Taxability of the "Other Construction Work Contractor" or as "Sub-Contractor"

October 22, 1959 BIR RULING NO. 514-59 Messrs. Raul Urra & Company P. O. Box 1920, Manila Gentlemen : Reference is made to your letter of the 21st Instant, requesting a ruling as follows: "We would like to refer to you our contracting business of terrazo, for which we would like to request your office for a definite ruling regarding the following: "We have two (2) methods of laying terrazo: a) pre-cast; and b) cast-in-place "Pre-cast terrazo means that the terrazo is cast into slabs, either by hand press or our most modern hydraulic-vibrated press. After we cast the terrazo in slabs, it is laid at the jobsite bonded to floor with concrete. When the floor has set sufficiently hard, we machine rub, using number 24 grit or finer abrasive stones for the initial grinding. After the 24 grit we resurface the floor using number 80 grit or finer abrasive stones, after which a light grouting of neat portland cement of the same kind and color as the matrix (terrazo) is applied to the surface, filling all voids. The grouting shall remain until the time of the final grinding, by a very fine stone. After this fine grinding, the oxalic acid salts are then applied to get proper glazing. After the oxalic acid, the floor is polished and sealed. Only then is job finished. "Cast -in-place terrazo is the same as the pre-cast terrazo, except that the cast-in-place terrazo is directly bonded to the floor and not in the form of slabs. When the floor has set sufficiently hard, the same treatment or service is given to the floor as in pre-cast terrazo. "The rubbing, stone grinding and polishing are done by machine, and by hand in the case of sides, stairs, nosings and or all other areas where the machine cannot grind. "In our business, we operate in the following way: "An architect, engineer, contractor or owner of the house or building to be constructed comes to us and requests for an estimate for the construction of portions of the said house or building, such as the floors, walls, partitions and/or stair treads and risers. We measure the area, compute the cost of the materials to be used for the construction, as well as the number of days to be spent thereof, and submit an offer based on our estimate. If an agreement is reached, a contract is drawn up covering the construction work, with specifications as to the kind and color of the terrazo, the area to be covered by the construction, the duration of the construction, etc. "It may be stated that in this construction job, around 70% thereof consists of labor and only 23% of materials. Likewise, we do not nor intend to sell slabs of terrazo (in the case of pre-cast terrazo)." With said letter you submitted copies of two contracts entered into by that company on June 22 and 27, 1959 with Mrs. Pacita Feliciano and Mr. Rufino Rodriguez, respectively. In answer thereto, I have the honor to inform you that, based on the aforequoted facts, as well as on the copies of said contracts, particularly the "Stipulations, Terms and Conditions" appearing on the reverse side thereof, this Office is of the opinion and so holds that company fits squarely into the meaning of the term "other construction work contractors" found in section 191 of the Tax Code. Accordingly, it is subject to the annual fixed tax of P20.00 prescribed in section 182(A)(1) of the same Code and to the 3% contractor's tax imposed in section 191. The foregoing ruling is premised on the circumstance that in the construction contract entered into by the company, the contractee is the owner of the house or building to be constructed or under construction. In cases where the contract is entered into between the company and the architect, engineer or contractor, as the case may be, who has undertaken the construction of the house or building as a whole, the company becomes a mere sub-contractor. In those cases, however, the tax liabilities of the company remain unchanged. In other words, whether as "other construction work contractor" or as sub-contractor, that company is subject to the aforesaid fixed and percentage taxes. Needless to state, the company is also subject, in proper cases, to the income and additional residence taxes. LLphil Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue