Taxability of a Proposed Corporation

December 11, 1958 BIR RULING NO. 712-58 Mr. Ruperto A. Francisco c/o Manila Gas Corporation 1536 Otis, Paco, Manila S i r : This is with reference to your letter dated December 2, 1958, requesting for a ruling as to the taxability of a proposed corporation on the basis of the following facts, to wit: llcd "A proposed corporation has for its purpose to engage in the manufacture of garden tools. Its proposed operation are as follows: 1. To construct a factory. 2. To buy raw materials locally and when well established and can qualify as an importer-manufacturer, apply for dollar allocations. 3. Will not at the start hire laborers, but instead will enter into a contract with an independent contractor who will do the processing of the raw materials by using the factory of the Corporation. It should be emphasized that the Contractor has a business personality distinct from that of the Corporation and that said Contractor has absolute supervision and control of the laborers. Furthermore, it should be taken into consideration the facts that in acquiring the finished goods, raw materials purchased and labor cost paid to said Contractor constitute the cost of production or acquisition cost. Therefore, it now appears that the finished goods are acquired at cost. 4. To sell the goods at retail." In reply thereto, I have the honor to inform you as follows: The proposed corporation is a "manufacturer" within the purview of the Tax Code. As such, it is subject to the fixed and percentage taxes as prescribed by Sections 182(A)(1) and 186 of the said Code. LibLex Section 186 of the Tax Code provides that only the total cost of the materials used in the manufacture of the garden tools and implements, as duly established, is deductible from the gross selling price of the manufactured goods and only if such materials were previously taxed under the said section. Accordingly, the cost of labor is not deductible and the cost of raw materials locally purchased is deductible only if it can be shown that they have been previously taxed. Your computation, therefore, is not correct. Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue