Computation of the Sales tax of Radio Manufacturing Division and Radio-Phonograph Division

July 2, 1959 BIR RULING NO. 338-59 Radiowealth, Inc. 418-442 Tanduay St. M a n i l a Gentlemen : Reference is made to your letter dated May 18, 1959 requesting information whether or not your computation of the sales tax payable by your Radio Manufacturing Division and Radio-Phonograph Division is in order. prcd You submitted the following computation: I PERCENTAGE TAX TO BE PAID BY THE RADIO MANUFACTURING DIVISION Selling Price (Wholesale) to Radio-Phonograph Div. (Tax included) P 626.00* Less: Deductible cost of raw materials 282.00* Difference 107% P 344.00* 100% Taxable Amount P 321.49* 10% of 7% Sales Tax P 2.25* II PERCENTAGE TAX TO BE PAID BY THE RADIO-PHONOGRAPH DIVISION Selling Price (Tax included) Retail P1,100.00* Less: Deductible cost of raw materials: a. bill price of Manufacturing Division P626.00 b. additional accessories and parts added 74.00 700.00* Difference 130% P 400.00* 100% Taxable amount P 307.69* 30% Sales Tax P 92.31* * Note: The above figures are hypothetical. It appears that the Secretary of Finance, in his letter to you dated April 28, 1959, ruled that, inasmuch as you are enjoying tax-exemption privileges in the manufacture of radio sets, the amount for which your Radio Manufacturing Division will bill your Radio-Phonograph Division, including 10% of the normal tax, for the radio sets transferred by it to the latter, is deductible from the gross selling price of your radio-phonographs, pursuant to section 186-A of the Tax Code. It appears further that you are subject to the normal tax on your manufacture of radio-phonographs. In reply thereto, I have the honor to inform you that, in the light of the prevailing circumstances, the first computation submitted by you is not in order because the tax is computed on the basis of 7%, whereas, you are subject to only 10% of 7% or .7%. At any rate, billing of the tax by merely annotating in the sales invoice the words "sales tax included" is no longer allowed because in the case entitled "Connel Bros, Co. (Phil.) vs. Collector," CTA No. 357, decided on April 27, 1959, the court held that the privilege of shifting the sales tax to the customer is allowed only when the tax is billed as a separate item in the sales invoice. The second computation is, however, correct because whatever appears as the gross selling price (tax included) in the first computation invariably remains as the purchase price to the customer, regardless of any error in the computation of the tax. You are, therefore, advised to bill the tax as a separate item in the sales invoice. Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue