Sales tax regulations on second sale

October 31, 1985 November 1, 1985 REVENUE REGULATIONS NO. 10-85 SUBJECT : Sales Tax Regulations on Second Sale TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of Section 326 in relation to Section 196(B), both of the National Internal Revenue Code, as amended, the following regulations are hereby promulgated. SECTION 1 . Scope . These regulations shall govern the implementation of sales tax on second sale, filing of returns and payment of the tax. SECTION 2 . Definition of terms . As used herein, the following terms and phrases shall have the meaning hereunder indicated: casia (a) "Person" any individual, a trust, estate, partnership or cooperation. (b) "Original sale" The first sale, barter, exchange or transfer of an article by the person liable to excise tax (specific and/or ad valorem ) or manufacturer's, producer's, importer's or miller's percentage tax. Sales made by a sales outlet which is a branch, agent or a mere conduit or alter ego of the manufacturer, producer, importer or miller subject to percentage tax or the person subject to excise tax shall be considered as an original sale . acd (c) "Second sale" The sale, barter, exchange or transfer of an article acquired from a person subject to tax on original sales as defined in (b) above, without such articles having undergone any manufacturing or transformation process. (d) "Gross selling price or gross value in money" The total amount of money or its equivalent received for the article sold. SECTION 3 . Persons liable . Any person engaged in selling articles acquired from manufacturers, producers, millers or importers without such articles having undergone any manufacturing or transformation process except the following articles: (a) Manufactured oils and other fuels except lubricating oil, processed gas, grease, wax and petrolatum; (b) .22 Caliber firearms and cartridges, as well as other forms of ammunition sold or delivered directly to the Armed Forces of the Philippines or any government instrumentality, or agency engaged in maintaining peace and order for their use or issue; (c) Articles shipped or exported by a trader irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported; (d) Articles sold directly to foreign tourists and paid for in convertible foreign currency if the articles so sold are actually brought out of the Philippines by the buyers upon their departure; and casia (e) Food, refreshments, distilled spirits, fermented liquors or wines the proceeds from the sale of which form part of the gross receipts of proprietors or operators of restaurants and other eating places subject to caterer's tax. A person who is liable to the 3% tax on second sale who by act or omission, engages in any subterfuge, machination or misrepresentation to evade the payment of the tax imposed shall, in addition to the tax due, be subject to the maximum civil and criminal liabilities provided by law. SECTION 4 . Rate of tax and tax base . The tax on second sale is 3% of gross selling price or gross value in money of the articles sold. Sale of agricultural food products in their original state shall be subject to 0% rate of tax. Rice and corn shall be considered agricultural products in their original state even if they have undergone milling. In the case of a sale by a dealer to a manufacturer-buyer, the sales tax on the original sale passed on by the dealer to a manufacturer-buyer shall form part of the tax base. In computing the taxable base, discounts may be allowed as a deduction from gross selling price provided said discounts are given at the time of the sale and are expressly indicated in the sales invoice. Sales returns and allowances shall be allowed as deduction from the gross sales in the month when such returns and allowances are made. If the returns or allowances exceed the gross sales of the month, the excess may be carried over to the succeeding month or months. cd Articles consigned shall be considered sold on the day of sale or sixty days after the date of consignment, whichever is earlier. SECTION 5 . Computation . The gross selling price or gross value in money multiplied by the rate of tax (3%) shall be the gross sales tax on second sale. If the seller includes an amount intended to cover the sales tax in the gross selling price of the article, the tax shall be based on the gross selling price less the amount intended to cover the tax, if the tax is billed to the purchaser as a separate item in the invoice. Otherwise, the amount intended to cover the sales tax shall be considered as part of the gross selling price of the article sold. To illustrate: Example 1. "A" knitting company purchased yarn from ABC Spinning Mills Corporation under the following invoice: ABC SPINNING MILLS CORPORATION No. 1 Tanque, Paco, Manila Invoice No. 00001 November 1, 1985 SOLD TO: A Knitting Company Muntinlupa, Metro Manila 1000 kilos yarn at P10.00 per kilo P10,000 3% tax 300 Total P10,300 In the above example, the gross selling price for purposes of the tax on the second sale is P10,000. Example 2. Same buyer and seller as above but tax is indicated as follows: Invoice No. 00001 November 1, 1985 SOLD TO: A Knitting Company 1,000 kilos yarn P10,300 (Sales tax of P300 included) In this example, the tax is not billed separately. The gross selling price for purposes of the tax is P10,300. Example 3. "A" Knitting Company sold to XYZ Trading, a duly accredited dealer, 10,000 meters of cloth at P10.00 per yard which it invoiced as follows: cdt "A" KNITTING COMPANY Invoice No. 00015 November 1, 1985 SOLD TO: XYZ Trading 1051 C.M. Recto Ave. Divisoria, M.M. 10,000 meters denims P10/meter P100,000 10% tax 10,000 Total P110,000 XYZ Trading in turn sold the 10,000 meters denims to Philippine Garment Manufacturing Corporation as follows: Invoice No. 10115 November 1, 1985 SOLD TO: Phil. Garment Mfg. Corp. 10,000 meters denims P12/meter P120,000 10% tax separately billed by "A" Knitting 10,000 3% second sale tax (.03 x 130,000) 3,900 Total P133,900 In the above example, the 3% tax is based on the selling price plus the 10% tax passed on by XYZ Trading which is a duly registered and accredited dealer. Phil. Garment Manufacturing Corporation shall be entitled to P13,900 as tax credits on his sales tax composed of : (1) 10% allowed to be passed on by the dealer P10,000 (2) 3% tax passed on by the dealer P3,900 Total P13,900 SECTION 6 . Tax credits . Any excise, sales, miller's or percentage taxes passed on to the second seller shall not be allowed as a credit against the sales tax due on second sale. However, taxes withheld by government offices under the provisions of R.A. 1051 may be deducted from the tax due. casia SECTION 7 . Filing of sales tax returns on second sale and payment of the tax due thereon . (a) Who shall file a return and pay the tax . In general, it shall be the duty of every person conducting a business on which a tax on second sale is imposed to file a true and complete return of the amount of his gross monthly sales within 10 days after the end of each month and pay the tax due thereon. However, if the average monthly tax due as shown in the Taxpayer's Registration and Credit Information Sheet (BIR Form No. _____) does not exceed P50, the return shall be filed and the tax due paid within 20 days after the end of each quarter. Any person retiring from business subject to the tax on second sale shall immediately notify in writing the proper internal revenue officer, file his return or declaration and pay the tax due thereon within 20 days after closing his business. (b) Where to file . The return (BIR Form No. _____) shall be filed in duplicate with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or municipality where each and every separate branch or distinct place of business is located. Any person required to file a return may, at his option, file as many returns as there are separate or distinct places of business where sales and other business transactions subject to tax on the second sale are conducted, or consolidate all his taxable transactions within the same revenue district and file only one return with the revenue officer of the district. Separate returns shall be filed for establishments located in different revenue districts to that of another, the return shall be filed with the proper revenue officer of the district where the establishment is transferred. (c) When to pay . The total amount of tax due shall be paid by the person subject thereto at the time the return is filed, unless otherwise prescribed by the Commissioner. (d) Addition to the tax . If the sales tax on second sale is not paid within the time specified , the amount shall be increased by a surcharge of 25%, the increment to be a part of the tax and the entire amount (tax and surcharge) shall be subject to interest at the rate of 20% per annum , or such higher rate as may be prescribed for the period from the due date prescribed for the period from the due date prescribed for payment until the amount is fully paid. In case of willful neglect to file a return within the time prescribed or in case a false or fraudulent return is willfully made, there shall be added to the tax or to the deficiency tax in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of 50% of its amount and the entire unpaid amount of 20% per annum , or such higher rte as may be prescribed. The amount so added to any tax shall be collected at the same time and in the manner and as part of the tax unless the tax has been paid before the discovery of the falsity or fraud, in which case, the amount so added shall be collected in the same manner as the tax. SECTION 8 . Registration . In compliance with Section 9 of P.D. 1991, any person liable to the tax on second sale shall register his business in accordance with Revenue Regulations No. 11-85. All persons subject to tax on second sale shall upon registration file an inventory of all articles in their possession as of October 31, 1985 the sale of which is subject to tax. casia SECTION 9 . Effectivity . These regulation shall take effect November 1, 1985. (SGD.) CESAR E.A. VIRATA Minister of Finance Recommending Approval: (SGD.) RUBEN B. ANCHETA Acting Commissioner