BIR Ruling No. 090-61

March 7, 1961 BIR RULING NO. 090-61 Mr. Job S. de Jesus 252 Shaw Boulevard Mandaluyong, Rizal S i r : This is with reference to your letter dated February 7, 1961, requesting information on the following facts: "1) Sub-contractor A furnishes all the labor, materials, tools and equipment necessary in relation to the complete performance of the works sub-contracted from a principal or general contractor: "2) Sub-contractor B furnishes only the labor required to undertake the work given to him by a general or principal contractor which is entirely different from the subcontract of A; and "3) Sub-contractor C furnishes only the labor required to finish the work sub-contracted from sub-contractor A. "Question: "1. Is subcontractor B liable to all the taxes in your BIR Ruling No. 18, just like sub-contractor A? "2. Is not sub-contractor B only a 'labor contractor' as differentiated from sub-contractor A and therefore not liable to the same taxes as A, especially the percentage tax? "3. Is sub-contractor C liable to pay taxes just like A or B since he has sub-contracted only the labor from B? "4. For tax purposes, how do you treat a labor contractor from a sub-contractor? "5. Is BIR Ruling No. 18, above, applicable to sub-contractors engaged in building constructions? "6. Is there no 'double taxation' when you impose the percentage tax on both the principal contractor and the sub-contractor of a single and the same construction work?" Based on the foregoing facts as presented and in reply to your queries above-stated, I have the honor to inform you as follows: 1. Sub-contractor B is liable to all the taxes (fixed, percentage, income and residence taxes) enumerated in our previous letter to you dated January 24, 1961 (marked BIR Ruling No. 18, S. of 1961). 2. Sub-contract B, a "labor contractor" is subject to the contractor's tax of 3% under Section 191 of the Tax Code, as amended because labor contractors are considered as "independent contractors", likewise subject to the same rate of tax and grouped under the same section above-mentioned. 3. Sub-contractor C is liable to the contractor's tax of 3%, based on the monthly gross receipts, notwithstanding the fact that said sub-contractor merely furnishes labor required to finish the work sub-contracted from sub-contractor A. 4. For internal revenue tax purposes, contractors, such as labor contractors and sub-contractors of any construction work contemplated in Section 191 of the Tax Code, as amended, are grouped under the same section just mentioned and taxed under the same rate of percentage tax. 5 B.I.R. Ruling No. 18, Series of 1961, is likewise applicable to sub-contractors engaged in building constructions. Attention is invited to the case of "P. J. Kiener Co. Ltd. vs. Antonio J. Araneta, as Collector of Internal Revenue, C.T.A. Case No. 102, decided by the Court of Tax Appeals on November 2, 1959, involving the same issue. prcd 6. There is no "double taxation" where the percentage (3%) tax is imposed on both the principal contractor and the sub-contractor of a single and the same construction work. The Court of Tax Appeals ruled on this point as follows: "To our mind, the fact that the tax is imposed both on a principal contractor and a sub-contractor of a single and the same construction work, the sub-contractor's tax liability being computed on the gross sum received by him from the principal contractor and the tax liability of the principal contractor being based on the total amount he received under the contract without deducting the amount paid to the subcontractor, does not amount to imposing and collecting the same tax on the same subject matter twice. The tax imposed under Section 191 of the National Internal Revenue Code is a tax on business and occupation and is, therefore, an excise tax. What is being taxed is the act of engaging in any of the occupations or business covered therein. In this particular case, it is a tax on the business as contractor. The gross receipt derived therefrom is made only as the basis for the computation of the amount of the tax which should be paid by the contractor. Hence, the tax of two (2) [now 3%] per centum on gross receipts should be imposed on each and every contractor regardless of the source or sources of the gross receipts as long as the same are derived from his occupation as contractor." (P. J. Kiener Co. Ltd. case, supra .) cdpr Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue