Taxability of the Franchise Holder

April 18, 1988 BIR RULING NO. 145-88 103 (j) 000-00 145-88 Gentlemen : This refers to your letter dated January 28, and March 17, 1988, in effect, requesting a ruling whether or not you are subject to value-added tax. It is represented that you were granted a franchise by the defunct Public Service Commission to operate and maintain an ice and cold storage plant; that you are currently paying franchise tax pursuant to BIR Ruling No. 227(a)-020-79-172-86 stating: ". . . that you are a holder of a franchise granted by the Public Service Commission to operate and maintain ice plant and cold storage for the purpose of manufacturing and selling ice and providing ice and cold storage facilities in Quezon City and Metro Manila; that the original holder of the franchise was Fidel L. Isip; that you have been paying the sales tax prescribed under Section 119(a) of the Tax Code before its amendment by P.D. No. 1994; and that very recently, you learned that other ice plants and cold storage similarly operating under franchise are paying only 3 1/2 franchise tax citing BIR Ruling No. 020-79 dated April 24, 1979. "On the basis of the foregoing representation, you now request a ruling as to whether you are subject only to a franchise tax of 5%. "In reply, please be informed in the affirmative. As a franchise holder, you are subject to a franchise tax of 5% on the gross receipts derived from your business of manufacturing ice and supplying cold storage facilities pursuant to Section 227(a) (formerly Section 267) of the Tax Code, as amended and to an annual fixed tax of P2,000.00 imposed by Section 161(3)(gg) of the same. "Moreover, you are subject to income tax on income derived from your business of operating an ice plant and cold storage." In reply, please be informed that as a franchise holder, you are subject to franchise (percentage) tax pursuant to Section 117(c) Title V of the Tax Code, as amended. Consequently, you are exempt from value-added tax pursuant to Section 103(j) of the same Code, as amplified by Section 9(b)(10)(E) of Revenue Regulations No. 5-87. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner