Bureau of Local Government Finance Opinion

September 8, 2014 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Nonito Lao President BRL Food Service Management, Inc. 20 Felipe Pike St., Bagong Ilog Pasig City Sir : This refers to your letter dated August 19, 2014 requesting clarification and guidance on the correct declaration of sales for purposes of business tax computation and payments of BRL Food Service Management, Inc. (BRL for brevity). It is represented that BRL's principal place of business is located at Pasig City. Also located in Pasig City is the factory/commissary that manufactures empanadas with various fillings. However, it is the branches and outlets of BRL located in different cities and municipalities where the empanadas are being sold that issue the corresponding receipts to customers for products sold. AIDSTE Notwithstanding the above procedure, Pasig City still requires BRL to declare seventy percent (70%) of its sales as basis for the computation of business tax for the sole reason that the principal office and factory/commissary are located within the territorial jurisdiction of that City. In this regard, it is the view of BRL that it is being subjected to double and undue taxes considering that the Company has to declare the same gross sales both to Pasig City and to respective LGUs where it maintains branches and sales outlets. BRL further claimed that the contention of Pasig City is erroneous pursuant to Section 150 of the Local Government Code (LGC) of 1991, which 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, bank and other financial institutions, and other businesses, maintaining or operating branch or sales outlets elsewhere shall record the sale in the branch or sales outlets 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. "(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. "(c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent (70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows: "(1) Sixty percent (60%) to the city or municipality where the factory is located; and "(2) Forty percent (40%) to the city or municipality where the plantation is located. AaCTcI "(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories, project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories, project offices, plants, and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. "(e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality where the factory, project office, plant, or plantation is located." In view of the above quoted provision of Section 150 of the LGC, BRL believed that one hundred percent (100%) of the sales shall be taxable at the city/municipality where its branches/outlets are located and where the sales are actually made. Thus, BRL is not liable to pay business tax to Pasig City arising from the sales of empanadas made in its different branches/outlets outside of Pasig City jurisdiction. Based from the representations laid out by BRL and pursuant to the provisions of Section 150 of the LGC as implemented under Article 243 (b) (1) of the Implementing Rules and Regulations (IRR) quoted hereunder, it is the view of this Bureau that 100% of all sales made by BRL through its different branches and sales outlets shall be taxable by the cities or municipalities where its branches and sales outlets are located: "Article 243. Situs of the Tax. "(a) . . . "(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 . ( Underscoring for emphasis ) EcTCAD "xxx xxx xxx." The abovequoted provision of law is clear and needs no further interpretation that all sales made in different localities by branches and sales outlets of BRL outside of Pasig City shall record such sales in said branches or sales outlets and the tax shall be taxable by the concerned LGUs where such branches or sales outlets are located. The only instance under the pertinent provision of the IRR of the LGC that Pasig City may claim 70% of sales of BRL is in situation where sales are recorded in the principal office, thus: "Article 243. Situs of the Tax. (a) Definition of terms: xxx xxx xxx (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 sale allocation herein provided for. ( Emphasis ours ) In the case of BRL however, the immediate preceding provision of the IRR will not apply considering that based on representation made, corresponding sales made by branches and sales outlets are recorded thereat, respectively thus the governing provision of law is Article 243 (b) (1), supra . Needless to say, for Pasig to be able to claim the 70% allocation, recording of sales made in different branches and sales outlets will have to be made in BRL's principal office in said City pursuant to the said Article 243 (b) (3), of the IRR of LGC abovequoted. Pasig City however, where the principal office and factory/commissary are located, and the different localities where branches and sales outlets are also located, shall collect the Mayor's permit and other regulatory fees imposed under their respective duly approved local tax ordinances or revenue codes. We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director