Clarification on Section 150 of RA 7160 Regarding Situs of Taxation of a Business with Head and Branch Offices

August 23, 2004 DILG LEGAL OPINION NO. 077-04 Ms . Ma . Cecilia C. Katigbak Cabaero, Katigbak, Clemente & Co., CPAs 4/F Saville Bldg., 8278 Paseo De Roxas Makati City Dear Ms. Katigbak : This refers to your letter-request for clarification on Section 150 of the Local Government Code of 1991 (RA 7160) vis--vis your client's business. As disclosed, your client Common Properties, Inc.,a domestic real estate business entity has its head office at Taguig with a branch at Makati City, and for the past years, your client's source of income is derived from its Makati City Branch and has thus paid all its business taxes in Makati City. Insofar as the principal office at Taguig is concerned, your client merely paid the basic business taxes, since no income is being derived from the said municipality. However, upon your client's application for a retirement of office at Taguig, the latter assessed the former for tax deficiency and claims that 30% of the rental income should have been declared at Taguig. It is your position that your client should only be made liable to pay taxes at Makati City for the rental income derived thereat since the 30%/70% sharing ratio as provided under Section 150 (b) of RA 7160 is not applicable to lessors of real property but only to manufacturers, assemblers, contractors, producers, and exporters with factories, project offices, plants and plantations. For better appreciation of this Department's position, it is imperative to state Section 150 (a) and (b) of RA 7160. Thus: "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 wine, 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 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. DTaSIc 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." xxx xxx xxx Section 150 (a) is rather explicit in stating that taxes due on branch sales shall accrue and be paid to the municipality where such branch or sales outlet is located. Ergo ,as you have correctly pointed out, your client is under no obligation to pay taxes at Taguig, since the income is being derived from its branch at Makati City. Further, Section 150(b) cannot be invoked by the Municipality of Taguig if your client's business is indeed not a manufacturer, assembler, contractor, producer or exporter under the well entrenched principle of EXPRESSIO UNIUS EST EXCLUSIO ALTERIUS, which means that what has not been included is excluded. Moreover, it is rather quite evident that your client, being a real estate business entity, is beyond the coverage of the 30%70% sharing ratio requirement. Let it be stressed that the instant legal opinion is without prejudice to a more authoritative view from the Bureau of Local Government Finance, Department of Finance, the latter office having primary jurisdiction over local taxation matter. We hope we have enlightened you on the matter. Very truly yours, (SGD.) ANGELO T. REYES Secretary Department of Interior and Local Government