Tax Exemption Granted to Sugar Producers' Cooperative Marketing Association, Inc.

October 5, 1960 BIR RULING NO. 455-60 MEMORANDUM FOR The Revenue Operations Executive (Assessment) In B.I.R. Ruling No. 2, series of 1960, we have already established the rule that the Sugar Producers' Cooperative Marketing Association, Inc., as an association duly organized under Act No. 3425, as amended is exempt from the advance sales or compensating tax on shipments consigned to it in barter of sugar belonging to its members. cdll The marketing of the sugar of its members is perhaps the most essential function of the association under the law. Marketing may be effected by sale, barter or exchange. That's why the sales tax is levied on the sale, barter or exchange of the articles subject thereto. Under Act 3425, the association is exempt from all percentage taxes on its marketing operations. Since barter is a means to the marketing of the produce of its members, necessarily it cannot be subjected to the advance sales or compensating tax. Ordinarily, bartered goods coming into the country are subject to the advance sales or compensating tax. But when the State saw fit to exempt from all percentage taxes an association of agricultural producers in order to secure to the latter the orderly marketing of their products, we would not be giving due course to the law if we should nevertheless impose taxes on the authorized activities of any such association. It should be borne in mind that it has always been the policy of the State to encourage the formation of cooperative associations. And by way of inducement, the State relieves such association from the burden of taxation. It should further be observed that notwithstanding such concession, the cooperative movement is not gaining any momentum. Lately, the State again enacted a new cooperative law, this time in favor of non-agricultural producers. The exemption under this law is even broader and it permits them even to operate purely in a business manner for profit. Notwithstanding, few, if at all, had taken advantage of the law. Now if we are to disregard the policy of the State and insist on taxing such associations because we fear that we are losing revenue, then we would be sabotaging the policy of the State and disregarding its laws. The law is the law and we must be guided by it. This Office believes that B.I.R. Ruling No. 2, series of 1960, is well taken. cdll Please be guided accordingly. MELECIO R. DOMINGO Commissioner of Internal Revenue