Bureau of Local Government Finance Opinion

October 17, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Mercedes C. Llamas President Mercelles Corporation 2nd Floor Glorietta 1 Shopping Mall Ayala Center Bgy. San Lorenzo, Makati City Madam : This refers to your letter dated October 11, 2002 requesting for guidelines on the situs of the tax. Representations are made that Mercelles Corporation (MC) is a 100% Filipino company engaged in the retail and manufacture of fine jewelry. Its revenues are generated from retail sales/commission on consigned items and from sales of manufactured merchandise. MC was incorporated in 1981 with its principal office located at the 2nd Floor of Glorietta 1 Shopping Mall, Makati City, where all management, administration, marketing, purchasing, and accounting transactions are made including issuance of sales invoices. In 1986, MC opened its first branch/sales office located at the 2nd Floor Shangri-la Hotel, Makati City, where sales invoices are issued. And in 2001, the second branch/sales office was opened at the ground floor, Power Plant Shopping Mall, Rockwell Center, Makati City, where sales invoices are also issued. ISCTcH Representations are made further that in 1998, MC added its factory located in Paraaque City, where only the job orders from the principal office and from the two (2) branches/sales offices are serviced and no other transactions are made therein. MC informs that according to the Business Permit Office of the City of Makati, it should pay business taxes to the said city for maintaining therein its principal office and its two (2) branches/sales offices, as represented below: a) principal office 30% of sales of manufactured merchandise 100% of retail sales/commission on consigned items b) branch/sales offices 100% of sales of manufactured merchandise 100% of retail sales/commission on consigned items MC informs further, however, that according to the Business Permit & Licensing Office of the City of Paraaque, it should pay business taxes to the said city for maintaining therein its factory representing 70% of the total gross sales in its principal office and its two (2) branches/sales offices. HTCIcE In this connection, please be informed that the pertinent provisions of law on the issue is provided for under paragraph (b) (1) & (3) of Article 243 of the Implementing Rules and Regulations (IRR) implementing Section 150 of the Local Government Code (LGC) of 1991, quoted as follows: "Article 243 . Situs of the tax . (a) . . . "(b) Sales Allocation (1) All sales made in a locality where there is a branch or sales office or warehouse shall be recorded in said branch or sales office or warehouse and the tax shall be payable to the city or municipality where the same is located." "xxx xxx xxx. "(3) In cases where there is a factory, project office, plant or plantation in pursuit of business, thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located and seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant or plantation is located. LGUs where only experimental farms are located shall not be entitled to the sales allocation herein provided for. aADSIc "xxx xxx xxx." Considering the above provision of law and the representations made in your letter, MC is deemed liable to the payment of business taxes to the City of Makati and City of Paraaque, as follows: All sales made and recorded in the principal office shall be 30% taxable by Makati City where the principal office is located and 70% taxable by Paraaque City where the factory is located. All sales made and recorded in the two (2) sales/branch offices shall be 100% taxable by Makati City where said sales/branch offices are located. The cities of Makati and Paraaque may collect Mayor's permit and other regulatory fees which may be imposed under their respective duly enacted tax ordinances. The City Treasurers of Makati and Paraaque, are being furnished with a copy each hereof, for their information and guidance. caEIDA Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director