Imposition of Percentage Business Tax Based on Gross Receipts on General Professional Partnership

March 15, 2017 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Mylene S. Yumul-Espina Espina & Yumul-Espina Law Office Unit 908 Entrata Urban Tower I 2609 Civic Drive, Filinvest Corporate City Alabang, Muntinlupa City SUBJECT : Imposition of Percentage Business Tax Based on Gross Receipts on General Professional Partnership Dear Atty. Espina : This refers to your letter seeking the Bureau's opinion regarding the imposition of percentage business tax based on gross receipts of the Espina & Yumul-Espina (EYELaw) Law Office as a general professional partnership (GPP),in addition to the standard regulatory mayor's permit fee in Muntinlupa City. aScITE Representations are made that EYELaw is a general professional partnership that has regularly filed and paid the required fees for its Mayor's Permit since 2002 up to the present. Previously, the City of Muntinlupa recognized that EYELaw is not a corporation/company engaged in business and thus, exempt from paying business taxes on its annual gross sales/receipts. In addition, all its lawyers have individually paid the required Professional Tax. Based on the letter, it was submitted that EYELaw applied for renewal of its business permit for 2012. However, the Business Permits and Licensing Office (BPLO) Chief assessed EYELaw and subject it to payment of percentage business tax in the amount of Thirty Five Thousand Three Hundred Thirteen Pesos and 64/100 (PhP35,313.64) and, in compliance with its obligation, EYELaw duly paid its taxes under protest. In their defense, it has been the position of the City's BPLO that in addition to the regulatory fees due in securing a Mayor's permit, EYELaw must pay percentage business tax based on EYELaw's gross receipts. On the other hand, it is your contention that EYELaw shall be exempt from percentage business tax on the following grounds: 1. The BPLO is not the taxing arm of the City; it is the Office of the City Treasurer. Hence, the BPLO is legally not authorized to assess the additional percentage tax starting 2012. 2. Assuming that BPLO has been granted authority to assess percentage business tax in addition to regulatory fees, it still cannot do so by reason of estoppel. From 2002 to 2011 EYELaw has been considered exempt from paying business tax based on its gross receipts. DETACa 3. Upon verification with other BPLOs in Metro Manila and Naga City, they all confirmed that general professional partnerships and/or law offices are exempt and thus, not subject to business tax based on gross receipts. 4. Sections 139 1 and 147 2 of the Local Government Code (LGC) of 1991 are the applicable provisions on percentage tax imposable on professional partnerships. 5. This Bureau's Legal Opinion dated 23 May 2005, wherein it was stated that the Mayor's Permit fees "are imposed in the exercise of the regulatory and police powers of local government units (LGUs) and as such mandatory for the owner or operator of any business or calling to secure such permit from the LGU concerned before its operation. However, the amount thereof should be based on reasonable rates and commensurate to the cost of the regulation, inspection and licensing. It should not be based on capital investment or gross receipts by the person or business liable thereof pursuant to Article 233 of the Implementing Rules and Regulations (IRR) implementing Section 147 of the LGC ." 6. The Legal Opinion of this Bureau on Alas Oplas & Co.,CPAs dated 10 September 2015, expressing that general professional partnerships are not subject to local business tax and other fees as "contractor." With regard to the first issue on the authority of the BPLO to assess tax, this Bureau has consistently taken the position that the assessment of business tax is an inherent function of local treasurers, pursuant to the LGC of 1991 and its Implementing Rules and Regulations (IRR). Thus, unless there are express and explicit provisions of the law to the contrary, specifically stating that the assessment of business taxes shall be conducted by the BPLO, such function shall remain to be exercised by the Office of the City Treasurer. On the taxability of GPPs, it must be emphasized that a GPP is not considered a corporation and is therefore not a taxable entity by reason of the fact that, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax),it is not an income taxpayer. 3 As such, GPPs are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. 4 However, persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities. 5 Following the rules on taxation provided by the LGC, as well as the relevant rulings of the Supreme Court, this Bureau in several occasions held that a GPP is not subject to business tax, as it is not engaged in any trade or business, but is focused on the exercise of the profession of its individual partners. This Bureau concurs with the contention of EYELaw that it must not be subject to percentage business tax based on gross receipts exclusively on years 2012 to 2014, without prejudice to the validity of the assessment made by the City Treasurer pursuant to a duly enacted ordinance of the City of Muntinlupa. HEITAD This Opinion is issued based on the information provided. If upon subsequent verification or submission of information proves the contrary, this Opinion will be deemed null and void. We hope we have provided clarity on the matter. Very truly yours, (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director Footnotes 1. Section 139 . (b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he practices his profession or where he maintains his principal office in case he practices his profession in several places: Provided, however, That such person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for the practice of such profession. 2. 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. 3. Tan vs. Del Rosario ,G.R. No. 109289, October 3, 1994. 4. Sector 131 of the Local Government Code of 1991. 5. Section 26 of the National Internal Revenue Code (NIRC) of 1997.