Tax Liability of a Real Estate Dealer

July 6, 1960 BIR RULING NO. 306-60 Hilado & Hilado Law Offices P. O. Box 199, Bacolod City Attention : Mr . Emilio Y . Hilado, Jr . Gentlemen : This is with reference to your letter dated June 8, 1960, requesting this Office, on behalf of your client, Miss Hortencia Gamboa of Bacolod City, to reverse the ruling (RO8-Ruling No. 6, S. of 1960) of the Regional Director, BIR Regional District No. 8 that your client is liable to the real estate dealer's fixed tax for the years 1954 to 1956. LLjur The records show that Miss H. Gamboa is the owner of a real estate property (fishpond) which she continuously leased from 1953 to 1958, and has received a yearly rental income of P3,250.00. The only issue in this case is whether or not Miss Gamboa is a real estate dealer from 1953 to 1955. The pertinent provision of the Tax Code applicable in this case is Section 194(s) which reads as follows: " . . . 'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property on his own account as principal and holding himself out as a full or part time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . . ." (As amended by Section 6 of R.A. No. 588). There is no doubt that Miss Gamboa, under the facts abovestated, is considered a real estate dealer pursuant to Section 194(s) of the Tax Code, as amended by R.A. No. 588, subject to the real estate dealer's fixed annual tax of P150.00 imposed in Section 182(A)(3)(s), in relation to Section 180, of the same Code. This question has already been settled by the Supreme Court in G.R. NO. L-11175, decided on Oct. 20, 1959, and by the Court of Tax Appeals in C.T.A. Case No. 544, decided in Sept. 14, 1959, wherein both decisions laid down the rule that a person is considered a real estate dealer under section 194(s) of the Tax Code, as amended by R.A. No. 588, by the mere fact that he is the owner of the property rented for the aggregate amount of P3,000.00. The Court of Tax Appeals rules further that "The cases of Argellies vs. Meer, supra [G.R. No. L-3730, April 25, 1952] Imperial vs. Collector, supra [G.R. No. L-7924, September 30, 1955], and Sanchez vs. Collector, supra [G.R. No. L-7521, Oct. 18, 1955], relied upon by petitioner, are not applicable to the case at bar. These three cases were based on section 194(s) before the same was amended by Republic Act No. 588 which took effect only on September 22, 1950. Whereas, this case is governed by the law, as amended by Republic Act No. 588, . . ." On the other hand, even assuming that your client merely leased her usufructuary right, as you alleged, over the real estate property from 1953 to 1955, nevertheless, your client is still considered a real estate dealer. Her continuos act of leasing the real estate property (fishpond) for an aggregate amount of P3,250.00 a year for several years, though under a single contract of lease, is undoubtedly a business for profit on her own account as principal and holding herself out as a full time dealer in real estate. It is clear, therefore, that your client, whether she is the owner or holder of a usufructuary right over the property in question, is liable to the real estate dealer's fixed tax (C-8) in the sum of P450.00 for the calendar years 1953 to 1955. It may be stated here that the Regional Director committed an error in withdrawing his original demand for payment in the sum of P150.00 which is due in 1954 on the alleged ground of prescription. Since a taxpayer, under the Tax Code, is not required to file a return for a business subject to privilege fixed tax under Title V thereof, the prescriptive period is ten (10) years from the discovery of failure to pay the fixed tax required by law. The records show that this bureau discovered the failure to pay the real estate dealer's tax sometime in 1959. Accordingly, the amount due from your client for the years 1954 to 1956 in the amount of P450.00 (based on her rental income for the calendar years 1953 to 1955) has not prescribed. The Regional Director, likewise, committed an error in not including the real estate dealer's tax of P150.00 due and payable for the calendar year 1956. The increased rates imposed by Republic Act No. 1612 actually took effect only in January 1, 1957 pursuant to Republic Act No. 1856. Since the income derived from the rental of your client's fishpond for the calendar year 1956 amounted to more than P3,000.00, the additional imposition of P150.00 as real estate dealer's fixed tax for the said year, is justifiable under the circumstances. In view of the foregoing considerations, your request for reversal of RO8-Ruling No. 6, Series of 1960, has to be, as it if hereby, denied. You are, therefore, requested to urge your client, Miss Hortensia S. Gamboa of Bacolod City, to pay to the City Treasurer of the same City the real estate dealer's fixed tax, computed as follows: For calendar years 1953 to 1955 P450.00 For calendar year 1956 150.00 Total fixed tax due and payable P600.00 Compromise penalty for violation of the last paragraph of Sec. 208 of the Tax Code 40.00 Grand Total due and payable P640.00 ====== It is desired further that you inform your client to pay the sum total of P640.00, above-computed within fifteen (15) days from receipt hereof, otherwise, we will proceed with the collection of the same thru summary remedies in accordance with law without further notice. Please notified, in this connection, that we consider this decision as our final decision . Any dispute on this ruling, therefore, will have to be settled in the Court of Tax Appeals, if your client so desires. cdt Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue