Bureau of Local Government Finance Opinion

May 17, 2011 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Renato C. Barcenas Vice-President-Finance & Admin ACE Logistics Incorporated W2 Oyster Industrial Complex Ninoy Aquino Avenue Paraaque City Sir : This refers to your letter dated May 5, 2011 requesting a ruling on the computation of business taxes of Ace Logistics, Inc. (ALI for brevity) with facilities located in two municipalities. Representations are made that ALI is a domestic corporation established in 2003 with main office registered at W2 Oyster Industrial Complex, Paraaque City. All billings are printed in Paraaque City. Likewise, all Official Receipts (ORs) are issued in Paraaque City. As an additional representation, ALI rented a warehouse in 2006 at Sunblest Compound, Cupang, Muntinlupa. Said warehouse is being used for staging, sorting, crating, packaging and storage of cargoes prior to shipping to various destinations in the Philippines. There are no billings printed nor ORs issued in Muntinlupa. It is claimed that the City of Paraaque is requiring ALI to remit one hundred percent (100%) of its local taxes for reason that all billings and ORs are issued thereat. On the other hand, the city (not municipality) of Muntinlupa is requiring ALI to remit thirty percent (30%) of its local taxes for having a warehouse in Muntinlupa. As a result, ALI is paying one hundred thirty percent (130%) local business taxes. In this connection, this Bureau expresses the following views on the matter: AEIcSa 1. Warehouse used only for storage with no sales transaction is not taxable. This Bureau has consistently expressed the view that a Local Government Unit (LGU) where a warehouse is located but where no transactions are made, may only collect Mayor's permit fee and other regulatory fees provided for under the existing local tax ordinance of the said LGU. In order that a local government unit can validly impose a business tax on a warehouse, reference is made on the provision of Section 150 of the LGC as implemented by Article 243 (b) (1) of the IRR, as follows: "Article 243. Situs of the Tax. (a) Definitions of Terms "xxx xxx xxx. "(b) Sales Allocation (1) All sales made in a locality where there is a branch or sales office or warehouse shall be recorded in said branch or sales office or warehouse and the tax shall be payable to the city or municipality where the same is located. "xxx xxx xxx." For a clearer understanding of the aforesaid provision, quoted hereunder is the definition of the term "branch or sales office." Likewise the definition of warehouse is quoted: "Article 243. Situs of the Tax. (a) Definitions of Terms "xxx xxx xxx. "(2) Branch or sales office a fixed place in a locality which conducts operations of the business as an extension of the principal office. Offices used only as display areas of the products where no stocks or items are stored for sale, although orders for the products may be received thereat, are not branch or sales offices as herein contemplated. A warehouse which accepts orders and/or issues sales invoices independent of a branch with sales office shall be considered as a sales office. (Emphasis supplied.) "(3) Warehouse a building utilized for the storage of products for sale and from which goods or merchandise are withdrawn for delivery to customers or dealers, or by persons acting in behalf of the business. A warehouse that does not accept orders and/or issue sales invoices as aforementioned, shall not be considered a branch or sales office." Taking into consideration the above definitions, a warehouse which is considered a branch or sales office is taxable. However, ALI's warehouse may not be considered a branch or sales office because: first, it does not accept any orders from customers; and second, it does not issue sales invoices. Simply put, the warehouse does not engage in any kind of business transaction, but merely a storage of cargoes prior to shipping to various destinations. In this case, Muntinlupa City may only impose the Mayor's Permit fee and other regulatory fees and service charges as may have been provided for in a duly enacted local tax ordinance. cCHITA On the other hand, considering that the billings are printed and the ORs are issued at the main office in Paraaque City indicating that the sales/transactions are made thereat thus, 100% of its sales/transactions shall be taxable by said city. 2. The 70%-30% allocation of sales does not apply on warehouse. Reference is made to the provision of Article 234 (b) (3) of the same IRR, quoted as follows: "Article 243. Situs of the Tax. (a) Definitions of Terms "xxx xxx xxx. (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. "xxx xxx xxx." Based on the foregoing provisions, the sales allocation shall apply when businesses have certain facilities in locations other than where the principal office is situated. These facilities are limited to: factories, project offices, plant or plantation. Nowhere in the enumeration is a warehouse mentioned. Hence, the City of Muntinlupa where only a warehouse is maintained shall not share in the business tax that is paid to Paraaque City. In summary, Ace Logistics, Inc. is subject to the payment of business taxes and fees as follows: 1. All sales/receipts made at its main office in Paraaque City shall be recorded thereat and be 100% taxable by said city. 2. Both cities of Paraaque and Muntinlupa may collect Mayor's permit and other regulatory fees which may be imposed under their respective duly enacted tax ordinances. We hope that this will help clarify matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA, CESO III Executive Director