Bureau of Local Government Finance Opinion

February 6, 2003 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the Regional Director for Local Government Finance, Regional Office No. XII, Cotabato City, the herein indorsement dated January 28, 2003 relative to the letter of Mr. Eufrosino P. Inamarga, Jr., City Treasurer, Koronadal City, dated January 20, 2003 requesting opinion regarding the implementation of the provisions of Section 150 of R.A. 7160, otherwise known as the Local Government Code (LGC) of 1991. Representations are made that Marbel Telephone System, Inc. (MTSI) with principal office located in Koronadal City, has three (3) toll exchange offices situated in Polomolok and Surallah, both in the province of South Cotabato and in said city. It is represented further that the exchange toll in Koronadal City covers four areas, namely: Koronadal City and the municipalities of Tupi, Tampakan and Tantangan, all of South Cotabato through wireless connections. Furthermore, sales derived from the operations of said toll exchange covering said areas are recorded in its principal office. Sometime in January 2003, the Provincial Treasurer of South Cotabato demanded from MTSI that the gross receipts collected from three (3) municipalities mentioned above be segregated from the revenues collected from Koronadal City allegedly as basis for the imposition of franchise tax accruing to three municipalities which are all within the jurisdiction of said province. ATcEDS Accordingly, MTSI paid to the province the supposed franchise tax based on the gross receipts from said municipalities. However, the City Treasurer contends that the action of the Provincial Treasurer is not in accordance with the provisions of Section 150 (a) of the LGC quoted hereunder: "SEC. 150. Situs of the Tax . (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, . . . and other businesses, maintaining or operating branch or sales outlets elsewhere shall record the sale in the branch or sales outlet 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." In this connection, attention is invited to Article 226 (b) of the Implementing Rules and Regulations (IRR) implementing Section 137 of the LGC, the pertinent portion of which is quoted hereunder: "ART. 226. Franchise Tax . (a) Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within its territorial jurisdiction, excluding the territorial limits of any city located in the province. HIaTCc "(b) The province, however, shall not impose the tax on business enjoying franchise operating within the territorial jurisdiction of any highly-urbanized or component city located within the province." From the abovequoted Article 226 it was emphasized that the province shall impose the tax on businesses enjoying a franchise within its territorial jurisdiction, excluding the territorial limits of any city located therein. In view thereof and considering that the Municipalities of Tupi, Tampakan and Tantangan are within the territorial jurisdiction of South Cotabato, the action taken by the Provincial Treasurer thereof is in full accord with the law. Be guided accordingly. (SGD.) MA. PRESENTACION R. MONTESA Executive Director