Bureau of Local Government Finance Opinion

September 13, 1996 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully referred to the Provincial Treasurer, Malolos, Bulacan, requesting information on whether the question of where to pay business taxes to the municipality of Malolos or the municipality of Calumpit raised by the Reed Steel Fabricators, Inc. (RSFI) has already been settled. dctai In his letter, dated October 13, 1995, Mr. Restituto C. Roque, President and General Manager of RSFI, raised this issue of tax situs in view of a letter of the Municipal Treasurer of Calumpit imposing business tax on said company for the construction of one (1) unit building at United Industrial Bag, Co. Inc. at Iba, Este, municipality of Calumpit, said province, invoking Local Finance Circular No. 3-95 (LFC) dated May 22, 1995 of the Department of Finance. Representations were made that RSFI operates its principal office in Malolos and that it does not maintain any branch, sales outlet or project office in Calumpit. It is further represented that all the transactions in connection with the project mentioned including the shop where the materials for the said project were taken were processed in the principal office and that the office of the engineer-in-charge is also located in Malolos. Hence, it was the contention of RSFI that the business tax should accrue and be paid in full to the municipality of Malolos. In a letter dated October 9, 1995, the Municipal Treasurer of Calumpit informed RSFI that they were liable to pay to the municipality of Calumpit the 70% allocation for the project being constructed thereat pursuant to Section 143(c) of the Local Government Code of 1991 (LGC). However, to support their claim, RSFI invoked Section 150 (a) of the said Code, which reads: "Section 150 . Situs of the Tax . (a) For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks and other financial institutions, and other businesses, maintaining or operating branch or sales outlet 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." (Emphasis supplied) In the event, therefore, that the issue has not yet been resolved between the municipality of Calumpit and RSFI, with the municipality of Malolos as a third party, that Office is hereby requested to intervene on the basis of the following guidelines: 1. If, as alleged, RSFI did not maintain a project office in Calumpit during the construction of the Project, then all receipts made by RSFI shall be recorded in its principal office in Malolos and the following rules under Section 5(b) of the said Local Finance Circular shall apply: "(b) For purposes of collection of the tax, the following rules shall apply: "xxx xxx xxx; "(2) In cases where there is no branch office, the gross receipts from domestic projects or contracts shall be recorded in the Head/Principal Office and the same shall be allocated as follows: "(i) Thirty percent (30%) of the gross receipts shall be taxable by the city or municipality where the principal office is located; and "(ii) Seventy percent (70%) of the gross receipt shall be taxable by the city or municipality where the project office is located. "xxx xxx xxx." 2. If the company maintained a project office in Calumpit, then all its gross receipts shall be taxable by said municipality. If found still necessary, it is also requested that RSFI be informed accordingly. Advice of action taken hereon is likewise requested. (SGD.) LORINDA M. CARLOS Executive Director