Bureau of Local Government Finance Opinion

October 16, 2014 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Danny Olivan Director Landwell Asia Traders Incorporated 732 Biaknabato St., Tabuco, Naga City Sir : This refers to your letter dated September 23, 2014 requesting rulings on local business permits and tax for your company, Landwell Asia Traders, Inc. (LATI) with main office located in Tabuco, Naga City. Representations are made that in the last quarter of 2011, LATI acquired a property in Quezon City with the intended business of trading native products from Bicol Region. However, said business did not push through and the company decided to just enter into a leasing business and lease out the property that was acquired in Quezon City. IAETDc It is claimed that LATI does not have any Office in Quezon City and from the time the said company was formed up to this date, it has no business transaction thereat. It is claimed further that in 2013 and 2014, LATI applied for a business permit in Quezon City in view of the presence of its property thereat. However, last August 2014, said company was informed by Naga City that the business permit and taxes should be paid in Naga City and not in Quezon City. In this connection, please be informed that the Local Government Code (LGC) of 1991 specifically provides that a local government unit may impose a business tax primarily based on the gross sales and/or receipts of a business entity for the preceding. However, if as represented by LATI, no business transaction are made from the time it was formed up to this date, said company will not be subject to, or liable to pay any business tax to both cities. Moreover, LATI should be guided by the provisions of Section 150 of the LGC, quoted as follows: "Section 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, bank and other financial institutions, and other businesses, maintaining or operating branch or sales outlets elsewhere shall record the sale in the branch or sales outlets 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. "xxx xxx xxx." On the basis of the aforequoted provisions, this Bureau in previous similar cases has constantly expressed the view that the basic rule in determining the situs of the tax, is where the transactions are made and recorded. On the other hand the authority of a city to impose a mayor's permit fee is based on Section 147 of the LGC quoted hereunder, in relation to Section 151 thereof, which provides: "Section 147. Fees and Charges. The municipality may impose and collect such reasonable fees and charges on business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may engage in such business or occupation, or practice such profession or calling." The imposition of a mayor's permit fee proceeds from the power of local government units ("LGUs") to regulate any business or undertaking that is being conducted or will be conducted within their territorial jurisdiction. This emanates from police power, which is encapsulated in Section 16 (General Welfare Clause) of the LGC. DcHSEa Accordingly, both cities may collect Mayor's permit fee and other regulatory fees imposable under their respective duly enacted tax ordinances. We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director