Bureau of Local Government Finance Opinion

January 17, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Oscar P. Chan General Manager San Jose Cabinet Manufacturing People's Technology Complex Carmona, Cavite Sir : This refers to your letter dated October 04, 2001 requesting clarification regarding the correct sales allocation/declaration relative to the Situs of Taxation under the Local Government Code (LGC) of 1991. Opinion is also requested regarding the assessment made by the City Government of Cebu wherein the company was required to pay the tax deficiency, surcharges, interest and penalties allegedly due to underdeclaration of sales for the years 1999 and 2000. It is represented that San Jose Cabinet Manufacturing (SJCM for brevity) is a manufacturer of kitchen cabinets with several branches. Its factory which is also the principal office, is located at People's Technology Complex (PTC), Carmona, Cavite. The offices/branches are located at the following: 1. SM Megamall, Mandaluyong City 2. SM North Edsa, Quezon City 3. Jaka Plaza, Paraaque City 4. SM Southmall, Las Pias City 5. SM Cebu City At present 70% of sales from all branches are declared in Carmona, Cavite and the remaining 30% are declared in LGUs where the offices/branches are located. IcTEAD In this instance, SJCM is in a situation where the principal and factory are located in one municipality and its sales outlets are in different localities. Attached for your information and guidance is a copy of our letter dated October 19, 1995 addressed to Ms. Malou M. Ching of Viseversa, Inc. bearing on similar case, the pertinent portions of which read as follows: "In this connection, please be informed that the applicable provision of law is Section 150(a) of LGC, which provides: 'SEC. 150. (a) Situs of 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.' HaECDI "From the aforequoted provisions of Section 150(b) and 150(a), it may be disclosed that the LGU where the factory is located shall have the authority to tax seventy percent (70%) of all sales recorded in the principal office and the LGU where the principal office is located shall tax the remaining thirty percent (30%) of said sales. However, it is also clear that all sales or receipts made in a branch or sales outlet shall be recorded in such branch or sales outlet and shall be taxable by the LGU where said branch or sales outlet is located. Clearly, the LGU where the factory is situated will not have a share in the sales or receipts made in a branch or sales outlet." "Accordingly, and considering the representations made by that Company, it is the view of this Department that Viseversa, Inc. is subject to the payment of business taxes and fees as follows: "1. All sales made in its sales outlet at SM Megamall shall be recorded in Mandaluyong City where such outlet is located and shall be taxable only by Mandaluyong; "2. All sales made in its sales outlet at Quad III shall be recorded in Makati City where such outlet is located and likewise shall be taxable only by Makati; STaCcA "3. . . . . "4. Quezon City, where the factory and principal office are located, shall have the authority to tax one hundred percent (100%) of all sales made in places where there is no branch or sales outlet and which are recorded in the said principal office in Quezon City; and (underscoring supplied) "5. All cities (Quezon, Makati and Mandaluyong) may collect the Mayor's permit and other regulatory fees which may be imposed under their respective duly-approved local tax ordinance. On the basis of the foregoing and the situation laid-out above, it may be stated that all sales made in its sales outlets should be 100% taxable by the local government units where said sales outlets are located while all sales made in place where there is no sales outlets shall be 100% taxable by Carmona, Cavite, where the factory and the principal office are located. With regard to the assessment on your deficiency made by the city government of Cebu, the applicable law is Section 168 of the Code which states: "SEC. 168. Surcharges and Penalties on Unpaid Taxes, Fees and Charges . The sanggunian may impose a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fees or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months." DHAcET The above provisions clearly indicate that upon failure to pay the tax, fee or charge, a surcharge is automatically imposed on the unpaid amount due and an interest at the rate of not exceeding two percent (2%) per month on the unpaid amount of tax, fee or charge is imposed as an additional penalty. It is worth mentioning however, that the interest charges are only limited to not more than 36 months starting from the date the obligation became due and payable. In other words, the accumulated total monthly interest charges should not exceed seventy two percent (72%) on the said unpaid amount. It is hoped that this will help clarify matters. Very truly yours, (SGD.) JUANITA D. AMATONG Undersecretary and Office-in-Charge, BLGF <http://www.blgf.gov.ph/downloads/opinion/localtax/2002/a2001-1004.pdf> last visited January 14, 2014.