Bureau of Local Government Finance Opinion

March 7, 1994 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2ND INDORSEMENT Respectfully returned thru the Regional Director for Local Government Finance, Region VIII, Tri-Star Building, Corner Real and Sampaguita Streets, Tacloban City to the City Treasurer of Tacloban, same city, the herein preceding indorsement. casia This refers to your letter requesting opinion on the situs of the tax under Article 248 of the Implementing Rules and Regulations (IRR) implementing Section 150 of the Local Government Code of 1991 (RA 7160). Said request was made in view of the claim for refund or tax credit by Colgate Palmolive Inc. (CPI). Representations are made that CPI is engaged in the business of manufacturing and marketing personal and household care products. It secured the services of an independent contractor the PBE Industries, Inc. (PBE) to provide the CPI the local physical distribution facilities within specified places in the Philippines. However, it is understood that CPI may also make deliveries of its products in other places in the country. It is further represented that CPI has a warehouse within its compound in Makati, from where finished products are transferred to the warehouse of PBE in Tacloban. Sales are booked by the company's salesmen with various customers within and out of Tacloban City. The sales orders are then submitted to PBE for processing. PBE processes the sales orders received from salesmen and prepares the sales invoices on the basis of which goods are withdrawn from its warehouse in Tacloban City for delivery to the various customers. On the basis of the foregoing, the Office of the City Treasurer of Tacloban City contends that CPI is liable for the tax on its total sales of goods taken from the Tacloban City warehouse pursuant to the IRR, quoted hereunder for sales made within and outside the city: "Art. 243. Situs of the Tax . . . . . (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 "(d) Sales made by route trucks, vans or vehicles . . . ., (2) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer and dealer has a branch or sales office or warehouse, the sales are recorded in the branch or sales office or warehouse and the tax due thereon is paid to the LGU where such branch, sales office or warehouse is located. . . ." cd i On the other hand, CPI supports a contrary view. It claims that sales made to customers located within the territorial boundaries of Tacloban City should be recorded and the tax thereon paid to the city. However, sales made to customers located in places outside the city where CPI has no warehouse, should be recorded and the taxes paid in the CPI's principal office in Makati as stipulated under Sec. 3.4 of the Warehousing and Physical Distribution Agreement entered into by CPI with PBE, quoted hereunder: "Sec. 3.4 Collection and Remittance of Customer Payments . The CONTRACTOR shall immediately, upon delivery of the merchandise to customer, collect all payments on Collect on Delivery (COD) and Deliverymen to Collect (DTC) invoices accepted by customers, and without necessity of demand remit to the COMPANY's Makati Office through the COMPANY's designated depository bank branches the full amount collected upon receipt thereof at the CONTRACTOR's office in accordance with the COMPANY's collection, deposit and remittance guidelines and procedures." Art. 243(a) (3) of the IRR defines "Warehouse a building utilized for the storage of products for sale and from which goods or merchandise are withdrawn for delivery to customers or dealers, or by persons acting in behalf of the business. A warehouse that does not accept orders and/or issue sales invoices as aforementioned, shall not be considered a branch or sales office." Accordingly, this Department hereby expresses the view that the Warehousing and Physical Distribution contract aforementioned is a contract between the parties concerned but which can not be contrary to the provisions of the law on the matter. Stated otherwise, while said contract may be enforceable as between the parties thereto, the same should not apply on cases that are expressly or fully covered by existing law or rule, such as the warehouse of PBE in Tacloban City where sales invoices are issued to cover goods withdrawn therefrom. Thus, the products taken from the warehouse of PBE in Tacloban City and delivered to CPI's customers outside the city should be recorded and the tax thereon paid in Tacloban City where said warehouse is situated. As to the deliveries or sales made by CPI of products taken from its warehouse in Makati to places where it does not have any branch, sales office, or another warehouse, the same should be recorded in Makati where its principal office is located and the taxes due thereon should likewise be paid to said municipality. Be guided accordingly. Very truly yours, By Authority of the Secretary: JUANITA A. AMATONG Undersecretary