Taxes Relevant to Corn Milling Operations

July 3, 1980 BIR RULING NO. 091-80 Pedro B. Uy Calderon Law Office Cor. Juan Luna & F. Gonzales Sts. Cebu City Attention: Atty . Manuel B . Pastrana Gentlemen : This refers to your letter dated November 6, 1978 (received in this Office June 13, 1979) requesting clarification, in behalf of your client, Lu Do & Lu Ym Corporation of Cebu City, as to whether or not Revenue Memorandum Circular No. 19-77, is applicable to the operations of your client's corn milling process, viz: "(1) Our client owns a corn mill and operates as a corn miller. As corn miller, it pays the annual graduated fixed tax based upon capacity prescribed under Section 192(3)(mm) of the Tax Code, as amended; "(2) Said Lu Du & Lu Ym Corporation buys from the farmers corn grain or kernel and mill the same in its corn mill; "(3) The corn milling operation is known as integrated wet corn milling and the direct and resultant products are starch and gluten meal with corn oil as by-product." It is your impression that the aforesaid Memorandum Circular is only applicable to taxpayers who buy corn germ as raw material for the purpose of extracting corn oil therefrom and thereafter refine, bleach and deodorize the same into a finished product. In reply, please be informed that under Revenue Memorandum Circular No. 19-77 dated August 8, 1977, this Office ruled that the extraction of corn oil "undergoes several stages of physical and chemical processes, before it becomes marketable as crude oil or refined cooking oil, hence considered a manufactured product falling under the purview of Section 194 [now Section 187(x)] of the Tax Code." However, said Circular covered only entities and individuals engaged in the business of purchasing quantities of corn germ for the purpose of extracting crude oil therefrom. On May 3, 1979, Revenue Memorandum Circular No. 33-79 was promulgated amending Revenue Memorandum Circular No. 19-77. RMC No. 33-79 was promulgated on account of the findings of examiners of this Office that "if a taxpayer owns the corn mill, buys the corn grain, mills it and later manufactures corn oil, in one continuous manufacturing process, such miller/manufacturer pays, on the corn oil products thereby, only a graduated fixed tax under Section 192(3)(mm) of the Tax Code, and no manufacturer's tax on the corn oil produced is made to accrue thereon." As now worded, the Circular provides: "It should be pointed out, however, that corn oil remains a manufactured product whether it is extracted from corn germ purchased by entities or individuals (who are not corn millers themselves) or, when extracted from corn germ produced out of the taxpayer's own corn grain, in a dry or wet milling operation, i.e. when taxpayer is also a miller. In both instances therefore, the corn oil is subject to the 10% sales tax imposed by Section 199 of the Tax Code, as amended." In view thereof, pursuant to Revenue Memorandum Circular No. 33-79, your client is subject to the 10% sales tax on the sales of corn oil produced out of its milling operations. However, in view of our previous ruling of November 6, 1970, holding that corn oil extracted from corn germ produced out of the taxpayer's milling operation, is not subject to any percentage tax, Revenue Memorandum Circular No. 33-79 which, in effect, revoked the said ruling, which revocation is prejudicial to your client, takes effect only as of May 3, 1979 insofar as the sales of corn oil of your client is concerned, pursuant to Section 327 of the Tax Code. Moreover, as manufacturer of corn oil, your client is subject to the P100.00 fixed tax prescribed in Section 192(1) of the Tax Code, in addition to the annual graduated fixed tax it has paid as a miller under Section 192 (3) (mm) of the same Code. cdta Very truly yours, RUBEN B. ANCHETA Acting Commissioner