3% Common Carrier's Tax

July 12, 1989 BIR RULING NO. 140-89 115 000-00 140-89 Gentlemen : This refers to your letter dated February 16, 1989 stating that your client, Isla Luzon Maritime, Inc. (ILMI), a domestic corporation, entered into a contract of affreightment with National Steel Corporation (NSC), Iligan City, for the transport of the latter's cargo to Manila or other parts of the Philippines; that due to the increase volume of cargoes, your client plans to charter vessels of another domestic shipping company (Company A); that your client pays the corresponding 3% common carrier's tax based on the amount of gross receipts provided for in its contract with NSC, pursuant to Section 115 of the Tax Code, as amended by Executive Order No. 273. Under the foregoing facts, since your client is paying the 3% tax based on its contract with the NSC, your query is whether Company A is still liable for the payment of the 3% tax based on the amount received from your client. In reply, please be informed that the 3% tax imposed by Section 115 of the Tax Code is an excise tax; it's a charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation; and that the Supreme Court, in the case of Commissioner vs. U.S. Lines Co., L-16850, May 30, 1962 interpreting the percentage tax on common carriers under Section 192 (now Section 115) of the Tax Code held that what the legal provision purports to tax is the business of transportation, so much so that, the tax is based on the gross receipts. (Japan Air Lines vs. Commissioner, CTA Case No. 1634, January 27, 1968) Accordingly, for engaging in the business of transporting the cargo of NSC, your client is subject to the 3% common carrier's tax based on the amount paid by NSC which amount constitutes its gross receipts derived from said business. Likewise, Company A, is liable for the payment of the 3% common carrier's tax based on the amount paid by your client which amount constitutes its gross receipts derived from its business. In other words, the fact that your client paid in full the 3% common carrier's tax based on the amount received from NSC cannot in any way exempt Company A from its own liability under Section 115 of the Tax Code. (See P. J. Wiener Co., Ltd. vs. Commissioner, G. R. No. L-16417, January 31, 1963) casia Very truly yours, (SGD.) JOSE U. ONG Commissioner