3% Excise Tax on Members of An Association

June 8, 1989 BIR RULING NO. 120-89 151 (a) (2) 127 000-00 120-89 Gentlemen : This refers to your letter dated November 22, 1988 requesting clarification who among the following members of that association are subject to excise tax, viz: 1. Those who do not do any quarry operation but purchase their marble blocks from lessees, owners and quarry operators. 2. Those who enter into contract with claim owners for extraction of marble blocks. 3. Those who enter into operating contract under Lessee-Lessor arrangement. 4. Those who own a claim and are in actual quarry operation and cutting of marble blocks. cdt You also want to know whether the 3% excise tax imposed on mineral products is based on the actual market value of the raw blocks upon removal from the quarry or on the finished products after going through processing and later delivery. In reply, please be informed that the excise tax on mineral products under Section 151(a)(2) of the Tax Code is payable by the lessee, owner or operator of the mining claim. Accordingly, members of that association falling under category 2, 3 and 4 as aforestated are subject to the 3% excise tax inasmuch as they are either the lessee, owner of operator of a mining claim. However, those who do not do any quarry operation but merely purchase their marble blocks from lessees, owners or quarry operators are not subject to the 3% excise tax unless the tax on the marble blocks which they purchased has not been paid, in which case, they (purchasers) shall become liable for payment thereof being the owners/possessors of the marble blocks. This is in accordance with Section 127 of the Tax Code, as amended, which provides that "should domestic products be removed without the payment of the tax, the owner or person having possession thereof shall be liable for the tax due thereon." Regarding the basis of the 3% excise tax, please be informed that the same is based on the market value of the extracted or produced minerals, mineral products or quarry resources upon removal from the mine site. (Section 151(a)(2), Tax Code) However, if the members of that Association are actually engaged in quarry operations and in the manufacture of the extracted marble blocks into finished products cut the same into various sizes, the computation of the 3% excise tax shall be based on the selling price minus the manufacturing and processing cost to arrive at the market value of the mineral products (marble blocks) prior to manufacturing. This finds support in BIR Ruling No. 281-87 dated September 10, 1987, citing the decision of the Court of Tax Appeals in the case of Atlas Consolidated Mining and Development Corporation (CTA Case No. 2842 dated January 23, 1981), wherein it was ruled that "manufacturing and processing cost incurred after the removal of the copper concentrate from the mine site up to its manufacture into wire bar is deductible from the price quotation of the latter for the purpose of determining the royalty due from the copper concentrate." cd Very truly yours, (SGD.) JOSE U. ONG Commissioner