Bureau of Local Government Finance Opinion

January 4, 1996 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the Municipal Treasurer, San Juan Del Monte, Metro Manila. This refers to your letter dated October 12, 1995 requesting clarification on the tax liability of Planning Resources and Operations Systems, Inc. (PROS) under the provisions of R. A. No. 7160, otherwise known as the Local Government Code of 1991 (LGC). It is represented that PROS is a contractor engaged in consultancy services with principal office at the 2nd floor, Prudential Bank Building, Ortigas Ave.,San Juan Del Monto, Metro Manila and has a branch office located at N. Domingo St.,Cubao, Quezon City. It is also represented that the activities of the said branch office involve plotting and drafting of work inputs. There is no recording nor invoicing of the contracts undertaken thereby. It appears that the Office assessed and collected the business taxes and other charges from PROS based on its 1994 declared gross receipts on P23,235,861.35, inclusive of the operations of its branch office in Quezon City. On the other hand, the Quezon City government refused to renew the business/mayors permit of the companys branch office therein, alleging that said city is entitled to the 30% share on the gross receipts recorded in the principal office. llcd PROS referred the matter to the Cayanga, Zuniga and Angel Law Office to intercede in their behalf. Thus, said law office, in a letter dated September 28, 1995, requested that municipality to either remit the alleged 30% share to Quezon City or apply the same to future obligations of said Company, for reasons that the payments were based on the total operation of PROS inclusive of the branch office. To further support their claim, they invoked Section 150 b (1) and (2) of the LGC, which reads: Section 150. Situs of the Tax . (a) ... (b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants, and plantations in the pursuit of their business: (1) 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 (2) 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. In this connection, it is informed that the applicable provision of law is Section 150(a) of the LGC, quoted hereunder: 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 by duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality. (Emphasis supplied) From the aforequoted provision of Section 150(a),it may be disclosed that all receipts made in a branch office shall be recorded in such branch office and shall be taxable by the LGU where said branch office is located. However, it was emphasized that there were no receipts made nor recorded at the PROS branch office in Quezon City upon which the tax is to be based. Therefore, said office is not a branch office within the contemplation of the LGC. Accordingly, and considering the representations made by that Office, it is the view of this Department that the stand taken thereby, i.e.,that 100% of the gross receipts of PROS is taxable in San Juan where the principal office is located and all receipts are recorded, is well-taken and in order. In addition, that municipality and Quezon City may collect from said company the Mayors permit and other regulatory fees which may be imposed under the respective duly-approved local tax ordinances. Be guided accordingly. By authority of the Secretary: LORINDA M. CARLOS Executive Director Bureau of Local Government Finance