Bureau of Local Government Finance Opinion

January 27, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr. Jorge Davide, Jr. Managing Director STERIX Incorporated Unit 1201 South Center Tower 2206 Market St., Madrigal Business Park Alabang, Muntinlupa City Sir : This refers to your letter dated November 21, 2014 requesting for an opinion on the requirements of getting a separate business permit with the local government unit. The following are the pertinent circumstances in relation to your request: 1. STERIX, INC. (STERIX) is a duly registered domestic corporation that is engaged in providing pest control services and in the distribution of a limited number of pest control chemicals. 2. STERIX's principal office is in Muntinlupa City where it is paying its business taxes based on 100% of its gross sales, and for which a business permit is issued. All sales invoices are issued from the said office only. 3. STERIX has contracts for pest control services in different locations (in different local government units). These contracts range from one year to two years and you only have about one to three personnel in one location. In one client only you have about ten personnel performing services in fulfillment of the service contract. (sic) 4. All job orders and sales invoices emanate solely from the principal office and there are no other registered offices (branches or warehouses) in other local government units. 5. There is a local government unit, particularly Marikina City, which simply requires an accreditation permit for pest control companies before the latter can perform its obligations as part of its service contract. The business permit issued by Muntinlupa City is simply an attachment for the issuance of said accreditation. 6. Some of your clients have been requiring you to acquire a separate business permit from the local government unit where they are located. Despite the representations to the contrary, you have been forced to get a business permit from the local government unit concerned. Also, local government units compute the cost of the permit based on the entire revenue of your operations. TIADCc It may be mentioned that this Bureau referred the said letter to the City Treasurer of Marikina for comment and/or appropriate action under a 1st Indorsement dated December 9, 2014. In turn, Ms. Thelma T. Quilingking , City Treasurer of Marikina likewise referred the issue to Atty. Nancy V. Teylan , Chief of the Business Permits and Licensing Office (BPLO), same City. In reply, Atty. Teylan, in her letter dated January 7, 2015 addressed to that Office, informed that since STERIX is operating outside Marikina City, it is being assessed based on gross receipt applying Section 38 (Situs of the Tax) of the existing Revenue Code of Marikina City. Based on the representation made above, STERIX's principal office is located in Muntinlupa City where it is paying its business taxes based on its 100% gross sales. All sales invoices are recorded in the principal office and there are no other registered branches or warehouses in other local government units being maintained by the Company. In view thereof and since STERIX has no branch office, sales outlet or warehouse in said localities the 70%-30% allocation mentioned by Atty. Telan in her letter of January 7, 2015 is not applicable to the issue at hand. Such allocation scheme provided under Article 243 (b) (3) of the Implementing Rules & Regulations (IRR) implementing Section 150 (b) of the Local Government Code (LGC) of 1991 is applicable only in cases where the business maintains a factory, project office, plant or plantation. In the instant case, the applicable provisions of law is Article 243 (b) (2), quoted as follows: "ARTICLE 243. Situs of the Tax. (a) . . . . xxx xxx xxx (b) Sales Allocation (1) . . . (2) In cases where there is no such branch, sales office, or warehouse in the locality where the sale is made, the sale shall be recorded in the principal office along with the sales made by said principal office and the tax shall accrue to the city or municipality where said principal office is located ." (Emphasis ours) With regard to the required business permit, this Bureau, based on the information submitted, believes that there is no need for STERIX to secure business permit from local government units concerned as the presence of its personnel to said localities is merely to fulfill its contractual obligation to its clientele and their presence to carry out this obligation contracted by the business from their clients is only temporary. This opinion is expressed in view of the tenets embodied in Section 147 which provides that the imposition and collection of such regulatory fee (business permit fee) "commensurate with the cost of regulation, inspection and licensing before any person may engage in such business." AIDSTE To elucidate and affirm our stand on the issue and as viewed from a different perspective, the absence of any branch office, sales outlet or warehouse of STERIX repudiate the requirement of securing business permit as, in the first place, there is no fixed business establishment to regulate, inspect, and issue license to justify the imposition. For after all how can a regulating authority impose its authority to regulate when the very subject of the regulation is non-existent. Lastly, on the issue of business permit fee being computed based on the entire revenue of the operations of STERIX, Article 233 of the Implementing Rules & Regulations (IRR) implementing Section 147, in relation to Section 151, all of the LGC, is quoted as follows: " ARTICLE 233. Fees and Charges . The municipality may impose and collect such reasonable fees and charges on businesses and occupations and, except as reserved to the province in Article 229 of this Rule, on the practice of any profession or calling before any person may engage in such business or occupation, or practice such profession or calling provided that such fees or charges shall only be commensurate to the cost of issuing the license or permit and the expenses incurred in the conduct of the necessary inspection or surveillance. No such fee or charge shall be based on capital investment or gross sales or receipts of the person or business liable therefor ." (Emphasis ours) We hope that this will help clarify matters. Very truly yours, (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director