Tax Liability of the Proprietor or Operator of the Refined Sugar Factory

June 15, 1960 BIR RULING NO. 261-60 Messrs. Garcia, Perlada & Associates Attorneys-at-law 1589 Manhaligue Street M a n i l a Gentlemen : In reply to your letter dated June 13, 1960, I have the honor to inform you as follows: The proprietor or operator of a refined sugar factory cannot deduct from the purchase price of the raw sugar sold to him by a cooperative association the amount corresponding to the 2% tax. In so doing, the proprietor or operator of the refined sugar factory will in effect be subjecting to tax an otherwise exempt product. However, in computing the tax due on the refined sugar, the proprietor or operator of the refined sugar factory is permitted under the third paragraph of section 189 of the Tax Code, to deduct from the actual selling price or market value of the refined sugar the total cost of the raw sugar. The total cost of the raw sugar belonging to a cooperative association shall nevertheless remain deductible even if it is exempt from tax because if deduction is not allowed, the exemption granted a cooperative association under section 48 of Act No. 3425, as amended by R.A. No. 702, would in effect be rendered nugatory. Thus, if the purchase price of the association's raw sugar is P13.00 and the selling price or market value of the refined sugar is P15.00, in computing the tax due on the refined sugar, the proprietor or operator of the refined sugar factory shall deduct P13.00 (cost of the raw sugar) from P15.00 (selling price or market value of the refined sugar). Where the contract between the Central and the cooperative association provides for sharing on the basis of the refined sugar, the share of the association in the refined sugar is exempt from tax, pursuant to the aforesaid Act No. 3425. lexlib Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue