Request for Clarification on Ruling Re: Contractor's Tax Imposed on Arrastre Operators

November 18, 1981 BIR RULING NO. 234-81 205-13 62-80 234-81 Philippine Ports Authority 5th Floor, BF Condominium Aduana, Intramuros Metro Manila Attention: Mr . Maximo S . Dumlao, Jr . Assistant Executive Officer Gentlemen : This refers to your letter dated August 27, 1981, requesting clarification on BIR Ruling No. 62-80 dated December 22, 1980 which states that an arrastre operator can legally pass on to its customer the 3% contractor's tax prescribed in Section 205 of the Tax Code of 1977, as amended. cdt In reply, I have the honor to inform you as follows: 1. Although this Office has ruled that the contractor can legally pass on the 3% contractor's tax to the customers, the latter is not obliged to absorb the tax. However, it is noted that the tax is a part of the consideration which is fixed by the parties only. "Many years ago, Mr. Justice Oliver Wendell Holmes expressed dissatisfaction with the use of the phrase "pass the tax on". Writing the opinion of the U.N. Supreme Court in Lash's Products v. United States , he said: The phrase "passed the tax on" is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. The purchaser does not really pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all. . . . The price is the sum total paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. Therefore, it is part of the price . . . ." (Philippine Acetylene Co. vs. Commissioner, G.R. No. L-19707, August 17, 1967) Consequently, whether or not the customer should absorb the tax is a matter which he and the contractor should decide between themselves. 2. In case the customer refuses to be billed on the 3% contractor's tax, that Authority cannot enforce the collection thereof from said party. This is so because, as herein abovestated, the billing of the tax to the customer is a matter which should be decided by the parties themselves. cdtech Very truly yours, RUBEN B. ANCHETA Acting Commissioner