Exemption from Payment of Income Tax and the Filing of Income Tax Returns

December 11, 1989 BIR RULING NO. 247-89 24 (a); 100 (a); 114 000-00 247-89 Gentlemen : This refers to your letter dated October 30, 1989 relative to your request for exemption from payment of income tax and the filing of income tax returns under Section 24 of Regulations No. 2 as amended by Revenue Regulations No. 7-64. These regulations implement Section 26 of the Tax Code which enumerates the organizations not subject to income tax. It is represented that USM Consumer's Cooperative, Inc. is a non-profit, non-business entity composed of faculty and students as members; that the purpose for which it was organized is to provide service to employees and students of the University of Southern Mindanao offering for sale consumer goods to customer students and employees; that it is registered with the Regional Cooperative Development Assistance Office (RCDAO) under Registry No. F4RR-015 dated September 15, 1982; that its actual activity is the purchase and sale of groceries, sari-sari products, toiletries, garments, school supplies and operates a school canteen; and that the sources of its income are from capital contributions of members and minimal profits which are allegedly plowed back to business operations, dividends and rebates to members. It appears, however, from the documents submitted by you particularly your Constitution and By-laws that, aside from membership fees, you have a capital stock to which a member may purchase a minimum of 100 shares with a par value of P10.00 each share, or P100.00 which was increased to P500.00 in 1980 and to P1,000.00 payable at the end of April 1987; that you distribute dividends to members and give per diems to the Board of Directors. In reply, please be informed that from the foregoing facts, you are engaging in business and for profit, in which case, you do not fall under any of the organizations enumerated in Section 26 of the Tax Code. Accordingly, you are subject to income tax imposed under Section 24(a) of the same Code. Moreover, you are subject to the 10% value-added tax under Section 100(a) of the Tax Code, on your sale of groceries, sari-sari products, toiletries, garments, school supplies and others, even if the sales are made to students and employees. Finally, for operating a school canteen, you are subject to the 4% caterer's tax under Section 114 of the same Code. Very truly yours, (SGD.) JOSE U. ONG Commissioner