3% Franchise Tax on Radio Broadcasting Stations

July 24, 1990 BIR RULING NO. 140-90 117 000-00 140-90 Gentlemen : This refers to your letters dated March 12 and April 10, 1990 stating that you are a domestic company engaged in radio/television broadcasting; that you sell services by promoting thru your radio/TV program the products of your advertisers who in turn hire the services of advertising agencies; that it is your practice to take in your books the gross billing to advertisers but 15% represents agency commission which goes directly to the advertising agency; and that normally, the advertisers remit the payments of your billing to its agencies and only 85% is remitted to RPN-9. aisadc Based on the foregoing, you are requesting information from this Office on the following: "1. What is the rate of franchise tax assessable to RPN-9? "2. What do you mean by gross receipt in point of view of franchise tax? "3. Is RPN-9 really obliged to withhold tax on agency commission which was paid directly to agency by the advertisers?" In reply, please be informed as follows 1. Under paragraph (b) of Section 227 (renumbered Section 117 by E.O. No. 273) of the Tax Code, as amended by E.O. No. 72, radio broadcasting stations are subject to the franchise tax at the rate of 3%. Television stations are not included therein because contrary to your allegation, the original text of E.O. No. 72 does not contain the conjunctive word "or" in between the words "radio" and "broadcasting stations". In other words, television stations are subject to a separate franchise tax at the rate of 5% under paragraph (c) thereof. Such being the case, RPN-9 is subject to franchise tax of 3% for operating a radio broadcasting station and another 5% franchise tax for operating a television station. (Revenue Memorandum Circular 49-86). 2. The term "gross receipts", for franchise tax purposes, does not include money which in fact belongs to another person. Accordingly, since 15% of your gross billings represents agency commission which goes to the advertising agency, the franchise tax due from RPN-9 should be based only on the 85% actually remitted to the network. 3. Since the 15% agency commissions are paid directly to the advertising agency by the advertisers, the latter are the one who should deduct and remit to this Bureau the 1% expanded withholding tax required to be withheld under Section 1 (e)(2)(h) of Revenue Regulations No. 6-85, as amended, otherwise known as the Expanded Withholding Tax Regulations. Very truly yours, (SGD.) JOSE U. ONG Commissioner