Bureau of Local Government Finance Opinion

August 15, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Leonides F. Balmeo Balmeo & Go Law Offices 3rd Floor, Room 309 Margarita Building J. P. Rizal cor. Cardona Street Makati City Sir : This refers to your letter dated August 4, 2011 requesting opinion, in behalf of your client REEFER VAN SPECIALIST, INC. (Reefer Van for brevity), on the authority of the City of Pasay to impose, levy and collect taxes on its gross receipts. cCEAHT Representation is made that Reefer Van intends to retire its business operations in Pasay City and as part of the process thereof is the settlement of all local taxes and charges imposed by the said City. The City of Pasay is proposing to assess Reefer Van of local business tax (LBT) on its gross sales before processing its application for business retirement. However, that Office is of the view that Reefer Van is a common carrier or an entity engaged in refrigerated transport business/services citing the primary purpose in the Articles of Incorporation, which provides: "To engage in the business of domestic freight and hauling, carrying, handling, distributing, loading and unloading by means of land transportation of general types of cargoes and all classes of goods, wares and merchandise and to receive and collect fees for such services." To further support your position, it viewed that all the determinative tests for Reefer Van to be considered as common carrier of goods are present in the pursuit of its business as follows: 1. It is engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation; 2. It undertakes to carry goods of the kind to which his business is confined; 3. It undertakes to carry by the method by which the business is conducted and over the established roads; and ATCaDE 4. The transportation is for hire. ( First Philippine Industrial Corp. vs. CA, et al., G.R. No. 145948 dated December 29, 1998) In resolving the herein issue, elemental consideration should focus on whether Reefer Van falls within the scope of any of the entities enumerated in Section 133 (j) of the Local Government Code (LGC) of 1991, such as: 1) transportation contractors; 2) persons engaged in the transportation of passengers; 3) freight by hire; and 4) common carriers by air, land or water. Another important consideration is the definition of the term "common carrier" . While the LGC does not provide the definition of the term "Common Carrier", Article 1732 of the Civil Code of the Philippines, defines common carrier as follows: "Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." It can be gleaned from the aforequoted definition that common carriers pertain to those offering their services to the public. Such services are available to the public generally and indiscriminately, and are not limited or restricted to any specific individual and class of persons. These are ordinary transportation services afforded by the public because they are usually less expensive. As stated in its Articles of Incorporation, the primary purpose of REEFER VAN is to "[T]o engage in the business of domestic freight and hauling, carrying, handling, distributing, loading and unloading by means of land transportation of general types of cargoes and all classes of goods, wares and merchandise and to receive and collect fees for such services" . While the primary purpose of Reefer Van specifically provides that the company will carry on with its business by means of land transportation, this does not exclude the company from the coverage of the enumeration in Section 133 (j) of the LGC and the definition of the term "common carrier" in Article 1732 of the Civil Code. It must be noticed that the means of transporting such as by land, water, or air are separated by comma which only suggests that any of the means can be availed of by the common carriers or transportation contractors. CScaDH In view thereof, REEFER VAN shall be considered a common carrier, and therefore exempt from taxes on its gross receipts pursuant to Section 133 (j) of the Local Government Code of 1991 (LGC) quoted as follows: "Section 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities , municipalities, and barangays shall not extend to the levy of the following : "(a) . . . "(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; "xxx xxx xxx." (Emphasis our) Be guided accordingly. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director