Tax Liability Under Sec. 191 (Tax Code)

December 2, 1958 BIR RULING NO. 701-58 Mr. J. Laurea Room 535 Madrigal Bldg. Escolta, Manila S i r : Reference is made to your letter dated October 31, 1958 stating the following: LLphil "One of my clients have just received an offer from a manufacturing concern to manage a fleet of trucks and barges under the following conditions: 1. That the trucks and barges will remain the property of the manufacturing company. 2. That the trucks and barges will be used exclusively for the hauling of the incoming cargoes of the manufacturing firm and the delivery of its products to its Manila warehouses. 3. That the operator or manager will receive a cash advance of P5,000.00 every weekend for the expenses of operation of the trucks and barges. cdpr 4. That the operator will be the employer of the personnel to operate the trucks and barges and will be solely responsible to the people he hires. 5. That the operator will allot as his own compensation the amount of P1,000.00 per month out of the advance of P5,000.00 weekly. 6. That an accounting of the P5,000.00 weekly advance will have to be made showing the expenses of operation, including the P1,000.00 allowed to the operator and any balance remaining will be subject to future adjustment between the manufacturer and the operator." You now request for an opinion as to whether your client, under the facts set forth above, is subject to tax under Section 191 or Section 192 of the National Internal Revenue Code. In reply thereto, I have the honor to inform you as follows: It is obvious from the facts stated above that your client is not a transportation contractor. It appears thereof, that the only question to be decided here is whether or not your client can be taxed under Section 191 of the Tax Code. LLjur Under the amendment effected to Section 191 of the Tax Code by R.A. No. 1612, "Independent Contractors" are made subject to the 3% tax prescribed therein. The addition of the term "other independent contractors" to the enumeration of taxable contractors is intended to cover contractors not falling within the purview of those enumerated. It contemplates those person whose activities consist essentially of the sale of service. In order, however, that a person may be considered as independent contractor, he must be one who, in the pursuit of an independent business, undertakes to do a specific piece of job or work for other persons, using his own means and method without submitting himself to control as to the petty details. Whether one is an independent contractor or not depends on all the facts of his employment. From your letter, it appears that your client undertakes to haul the incoming cargoes of a manufacturing firm and also the delivery of its products to its Manila warehouses. Your client employs his own personnel and pays their salary. They are responsible to him and not to the firm. Trucks and barges owned by the firm are placed at his disposal. He is given a weekly advance of P5,000.00 from where he gets his compensation and the maintenance and operating expenses of the trucks and barges. It appear quite clear that your client is rendering, for compensation, a particular service, the transportation of the principal's incoming and outgoing shipments. The next question that is necessarily to be resolved is whether or not your client will undertake the service as an employee of the firm or in his capacity as "independent contractor." Ordinarily, one contracting to do a piece of work, with assistance selected by himself, for one having no control over such assistants or right to direct manner of doing work, except to require that it be done in accordance with contract specifications, is not an employee. (Vol. 14, Words and Phrases, p. 569). On the other hand, an independent contractor usually enters into contract to do a specific piece of work for specific price, controls, pays and discharges his own employees, furnishes his own tools and materials, and directs and controls the execution of the work." (Vol. 14, Works and Phrases, p. 572) In the light of the foregoing, this Office is of the opinion, as it hereby holds, that, under the facts obtaining herein, your client is an independent contractor, subject to the fixed and percentage taxes prescribed in Sections 182 and 191 of the Tax Code. Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue