforesaid equipment.