Tax Liabilities of a Corporation Engaged Both as a Common Carrier and as a Forwarder

December 14, 1981 BIR RULING NO. 268-81 205 016-71 268-81 Mr. Roman M. Umali 18 Ubay, SMH Quezon City Gentlemen : This refers to your letter dated August 14, 1981, requesting our opinion as to the taxability of a corporation engaged in the business of transporting goods or merchandising for other persons and at the same time accepting goods or merchandise for shipment through other common carriers. It is represented that ABC Corporation is engaged primarily in the business of common carrier or transportation contractor, and for this purpose, it is enfranchised to own and operate numerous trucks for hire. However, in addition to transporting goods or merchandise for shipment through its own trucks, it also accepts goods or merchandise for shipment through other common carriers. You believe that notwithstanding the inclusion of the term "forwarding establishments" in Section 205(13) of the Tax Code, the corporation is still taxable under Section 207 of the same Code as a common carrier or transportation contractor; that the portion of the business of the corporation pertaining to goods or merchandise shipped through other common carriers is merely incidental to its main business as a common carrier or transportation contractor; that if an activity is merely incidental to a principal business, the incidental activity is not separately taxable; and that even if the bulk of the business of the corporation is derived from the transportation or shipment of goods through other common carriers, it remains a common carrier or transportation contractor with respect to such goods. In reply, please be informed that, the business of ABC Corporation pertaining to goods or merchandise shipped through other common carriers makes the corporation a "forwarding establishment", subject to the 3% contractors tax under Section 205(13) of the Tax Code. "A 'forwarding merchant' or 'forwarder' is one who ships or sends goods for others to their destinations by the instrumentality of third persons without himself incurring the liability of a carrier to deliver them, and neither includes a consignor shipping goods nor a carrier engaging in transporting them." (In re Emerson Marlow & Co., 189 F. 95, 227 C. C.A. 635) This Office agrees with the theory that any transaction which is merely a part of or incidental to and necessary to the main business is not taxed separately. However, in the instant case, the corporation in question is engaged in the businesses of common carrier, i.e. transporting goods and merchandise for others, and forwarder, i.e. accepting goods and merchandise for shipment through other carriers. The latter is not merely incidental to the former. In other words, the corporation is pursuing a line of business separate and distinct from the other. Moreover, a transportation contractor or common carrier subject to 2% tax under Section 207 of the Tax Code, is one who actually undertakes the carrying of persons or property from one place to another and actually operates the means of transportation utilized in such carriage. This is not so with respect to the activity of the corporation in question which consists of accepting merchandise for shipment through other carriers. For in such case, the transportation of merchandise is actually undertaken by other carriers which actually operate their own means of transportation. Under these circumstances, the corporation cannot be considered a common carrier. In view thereof, the corporation is subject to the annual fixed tax of P100.00 and to the 2% tax as common carrier in accordance with Sections 192(1) and 207 of the Tax Code, as amended. Likewise, it is subject to a separate annual fixed tax of P100.00 and to the 3% tax as forwarder in accordance with Sections 192(1) and 205(13) of the same Code. cdtech Very truly yours, RUBEN B. ANCHETA Acting Commissioner