Bureau of Local Government Finance Opinion

January 28, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the Municipal Treasurer, Polomolok, South Cotabato, her attached letter dated January 22, 2015 seeking enlightenment in the application of Section 150 of RA 7160 and its Implementing Rules and Regulations (IRR) and adopted under Section 2c.02 of Tax Ordinance #0.1, S. 2007 of said Municipality. Representations are made that Sarangani Resource Corporation, (SRC) with principal office at Cannery Road, Barangay Cannery Site, Polomolok, South Cotabato, a SEC registered corporation is a developer of Ecozone. It appears that SRC renewed its business permit, as follows: a.) Rent-a-car (Services) exclusively with Dole Philippines Polomolok b.) Forklift (Services) exclusively with Dole Philippines Polomolok c.) Real Estate Lessor properties located in LGUs Polomolok, Tampakan, T'boli, Surallah and General Santos City In addition, representations are made that SRC has no branch or sales offices in the abovementioned localities and most of their lots are under lease agreement with Dole Philippines (Polomolok), for 50 years. In this connection and for purposes of collection of business taxes, the following queries are being posed: a.) Does Municipality of Polomolok entitled to collect 100% taxes due on all sale/income recorded in the principal office? b.) Does Municipality of Polomolok entitled to 70% of taxes due from sales/income derived from other LGU's? Query a. Reference is made to the provisions of Article 243 (b) (2) of the Implementing Rules and Regulations (IRR) of the Local Government Code (LGC) of 1991, quoted as follows: "Article 243. 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 the said principal office is located. HESIcT "(3) In cases where there is a factory, project office, plant or plantation in pursuit of business, 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 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. LGUs where only experimental farms are located shall not be entitled to the sales allocation herein provided for." On the basis of the aforequoted provisions of Article 243 (b) (2) and considering the representations that SRC has no branches or sales offices in Polomolok, Tampakan, T'boli, Surallah and General Santos City, all sales recorded in the principal office shall be 100% taxable by Polomolok where the said principal office is located. Query b. It is clear from the aforequoted provisions of Article 243 (b) (3) that the sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters. Moreover the sales allocation shall apply when the enumerated businesses have or maintaining certain facilities in locations other than where the principal office is situated. These facilities are limited to: factories, project offices, plant, or plantation." In view of the foregoing, the 30%-70% allocation of sales does not apply in the case of SRC. Accordingly and considering the representations made that no branches or sales offices are located in the LGUs where the properties are located, all income derived as real estate lessor shall be recorded in the principal office and shall be 100% taxable by Polomolok. Be guided accordingly. (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director