Bureau of Local Government Finance Opinion

March 24, 1995 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred, thru the Provincial Treasurer, Amas, North Cotabato, to the Municipal Treasurer of Kabacan, that province for full comment and/or appropriate action the attached letter dated February 14, 1995 of Mr. Antonio V. Ulangkaya, Sr., Proprietor-General Manager, A. V. Ulangkaya Rice & Cor Mill, requesting clarification of the definition and proper implementation of the following terms: 1. Income (as basis for computation of Community Tax, Sec. 157) 2. Gross sales (as basis for computation and implementation of Municipal License Tax) Representations are made that the Provincial Treasurer allegedly directed that Office to consider the term income under Section 157 of the LGC to mean as Gross Sales. Hence, as a rice miller, he was made to pay the community tax based on the value of farm production procured from farmers. However, it is contended that the above basis represents the collective income of numerous farmers and therefore, it is allegedly onerous, burdensome, arbitrary, oppressive, confiscatory and unconstitutional. In this connection, attention is invited to Article 246 of the Implementing Rules and Regulations implementing Section 157 of the LGU, quoted as follows: "ART. 246. Levy or Imposition . The levy or imposition of a community tax, by a city or municipality shall be governed by the following rules and procedural guidelines: "xxx xxx xxx" "(b) Rate of Community tax payable by individuals (1) The rate of the annual community tax that may be levied and collected from said individuals shall be Five Pesos (P5.00) plus an annual additional tax of One Peso (P1.00) for every One Thousand Pesos (P1,000.00) of income regardless of whether from business, exercise of profession, or from property but which in no case shall exceed Five Thousand Pesos (P5,000.00). "xxx xxx xxx" As applied to a rice miller, like Mr. Ulangkaya, the term "income" should include only his gross sales or receipts from his business and not the earnings of the farmers who sell palay to him. Such earnings or income of the farmers shall be included in the computation of the community tax to be paid by the farmers themselves. On the other hand the term "gross receipts" is defined as follows: "Gross Sales or Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sales, sales return, excise tax, and value added tax (VAT);" [Art. 220(n) of the LGC]. Operators or owners of rice and corn mill shall pay the business tax under Sec. 143(c) of the Code if they are engaged only in the milling of rice or corn belonging to other persons. In determining the business tax thereon "gross receipts" would mean the fee paid to the miller by the owners of palay without deducting the cost of labor and other maintenance and operating expenses. However, if such mill operator is also engaged in buying palay or corn grain and selling after milling the products, then they shall also pay the tax for engaging in another business as provided for under Sec. 143 (b) and (d) of the same Code. In this case, the term "gross receipts" would mean the actual sales of rice or corn without deducting the cost of palay, labor and other maintenance and operating expenses. Accordingly, the gross sales or receipts of each business shall be separately reported for the purpose of computing the taxes due from each business. Be guided accordingly. LORINDA M. CARLOS Executive Director