Bureau of Local Government Finance Opinion

August 22, 1996 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the City Treasurer, Muntinlupa City. This refers to the letter dated May 18, 1996 of Mr. Carlos J. Reyes of Rockfirm Insurance Brokerage, Inc. (RIBI), requesting a ruling on the correct amount of Mayor's Permit fee payable by an Insurance Broker. RIBI claimed that a Mayor's permit fee of P5,000.00 is being charged by that Office pursuant to Title IV, Chapter I, Article I, Sec. 72(a)(4) of the Ordinance adopting a Revenue Code of the Municipality (now City) of Muntinlupa. RIBI claimed further that such imposition under said Section pertains only to pawnshops, banks, insurance companies, savings and loan associations, financial and/or lending investors but not to insurance brokerage. Hence, the above request. It appears that Title IV, Chapter I, Article I of the Revenue Code of that city, prescribed the rates of Mayor's permit fees to be collected on businesses operating within its jurisdiction. However, perusal of said revenue measure reveals that "Insurance Broker" is not among those mentioned under Section 72(a) (4) thereof, the basis of that Office in imposing a Mayor's permit fee of P5,000.00 on RIBI. What is included therein are "Insurance Companies." In this connection, attention is invited to Section 1 (a) and (j) of Local Finance Circular No. 2-93 dated June 16, 1993 of the Department of Finance, which reads as follows: "Section 1. Coverage . "(a) Insurance companies shall mean those formed or organized to save any person or persons or other corporations harmless from loss, damage or liability, arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debts of others." "The term "insurance companies" shall include all individuals, partnerships, associations, or corporations or entities, engaged as principals in the insurance business, including their branches, except mutual benefit associations and purely cooperative insurance associations organized under the laws on cooperative. The term shall also include professional reinsurers. "xxx xxx xxx "(j) Insurance Broker any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of the insured other than himself." From the aforequoted definition, it is clear that insurance companies and insurance brokers are distinct from each other, as insurance brokers only assist others in soliciting or negotiating insurance contracts. They do not assume any risks like insurance companies. In addition, the Black's Law Dictionary, 5th Edition defines "Insurance Companies" as a corporation or association whose business is to make contracts of insurance, while "Insurance Broker" is one who acts as middleman between insured and company. It is an independent middleman not tied to a particular company (Osborn V. Ozlin, Va. 310 U.S. 53). Hence, insurance broker cannot be categorized as an insurance company. In view thereof, this Bureau expresses the view that the appropriate basis for determining the amount of the Mayor's permit fee collectible from RIBI is Section 72(c) Article I, Chapter I, Title IV, of the Revenue Code of that city, or more specifically, if the capital investment as alleged by RIBI is only P62,500.00, then the annual amount due therefrom would be P300.00 only and not P5,000.00. Be guided accordingly. (SGD.) LORINDA M. CARLOS Executive Director