Bureau of Local Government Finance Opinion

February 10, 1993 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION The Municipal Treasurer Polomolok, South Cotabato S i r : This refers to the tax liabilities of Dole Philippines, Inc. under the provisions of the Local Tax Code, as amended, specifically on the tax situs. Enclosed herewith is a copy of the letter of even date of this Department addressed to DOLE, which is self-explanatory, for your information and guidance. cd i Very truly yours, By authority of the Secretary: JUANITA D. AMATONG Undersecretary ANNEX A Republic of the Philippines DEPARTMENT OF FINANCE Manila February 10, 1993 Mr. Bienvenido L. Perez Manager Accounting & Government Services Dole Philippines, Incorporated 9504 Polomolok, South Cotabato S i r : This refers to Resolution No. 8, series of 1991, enacted by the Sangguniang Bayan of Polomolok, South Cotabato, entitled. "RESOLUTION REQUESTING THE DEPARTMENT OF FINANCE, METRO MANILA TO ORDER DOLE PHILIPPINES, INC., POLOMOLOK, SOUTH COTABATO, TO REFRAIN AND/OR DESIST FROM PAYING BUSINESS TAXES TO THE MUNICIPALITY OF TUPI, PROVINCE OF SOUTH COTABATO, TO PAY THE SAME TO THE MUNICIPALITY OF POLOMOLOK, PROVINCE OF SOUTH COTABATO, AND TO ORDER THE MUNICIPALITY OF TUPI, SOUTH COTABATO, TO REMIT TO POLOMOLOK, SOUTH COTABATO, ALL PREVIOUS PAYMENTS (BUSINESS TAXES) MADE BY DOLE PHILIPPINES, INC., TO TUPI, SOUTH COTABATO" which was forwarded to this Department for consideration and appropriate action. aisa dc It may be recalled that this Department under its letter dated June 29, 1990 addressed to you, copy enclosed, opined that DOLE Philippines, Inc., hereinafter referred to as DOLE, is liable to the payment of certain business taxes to the municipalities of Tupi and Polomolok, South Cotabato, in the following manner: 1. The producer's tax on the local sales made in Tupi and Polomolok shall be paid in the said municipalities in proportion to the volume of their production based on gross sales in fixed graduated amount per annum pursuant to Section 19(a) of the Local Tax Code, as amended; and 2. The export sales shall be subject to the exporter's tax payable in Tupi and Polomolok where the sales offices are located, pursuant to Local Tax Regulations No. 2-85, dated May 17, 1985 of this Department, based on gross sales in fixed graduated amount per annum pursuant to Section 19(A-2) of the aforecited Code, in proportion to the volume of production of the two municipalities involved. cd In addition, permit fees and other regulatory fees are also payable in both municipalities. However, the Municipal Mayor of the Polomolok questioned the said opinion stating among other that the business taxes paid by DOLE to the municipality of Tupi rightfully accrues to Polomolok. For judicious resolution of the issue on situs of the tax due from that Company the Bureau of Local Government Finance in its 1st Indorsement dated February 4, 1991, copy also enclosed, requested the regional Office, BLGF, Region XI, to conduct a summary investigation on the area of business operations of DOLE. cd i From the report rendered by our Regional Office it was gathered that DOLE has its pineapple plantation and packaging plants in both Tupi and Polomolok, Its principal office is situated in Polomolok where all sales are effected and recorded. Their branch office accounting, marketing and invoicing are made for sales therein. No sales office can be found in Tupi, instead a packaging plant which is considered a factory is located therein. The law applicable on the above issue is Section 19(A-6) of the Local Tax Code, as amended, quoted hereunder: "(A-6) Situs of the tax . For purposes of collection of this tax, manufacturers and producers maintaining or operating branch or sales offices elsewhere shall record the sale in the branch or sales office making the sale and the tax thereon shall accrue to the local government where the branch or sales office is located. In cases where there is no such branch or sales office in the locality where the sale is effected, the sale shall be duly recorded in the principal office along with the sales made in said principal office. Sixty per cent of all sales recorded in the principal office shall be taxable by the local government where the principal office is located, while the remaining forty percent shall be deemed as sales made in the factory and shall be taxable by the local government where the factory is located. In cases where a manufacturer or producer has two or more factories situated in different localities, the forty percent sales allocation mentioned in the next preceding paragraph shall be pro-rated among the localities where the factories are situated in proportion to their respective volumes of production during the period for which the tax is due. The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory is situated." Based on the aforequoted provisions of law and the facts gathered during the ocular inspection of our Regional Office on the area of the business operations of DOLE Philippines, inc., the company is subject to the payment of business taxes and fees up to December 31, 1991, as follows: 1. All sales made in Polomolok is 100% taxable by Polomolok where the principal office is located; 2. All sales made in Makati is 100% taxable by Makati where the branch office is located; 3. All other sales made outside Polomolok and Makati is 60% taxable by Polomolok as principal office and 40% by Tupi as packaging plant which is considered as factory; and 4. All three municipalities (Polomolok, Tupi and Makati) may collect Mayor's permit and other regulatory fees. It may be further clarified that a manufacturer who directly exports its manufactured products is liable to the tax on business of exporting imposable under Section 19(A-2) of the Code, on the gross receipts realized from its export, sales; and as a manufacturer under Section 19(a) thereof on all its domestic sales, if any. This is explicitly stated in Local Tax Regulations No. 2-85 dated May 17, 1985 of this Department, precisely to implement Section 19(A-2) of the Code to avoid confusion. Pertinent portion of said Regulations states that the business taxable under the aforesaid Section "are those that manufacture/produce products for exportation and those that sell goods to foreign markets". Inasmuch as that Company is engaged in two kinds of business activities, that is, as producer of pineapple and as exporter of the same, domestic sales should be recorded in a separate book of accounts for the purpose of computing the manufacturer's tax under Section 19(a) of the Code, while the export receipts should be recorded in another book for the purpose of determining the exporter's tax pursuant to Section 19(a-2) thereof. cdt Furthermore, beginning January 1, 1992, the law applicable on situs of the tax is Section 150, Article II, Chapter 2, Book II of the Local Government Code of 1991 (RA 7160), quoted hereunder: "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 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. (b) The following sales allocation shall apply to manufacturers, assemblers contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: (1) 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 (2) 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. (c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows: (1) Sixty percent (60%) to the city or municipality where the factory is located; and (2) Forty percent (40%) to the city or municipality where the plantation is located. (d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. (e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plantation is located." The ruling of this Department embodied in its letter dated June 29, 1990 addressed to that Office, is hereby modified accordingly. The Municipal Treasurers of Polomolok and Tupi, both of South Cotabato, and Makati, Metro Manila are advised accordingly in separate letters of even date, copies enclosed. Very truly yours, By authority of the Secretary: JUANITA D. AMATONG Undersecretary