Contractor's Tax Liability of Koppel (Philippines) Inc.

September 15, 1960 BIR RULING NO. 397-60 Messrs. Sycip, Gorres, Velayo & Co. 490 San Luis, Manila Gentlemen : This is in answer to your letter of August 18, 1960 wherein you raised certain questions regarding the 3% contractor's tax liability of your client, Koppel (Philippines) Inc., under the facts you stated as follows: "One of our clients, Koppel (Philippines) Inc., who is engaged in the sale of all kinds of machineries, is maintaining a machine and repair shop for servicing and repairing tractors, electric generators, air-conditioning units, diesel electric sets, elevators, mechanical devices, instruments and apparatus, etc. The company also operates a Spare Parts Department which is an independent department from its Shops and Service Department (machine and repair shop). The spare parts used in servicing and repairing the equipment mentioned above is produced from the Spare Parts Department of the company. The Spare Parts Department also sells to the general public indiscriminately irrespective of whether the buyer has repair job orders with the company or not." Under the above circumstances, please be informed that the amount corresponding to the service charges for repair paid by the customer shall be subject to the 3% contractor's tax, whereas, the amount corresponding to the price of the spare parts used and also paid for by the customer shall be for the account of the "Spare Parts Department subject to the graduated fixed annual tax. Where only one receipt is issued to a customer showing thereon the cost of labor and the price of the spare parts, only the cost of labor shall be subject to the 3% contractor's tax provided that the spare parts used are invoiced as a sale of the "Spare Parts Department." Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue