Bureau of Local Government Finance Opinion

January 27, 2004 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Ms. Rebecca R. Arago Controller Philippine Seven Corporation 7th Floor, The Columbia Tower Ortigas Avenue Mandaluyong City M a d a m : This refers to your letter of November 27, 2003, seeking opinion on whether the machineries maintained in your stores fall within the purview of the definition of "machinery" as provided for under Section 199(o) of R.A. No. 7160, otherwise known as the Local Government Code of 1991, which consist of the following: Cash register machines Sandwich chiller Airconditioning units Juice and hot water dispenser Cash depository/tidal safe Softdrink dispenser/Postmix Water pump Nestea dispenser Electronic door Coffee dispenser Generator set Chocolate dispenser Exhaust fan Microwave oven Transfer fan Donut showcase Walk-in chiller/cooler Sandwich showcase Freezer Gondola (end cap, island, medium Slurpee machine wall, high wall, small cap) Siopao dispenser/steamer Long steel racks (pocketbook, wrapper, Hotdog steamer umbrella, magazine, cosmetics stand, card) As represented herein, Philippine Seven Corporation is engaged in the business of retailing, buying, selling marketing, franchising, distributing, trading, exchanging or otherwise dealing in all kinds of grocery items, dry goods, food or foodstuffs, beverages, drinks and all kinds of consumer needs or requirements. You submitted, among others, that some of the machineries installed and/or used in 7-Eleven stores are not owned by the Company but owned by suppliers whose products are displayed therein which consist of ice cream freezers (owned by Selecta), softdrink dispensers (owned by Coca-Cola), juice dispenser (owned by Nestea), coffee dispenser (owned by Nescafe) and donut showcase (owned by Mister Donut). It appears that the abovementioned request was prompted by the opinion rendered by this Bureau under its letter dated April 10, 2003, in the case of Tokyo Tokyo, the pertinent portion of which provide as follows: "Section 199(o) of the Local Government Code of 1991 (R.A. 7160) provides as follows: "Sec. 199. Definition of Terms . When used in this Rule, the term: "xxx xxx xxx "(o) Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily to the real property. It includes the physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-powered or self-propelled, and those not permanently attached to the real property which are actually, directly and exclusively used to meet the needs of the particular industry, business or activity, and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes." "The above provision of the LGC has been clarified under Article 290(o) of its Implementing Rules and Regulations (IRR) which is quoted hereunder: "Article 290. Definitions . When used in this Title; the term: "xxx xxx xxx "(o) Machinery embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus, which may or may not be attached, permanently or temporarily to the real property. "Physical facilities for production, installations and appurtenant service facilities, those which are mobile, self-powered, or self-propelled and those not permanently attached to the real property shall be classified as real property provided that: "(1) They are actually, directly, and exclusively used to meet the needs of the particular industry, business, or activity; and "(2) By their very nature and purpose are designed for, or necessary to manufacturing, mining, logging, commercial, and industrial, or agricultural purposes. "Machinery which are of general purpose use including but not limited to office equipment, typewriters, telephone equipment, breakable or easily damaged containers (glass or cartons), micro computers, fax, telex machines, cash dispensers, furnitures and fixtures, freezers, refrigerators, display cases or racks, fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry, business or activity shall not be considered within the definition of machinery under this Rule. "Verily, the equipment used by Tokyo Tokyo in the operations of its business activities consisting of freezers, refrigerators, soft drink dispensers, gas burners, misuno grills, microwave ovens, dishwashing machines, food warmers, store counter, chairs and tables do not fall within the definition of 'Machinery' which could be considered real properties subject to real property taxes." Based on the foregoing provision of law, this Bureau believes and so holds that the aforecited machineries and equipment installed and/or used in 7-Eleven Stores in the operation of their business activities do not fall within the definition of "Machinery" which could be considered real properties subject to real property tax including cash register machines, cash depository/tidal safe, airconditioning units, microwave oven, water pump, electronic door, generator set, exhaust fan, transfer fan and other standard equipment such as siopao dispenser/steamer, hotdog steamer, sandwich chiller and hot water dispenser which are considered as falling under the category of machinery of general purpose use. With regard to machineries which are not owned by the Company but by the suppliers whose products are displayed therein such as ice cream freezers, softdrink dispenser, coffee dispenser, chocolate dispenser, chocolate dispenser and donut dispenser, the same are likewise not considered as "Machineries" subject to real property tax in line with the clarification under Article 290(o) of the Implementing Rules and Regulations (IRR) of R.A. 7160. As regards the electronic door, please be informed that it is not considered as machinery as it forms part of the building. aCHcIE We trust that this clarifies matters. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director