Marketing Company of Book Publishers is Not Subject to Contractor's Tax but Subject to Subsequent Sales Tax on Sales and Purchases of Books

August 17, 1987 BIR RULING NO. 242-87 170 000-00 242-87 Gentlemen : This refers to your letter dated August 5, 1987 stating that organization is an association of book publishers engaged also in the reprinting and sale of textbooks to public schools and registered with the Securities and Exchange Commission under SEC Registration No. 140968; that some of its members who are publishers/printers have separate marketing companies which handle exclusive sale of their reprinted textbooks to public schools; that lately, your marketing companies' collections from public schools were subjected to the 4% withholding tax; and that you now request our opinion on whether the said marketing company of a publisher is subject to the 4% contractor's tax. In reply, please be informed that only the publishers and printers are subject to the 4% contractor's tax, pursuant to Section 170 (n) of the Tax Code, as amended. Accordingly, the marketing company is not subject to the 4% contractor's tax. Moreover, although the textbooks are sold to a public school, a government entity, its money payments to the marketing company are not subject to the 4% withholding tax prescribed by Republic Act No. 1051, as implemented by Revenue Regulations No. 20-86. However, since there were purchasers and sales of textbooks between the publisher and the marketing company, the latter is subject to 1.5% subsequent sales tax pursuant to Section 164 of the Tax Code, as amended by Executive Order No. 36, and therefore, money payment to it is subject to the 1.5% withholding tax imposed in Section 3 (a)(2) of Revenue Regulations No. 20-86, implementing Republic Act No. 1051. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner