Bureau of Local Government Finance Opinion

September 4, 2013 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Paul Nicomedes L. Roldan Roldan and Associates Law Office Unit 2806 Jollibee Plaza Condominium F. Ortigas Jr. Road, Ortigas Center Pasig City Sir : This refers to your letter dated August 14, 2013 requesting confirmation, in behalf your client, BIOSTADT PHILIPPINES, INC. (hereinafter referred to as "BIOSTADT"), of the opinions that: ACEIac 1. Beginning 2013 and onwards, BIOSTADT should only be assessed by the Pasig Treasurer's Office for business taxes based on 30% of its total reported sales for the immediately preceding year in accordance with Article (sic) 150 of the Local Government Code (LGC) of 1991, as implemented by Article 243 of the Implementing Rules and Regulations (IRR); and 2. BIOSTADT has no more outstanding liability for business taxes for the year 2013 with the Pasig Treasurer's Office. It is represented that BIOSTADT is a corporation duly registered and existing under the laws of the Philippines and is engaged in the distribution of agrichemical products such as plant growth stimulants, nutritions, insecticides, fungicides and rodenticides. It was incorporated on February 22, 1998 and initially held its principal office in San Juan. In 2010, it transferred its principal office in Pasig City. Thus, for the years 2010, 2011 and 2012, it paid business taxes to Pasig based on its total reported sales for the immediate preceding years. For 2013, it paid business taxes for the 1st quarter amounting to P353,020.39 and 2nd quarter amounting to P329,299.09. For the last quarter of 2012, BIOSTADT began to rent and operate two warehouses, one in Pulilan, Bulacan and another in Davao City. The flow of the present sales operations of BIOSTADT are as follows: 1. BIOSTADT maintains sales agents for its Southern operations who are stationed in Davao City and for its Northern operations who are stationed in Pulilan, Bulacan. 2. Materials and products both sourced locally and abroad, upon acquisition are then brought to its Pulilan and Davao warehouses. 3. BIOSTADT's sales agents then peddle these materials and products to their various distributors in the areas. 4. The orders from the distributors are then accepted by the sale agents who then transmit the sales orders to BIOSTADT's Pasig office. 5. Upon receipt of the sales orders, BIOSTADT's Pasig office processes the corresponding delivery receipts which are then sent to its Pulilan and Davao warehouses. 6. The stocks covered in a sales order are then dispatched by either its Davao or Pulilan warehouse and delivered to the corresponding distributor via trucking/shipping services. 7. Upon delivery of the goods to the ordering distributor, the latter signs the delivery receipts which come in four copies and returns three (3) copies to the sales agent. ECcaDT 8. BIOSTADT's Pasig office then processes the invoice and sends it to the sales agent for collection. 9. Upon receipt of the payment, the sales agent gives the sales invoice to the distributor, including the original copy of the delivery receipt. In case of check payment which has to undergo three-day clearing, the sales agent issues a provisional receipt and deposits the check. 10. When the check clears, BIOSTADT's Pasig office then processes the official receipt and sends it to the sales agent for transmittal to the distributor. Consequently, BIOSTADT was assessed by both Pulilan and Davao City of business taxes corresponding to 70% of its total reported sales. However, on July 18, 2013 the Office of the City Treasurer of Pasig also assessed BIOSTADT for its 3rd and 4th quarters' business taxes based on BIOSTADT's total reported sales for 2012. It is viewed however that the acts of BIOSTADT's commissioned sales agents of accepting sales orders form the company's pool of distributors qualify the warehouses in Pulilan, Bulacan and Davao City as branches or sales offices. Article 243 (a) (2) and (3), and (b) (1) of the Implementing Rules and Regulations (IRR), implementing Section 150 of the Local Government Code (LGC) of 1991 provide as follows: " Article 243 . Situs of the Tax . (a) For purposes of collection of the taxes under Article 232 of this Rule, the following definition of terms and guidelines shall be strictly observed: "(1) . . . "(2) Branch or Sales Office a fixed place in a locality which conducts operations of the business as an extension of the principal office. However, offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as a sales office . "(3) Warehouse a building utilized for the storage of products for sale