Method of Computing the Sales Tax Payable by Insular Lumber Co.

February 6, 1958 BIR RULING NO. 088-58 Messrs. Fleming & Williamson Certified Public Accountants 4th Floor, Soriano Bldg. Manila Gentlemen : Reference is made to your letter dated July 8, 1957 inquiring as to the correct method of computing the sales tax payable by your client, the Insular Lumber Co. It appears that your client is a sawmill operator manufacturing lumber out of logs produced in its concession and purchased from other concessionaires. Some of the lumber manufactured by it are exported and some are sold locally. You now contend that, considering the different bases of the sales tax on lumber manufactured from concession logs and those manufactured from logs purchased from other concessionaires as well as the fact that in the course of its operation both concession logs and locally purchased logs are necessarily commingled and consequently, it becomes difficult to determine the quantity of lumber produced from concession logs and those produced from purchased logs and considering further that exported lumber is exempt from tax, it is extremely difficult to compute the correct amount of sales tax payable by your client. You, therefore, presented several methods of computation which you are requesting this Office to rule whether or not any of such methods are acceptable. In reply thereto, you are informed as follows: cdt Methods I, II, and III are entirely wrong because they all proceeded from a wrong premise. It is certainly an error for you to consider the sales tax paid by the log producer on logs sold by him to you as a tax paid by you. While it is true that such tax was shifted to you by the producer and actually formed part of the gross purchase price of the logs, nevertheless, you are not the taxpayer because when the nature of the tax is determined at the outset, it cannot be altered or made to vacillate depending upon who eventually pays the tax. For this reason, the three methods are necessarily incompatible. Method No. IV is also not acceptable to this Office because it does not reflect the correct computation of the tax. However, this Office is agreeable to the proposition stated in your supplementary letter of January 31, 1958 that all local sales shall be considered as coming from lumber produced from concession logs which shall invariably be subject to 7% sales tax regardless of whether or not the local sales exceeds the lumber production from concession logs. Since all the lumber produced from purchased logs is then considered exported and, therefore, exempt from tax, you also proposed that you should not any more return for taxation your purchases of logs. This Office is likewise agreeable to this proposition because it will avoid the trouble attendant to the subsequent refund of the tax paid thereon. However, all you log purchases should be duly supported by auxiliary invoices and official invoices and receipts as evidence of payment of forest charges. You may, therefore, advise your client to act accordingly. The ruling contained herein is, however, without prejudice to the adoption of any other method that reflects the correct computation of the tax. cdpr Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue