Case of the U.S. Tobacco Corporation

November 3, 1959 BIR RULING NO. 580-59 2nd Indorsement Returned to the Chief, Tobacco & Miscellaneous Tax Division, thru the Revenue Operations Executive (Assessment) the entire docket, bearing on the case of the U.S. Tobacco Corporation, Manila. The facts pertinent to the issue are as follows: The U.S. Tobacco Corporation is a manufacturer of tobacco products. As such, it has provided itself with the corresponding privilege tax. During the year 1958 to the first semester of 1959, the subject corporation sold several hogshead of imported Virginia and locally grown leaf tobacco, as well as bales of native tobacco to other cigarette manufacturers. The question presented is whether under the circumstances, the U.S. Tobacco Corporation is also liable to a separate privilege tax, as a Wholesale leaf tobacco dealer" imposed by section 182(A)(3)(m) of the Tax Code. The law enumerated certain lines of business under Section 182(A)(3). In these enumerations, the law saw fit to consider the business of "wholesale leaf tobacco dealers, and "manufacturers of tobacco, cigars and cigarettes", as a separate and distinct line of business from one another. A person therefore engaged in the manufacture of tobacco, cigars and cigarettes may also be taxed as a wholesale leaf tobacco dealer if he so engages himself as such. The U.S. Tobacco Corporation as stated, is engaged in the manufacture of tobacco, cigars and cigarettes for which it is liable to the privilege tax under section 182(A)(3)(o), but in selling leaf tobacco at wholesale, it engages in another line of business, which should be subject to another privilege tax prescribed under section 182(A)(3)(m), both of the Tax Code. The fact that the selling of leaf tobacco at wholesale is only an incidental activity of the business, does not militate against the imposition of a privilege tax. Section 178 of the same Code made the point mere apparent when it provided "that one line of business or occupation does not become exempt by being constructed with some other business or occupation for which such tax has been paid." While it is true that privilege taxes prescribed in section 182 of the Tax Code in relation to Section 178 of the same, are to be imposed only on persons or entities who engage in the activities mentioned or classified therein for "business" purposes, yet the determination of this matter is a question of fact. For which reason, we are more inclined to support the recommendation of the investigating agents to the effect that the subject corporation be held liable to pay the privilege tax imposed under Section 182(A)(3)(m) of the Tax Code, as a "wholesale dealer of leaf tobacco." It appears from their report that since the year 1958 the subject corporation has been selling hogshead of imported Virginia and locally grown leaf tobacco, as well as bales of native tobacco to other cigarette manufacturers. And there appears to be a strong indication that it intends to continue engaging in this particular activity, by the fact they have already paid the privilege tax as a wholesale leaf tobacco dealer for the second semester of 1959. The question of permanency of this activity is of no importance. In view thereof, he is therefore advised to enforce the collection of the amount recommended. (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue