Bureau of Local Government Finance Opinion

May 31, 2001 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Quisumbing Torres Attorneys at Law 11th Floor, Pacific Star Building Makati Avenue cor. Sen. Gil J. Puyat Avenue Makati City 1200 Attention: Atty. Dennis G. Dimagiba Atty. Franklin A. Prestousa Gentlemen : This refers to your letter dated July 7, 2000 requesting in behalf of your client, Forever Living Products Philippines, Inc. (FLPPI), a ruling on the situs of local business tax applicable to FLPPI. Representations are made that FLPPI is a domestic corporation with principal office located in Greenhills, San Juan, Metro Manila. It sells, markets and/or distributes Forever Living Products (Products) in the Philippines through its principal office and through a nationwide network of Product Centers (PCs). Most of these PCs are owned and managed by Roilo Golez and Associates, Inc. (RGAI), a domestic corporation. The rest of these PCs are owned and operated by independent contractors, also under management of RGAI. Representations are made further that RGAI as owner/manager of PCs is paid certain fees by FLPPI for selling the Products and managing the other Product Centers. On the other hand, the independent contractors as operators of PCs received certain fees based on the number of Products sold in their Product Centers. To enhance their income, the independent contractors also buy the Products from their own PCs and sell them for their own account at a marked-up price. The flow of transactions in respect of the sale made in the PCs is described below: cDCEIA FLPPI entrusts and delivers the products to the PCs where independent distributors place and pay their orders. The PCs deposit the payments to a designated FLPPI bank account. On a weekly basis, the PCs send to the principal office the distributors order form together with the corresponding deposit slips. Upon receipt of the order forms and confirmation of the deposit made, the principal office issues sales invoices in the name of the independent distributors and replenishes the stock in the PCs. All the Products in the PCs remain the property of FLPPI until sold. All sales made therein are held in trust for the benefit and for the account of FLPPI until fully accounted for in accordance with the reporting standards specified by FLPPI. At present, FLPPI records all the sales made in the principal office and in the Product Centers in its principal office in San Juan, Metro Manila and pays the corresponding local business tax therein. That Office cited the following provisions of the Local Government Code of 1991 (LGC) and its Implementing Rules and Regulations (IRR): "Sec. 150. Situs of the Tax. (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction , and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality. "xxx xxx xxx. "Art. 243. Situs of the Tax. (a) . . . . "(2) Branch or sales office a fixed place in a locality which conducts operations of the business as an extension of the principal office. However, offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales offices shall be considered as a sales office. "(3) 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. cAISTC "xxx xxx xxx." (Underlining supplied) In view of the aforequoted provisions, that Office requests the confirmation of your opinion that: 1. The local business tax due on the sales made in the principal office should be paid in San Juan, Metro Manila. 2. The Product Centers qualify as "warehouse" as contemplated under the LGC and the IRR, hence, considered as branches or sales offices of FLPPI for local tax purposes. Thus, the local business tax due on all sales made in the Product Centers should be paid in the cities or municipalities where the Product Centers are located. The fact that FLPPI does not own and operate the Product Centers does not preclude the Product Centers from being considered "warehouse" under the LGC and the IRR. 3. RGAI, as owner/manager of Product Centers, is liable for local business tax only on the fees received and not on the sales made in the Product Centers. 4. The independent contractors who are owners and operators of Product Centers are liable for local business tax on the fees received and on the sales made for their own account. OPINION NO. 1 This is in conformity with Art. 243 (b) (2) of the Implementing Rules and Regulations (IRR), quoted as follows: " Situs of the Tax. (a) . . . "(b) Sales Allocation (1) . . . "(2) In cases where there is no such branch, sales office or warehouse in the locality where the sale is made, the sale shall be recorded in the principal office along with the sales made by said principal office and the tax shall accrue to the city or municipality where said principal office is located. "xxx xxx xxx" (Underlining supplied) OPINION NO. 2 The Product Centers cannot qualify as "warehouse". Neither can they be considered as branch offices. The Products Centers are owned by RGAI. There exists a contract between FLPPI and RGAI which is called a "Contract of Agency to Sell." This means that RGAI is an agent of FLPPI. The independent contractors to whom RGAI transacts business are sub-agents of the latter. In view thereof, it is submitted that RGAI is engaged in a business all its own. Thus, the situs of taxation on "warehouse", "sales office" and "branch office" is not applicable. RGAI should be taxes as an independent business either as wholesaler or retailer on the basis of the sales made in the Product Centers. HSaEAD OPINION NO. 3 This opinion is in order. RGAI shall likewise be liable for local business tax on contractors on the fees received from FLPPI for selling the Products. OPINION NO. 4 This opinion is likewise in order. Owners and operators of PCs shall be liable for local business tax on contractors on the fees received and local business tax on distributors on the sales made for their own account. We hope that this will help clarify matters. Very truly yours, (SGD.) BENJAMIN A. GERONIMO Executive Director <www.blgf.gov.ph/downloads/opinion/localtax/2001/a2000-0718.pdf> last visited January 16, 2014.