Bureau of Local Government Finance Opinion

July 31, 2014 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the City Treasurer, Dagupan City, her attached letter dated June 25, 2014 relative to the issue of taxability of Hotel Le Duc ("Hotel") owned/operated by Lyceum Northwestern University (LNU). Representations are made that in the application for mayor's permit of said hotel, its President claimed that it is exempt from payment of business tax due to the Court Decision in Civil Case No. 2007-0420-D declaring par. (h) sub par. (i) of Section 109 of the City Revenue Code null and void for lack of public hearing as required under the Local Government Code (LGC) of 1991. It appears that said provision is with regard to the imposition of tax "on any business not specified" in the City Revenue Code wherein educational institution is one among those businesses specified in the Code hence, LNU discontinued to pay its business tax to the city for the operation of its university. However, that Office claims that the operation of a hotel is not part of the provision declared by the Court as null and void as the same is subject to a graduated tax under par. (g), sub par. (6) of the said Revenue Code, quoted as follows: "(g) The same rates of graduated tax shall be imposed on the following: (6) On boarding houses, pension houses, motels, apartments, apartelles, and condominiums" Based on the documents submitted LNU was organized as a stock corporation thus, it is sufficient to consider that it is conducted for profit and engaged in business. However, in view of the Court Decision declaring par. (h) subpar. (i) of Section 109 of the City Revenue Code as null and void, the City may impose business taxes on LNU as educational institution pursuant to Section 1, par. (i) of Ordinance No. 1440-92 until such time that an amendment is introduced to the existing Revenue Code of that City subjecting educational institution organized as a stock corporation from local business taxes. (Underscoring supplied.) Moreover, it appears that LNU is engaged in more than one type of commercial activity, i.e., as an educational institution and an operator of Hotel Le Duc. In this connection, reference is made to the provision of Section 146(c) of the LGC, quoted as follows: "Section 146. Payment of Business Taxes . (a) . . . . "(c) In cases where a person conducts or operated two (2) or more businesses mentioned in Section 143 of this Code which are subject to different rates of tax, the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business." Accordingly, LNU should record its receipts separately pursuant to the above quoted provision of the LGC and pay separate business taxes on the basis of actual gross receipts for its businesses according to the schedule of rates provided for in the City Revenue Code of that city. LNU should likewise secure separate Mayor's permits for the operation of said businesses. However, the City Treasurer may impose taxes on the operation of Hotel Le Duc, pursuant to par. (g), sub par. (14) not sub par. (6) of the Revenue Code, quoted hereunder, which was not declared by said Court as null and void: "(g) The same rates of graduated tax shall be imposed on the following: (l4) All other similar activities consisting essentially of the sales of services for a fee" Be guided accordingly. (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director