and from which goods or merchandise are withdrawn for delivery to customers or dealers, or by persons acting in behalf of the business. A warehouse that does not accept orders and/or issue sales invoices as aforementioned, shall not be considered a branch or sales office . HAaDcS "xxx xxx xxx "(b) Sales Allocation (1) All sales made in a locality where there is a branch or sales office or warehouse shall be recorded in said branch or sales office or warehouse and the tax shall be payable to the city or municipality where the same is located . "xxx xxx xxx." (Underlining Supplied) Taking into consideration the above definition of branch or sales office, it may be stated that a warehouse may be considered as sales office under the following scenarios: (1) if the warehouse accepts orders but does not issue sales invoices; (2) if the warehouse does not accept orders but issues sales invoices; or (3) if the warehouse accepts orders and issues sales invoices. In view of the above, the warehouse of BIOSTADT in Pulilan, Bulacan and Davao City which accepts sales orders is considered as sales offices, therefore, all sales of the respective warehouses shall be recorded in Pulilan, Bulacan and Davao City and the tax shall be payable therein. (Art. 243 (b) (1), supra) On query No. 1 For the year 2013, BIOSTADT shall still pay its business tax to Pasig City where its principal office is located. The tax based should be the reported sales for 1st quarter to 3rd quarter of 2012. As regards the 3rd and 4th quarter assessments by Pasig City Government, the pertinent provisions of the LGC that will govern the issue are the following: "Section 165. Tax Period and Manner of Payment. Unless otherwise provided in this Code, the tax period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly installments. "Section 166. Accrual of Tax . Unless otherwise provided in this Code, all local taxes, fees, and charges shall accrue on the first (1st) day of January of each year. . . . . "Section 167. Time of Payment. Unless otherwise provided in this Code, all local taxes, fees, and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter, as the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time for payment of such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six (6) months." TCADEc In view of the above-quoted provisions of law, it may be stated that generally, all local taxes, fees, and charges accrue on the first (1st) day of January of each year, but the same may also be paid in quarterly installment on or before the first twenty (20) days of each subsequent quarter. The exception to this rule is when the Code itself provides otherwise, or when the sanggunian concerned fixes a different date whenever so authorized. The word ' accrue ' means to become due, or to begin to have existence. Hence, the phrase ' accrual of the tax ' refers to the time the tax becomes due and collectible. On the other hand, the ' time for payment of tax ' refers to the date the tax is payable without penalty, beyond which the tax due will be subjected to surcharges and penalties for late payment. (BLGF 1st Indorsement dated August 10, 2006 Sections 165, 166, 167 and 168 of the LGC) Considering the above provisions of law, BIOSTADT's local tax liability for CY 2013, which was computed based on its CY 2012 total reported sales, is already due and collectible on the 1st day of January, 2013, although payment is allowed to be made in quarterly installments. However, with respect to the 4th quarter of 2012, when BIOSTADT started to rent and operate warehouses in Pulilan, Bulacan and Davao City, the total sales reported for said quarter should be taxed by LGUs where said warehouses are located. Thereafter, Pulilan, Bulacan and Davao City shall be entitled to local business tax based on 100% of the actual sales of BIOSTADT recorded in its warehouses. Pasig City may only collect Mayor's permit fee and other regulatory fees provided for under an existing local tax ordinance of said city. On query No. 2 For the year 2013, BIOSTADT liable to pay business tax to Pasig City for its reported sales for the 1st to 3rd quarters of 2012. With respect to the 4th quarter assessment, the issue is already resolved above. It bears emphasis, however, that the above views are expressed based on the facts presented in the above letter dated August 14, 2013. However, if upon verification and investigation the same shall be proven to the contrary, then the views rendered shall be considered null and void. We trust that this will help clarifies matters. cACTaI Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director