Bureau of Local Government Finance Opinion

February 19, 2016 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the OIC-Regional Director, Bureau of Local Government Finance, Cordillera Administrative Region, Baguio City, the within letter dated February 12, 2015 relative to the letter dated June 9, 2015 of Engr. ABRAHAM B. AKILIT, Municipal Mayor of Bauko, Mountain Province, seeking opinion whether the Municipality of Bauko is entitled to the payment of business taxes or whatever taxes/fees from HEDCOR Sabangan Hydro Power Plant ("Plant" for brevity). At the onset, we would like to apologize for the delay in issuing our reply to the herein issue being resolved, originally submitted under a 1st Indorsement dated June 17, 2015 of that Office, copy of which might have inadvertently got lost during the transfer to the other wing of the same building we are occupying. However, efforts were exerted to locate the same but proved futile thus, our request for another letter from that Office. Relative to the issue at hand, representations are made that the source of water which the Plant uses comes from the rivers of three barangays of Bauko and the tapping point of the electric power transmission to the main HEDCOR Plant is located in Barangay Otucan Sur, Bauko, Mountain Province. It is the neighboring town of Sabangan, Mountain Province which hosts the Hydro Power Plant built and operated by HEDCOR. As can be deduced from the above representations, it appears that the Hydro Power Plant of HEDCOR operates and is located within the jurisdiction of the Municipality of Sabangan, Mountain Province. Another information relevant to the herein issue is the Principal Office of HEDCOR, Inc. which is located at 214 Ambuklao Road, Beckel, La Trinidad, Benguet. 1 In this situation, the applicable provision of law is Article 243 (b) (3) of the Implementing Rules and Regulations (IRR), implementing Section 150 of the Local Government Code (LGC) of 1991, quoted hereunder as follows: " Article 243 . Situs of the Tax . (a) . . . (b) Sales Allocation (1) . . . (3) In cases where there is a factory, project office, plant or plantation in pursuit of business, thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located and seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or municipality where the factory, project office, plant or plantation is located. LGUs where only experimental farms are located shall not be entitled to the sales allocation herein provided for. . . . ." (Emphasis supplied) On the basis of the aforequoted provisions of law, it is the view of this Bureau that, as far as the operation of the Hydro Power Plant in Sabangan, Mountain Province is concerned, the Municipality of Bauko, same Province, may not share in the taxes, fees or charges that HEDCOR, Inc. is paying Sabangan, Mountain Province. Applying the abovequoted provision of law, 30% of the total gross receipts of HEDCOR recorded in the principal office shall be taxable by the locality where such principal office is located and the remaining 70% shall be taxable by the Municipality of Sabangan, where the Hydro Power Plant of HEDCOR is located. We hope this will help clarify matters. Very truly yours, (SGD.) JOCELYN T. PENDON OIC-Executive Director ATTACHMENT SYNOPSIS: BLGF Opinion on the Entitlement of the Municipality of Bauko, Mountain Province from Local Taxes, Fees & Charges in the Operation of Sabangan Hydro Power Plant, Built and Operated by HEDCOR in Sabangan, same Province While this Bureau recognizes the claim of the Municipality of Bauko, Mountain Province that the source of water which the Sabangan Hydro Power Plant ("Plant") in Sabangan, Mountain Province uses comes from the rivers of three barangays of Bauko and the tapping point of the electric power transmission to the main HEDCOR Plant is located in Barangay Otucan Sur, Bauko, same Province, said Municipality, although a neighboring town of Sabangan, which hosts the Plant built and operated by HEDCOR, may not share in the taxes, fees or charges that HEDCOR, Inc. is paying Sabangan, Mountain Province. Such view is anchored on the provision of Article 243 of the Implementing Rules and Regulations (IRR), implementing Section 150 of the LGC, which provides that in case of a " plant ", as in the case of Sabangan Hydro Power Plant, 30% of all sales recorded in the principal office shall be taxable by the locality where such principal office is located and the remaining 70% shall be taxable by the Municipality of Sabangan, where the Hydro Power Plant of HEDCOR is located. Footnotes 1. http://www.hedcor.com/.