Part A: Local Taxation and Real Property Taxation I. Local Taxation A. Taxing Power of the LGUs 1.

Legal Basis Section 128-196 Section 5, Art. X, 1987 Constitution Phil Petroleum Corp vs Mun of Pililia 1991 Facts: Petitioner is a business enterprise engaged in the manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated at Malaya, Pililla, Rizal. PPC owns and maintains an oil refinery including 49 storage tanks for its petroleum products in Malaya, Pililla, Rizal. Under Section 142 of the NIRC of 1939, manufactured oils and other fuels are subject to specific tax. On June 28, 1973, PD 231 (Local Tax Code) was issued enacted. Sections 19 and 19 (a) provide that the municipality may impose taxes on business, except on those for which fixed taxes are provided on manufacturers, importers or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in accordance with the schedule listed therein. The Secretary of Finance issued Provincial Circular No. 26-73 (December 27, 1973) directed to all provincial, city and municipal treasurers to refrain from collecting any local tax imposed in old or new tax ordinances in the business of manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under the NIRC. Provincial Circular No. 26 A-73 (January 9, 1973)was also issued instructing all City Treasurers to refrain from collecting any local tax imposed in tax ordinances enacted before or after the effectivity of the Local Tax Code, on the businesses of manufacturing, wholesaling, retailing, or dealing in, petroleum products subject to the specific tax under the NIRC. Respondent enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as "The Pililla Tax Code of 1974" which took effect on July 1, 1974. Sections 9 and 10 of the said ordinance imposed a tax on business, except for those for which fixed taxes are provided in the Local Tax Code on manufacturers, importers, or producers of any article of commerce of whatever kind or nature, including brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in accordance with the schedule found in the Local Tax Code, as well as mayor's permit, sanitary inspection fee and storage permit fee for flammable, combustible or explosive substances, while Section 139 of the disputed ordinance imposed surcharges and interests on unpaid taxes, fees or charges .

On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum products levied under Sections 142, 144 and 145 of the NIRC, and granting provinces, cities and municipalities certain shares in the specific tax on such products in lieu of local taxes imposed on petroleum products. The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the Provincial Treasurer of Rizal, but was not implemented and/or enforced by the Municipality of Pililla because of its having been suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73. On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was enacted, Section 153 of which specifically imposes specific tax on refined and manufactured mineral oils and motor fuels. Enforcing the provisions of the ordinance, the respondent filed a complaint against PPC for the collection of the business tax from 1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however, have already paid the lastnamed fees starting 1985. The RTC rendered a decision against petitioner.

Issue: WON PPC whose oil products are subject to specific tax under the NIRC, is still liable to pay (a) tax on business and (b) storage fees, considering Provincial Circular No. 677; and mayor's permit and sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal Ordinance No. 1 Held: Yes

Ratio: PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to national economic policy the imposition of local taxes on the manufacture of petroleum products as they are already subject to specific tax under the National Internal Revenue Code; (b) the above declaration covers not only old tax ordinances but new ones, as well as those which may be enacted in the future; (c) both Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked, any effort on the part of the respondent to collect the suspended tax on business from the petitioner would be illegal and unauthorized; and (d) Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products. PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances imposing a tax on business under Section 19 (a) of the Local Tax Code, with regard to manufacturers, retailers, wholesalers or dealers in

petroleum products subject to the specific tax under the NIRC, in view of Section 22 (b) of the Code regarding nonimposition by municipalities of taxes on articles, subject to specific tax under the provisions of the NIRC. There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees and charges is valid especially Section 9 (A) which according to the trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of said law. But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products. Well-settled is the rule that administrative regulations must be in harmony with the provisions of the law. In case of discrepancy between the basic law and an implementing rule or regulation, the former prevails. Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself. Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a declared national policy, it should have been expressly stated in P.D. No. 436. The exercise by local governments of the power to tax is ordained by the present Constitution. To allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the 1987 Constitution, only guidelines and limitations that may be established by Congress can define and limit such power of local governments. Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting the so-called storage fee on flammable or combustible materials imposed in the local tax ordinance of their respective locality frees petitioner PPC from the payment of storage permit fee. The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and keeping in storage of any flammable, combustible or explosive substances. Inasmuch as said storage makes use of tanks owned not by the municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any service rendered by the

municipality as what is envisioned in Section 37 of the same Code. Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit fee allowed under Section 36 of the amended Code. As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection fees, the trial court did not err in holding that "since the power to tax includes the power to exempt thereof which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive officer may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The waiver partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax exemptions are looked upon with disfavor. Thus, in the absence of a clear and express exemption from the payment of said fees, the waiver cannot be recognized. As already stated, it is the law-making body, and not an executive like the mayor, who can make an exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be required before any individual or juridical entity shall engage in any business or occupation under the provisions of the Code. However, since the Local Tax Code does not provide the prescriptive period for collection of local taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an obligation created by law prescribes within ten (10) years from the time the right of action accrues. The Municipality of Pililla can therefore enforce the collection of the tax on business of petitioner PPC due from 1976 to 1986, and NOT the tax that had accrued prior to 1976. 2. Power to Create Sources of Funds Section 129, LGC

Mactan Cebu Airport vs Marcos (See Lucys notes) The power to tax is primarily vested in the Congress but our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation but pursuant to direct authority conferred by the Constitution. NPC vs City of Cabanatuan 2003 Section 3 of Article X of the Consti mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal

constraints faced by the LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposistion of taxes on forest products, forest concessionarires, mineral products, mining operations and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their need and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentatlies, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. Section 133 (o), Section 151 in relation to section 137 clearly authorizes the respondent city govt to impose on the petitioner the franchise tax in question. Section 137 of the LGC clearly states that the LGUs can impose franchise tax notwithstanding any exemption granted by any law or other special law. This particular provision of the LGC does not admit any exception. Section 193 buttresses the withdrawal of extant tax exemption privileges by stating that unless otherwise provided in this Coe, tax exemptions or incentives granted to or presently enjoyed by all person, whether natural or juridical, including government-owned or controlled corporations except (1) local water districts (2) cooperatives duly registered under RA 6938, (3) nonstick and non-profit hospitals and educational institutions, are withdrawn upon the effectivity of this code, the obvious import is to limit the exemptions to the three enumerated entities. Section 192: empowers the LGU through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. City Government of San Pablo Laguna vs Reyes 1999 Section 543 (f): general repealing clause.

manifest and it must be convincingly demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist. The magic words contained in the phrase shall be in lieu of all taxes have to give way to the peremptory language of the LGC specifically providing for the withdrawal of such exemption privileges. The LGC was enacted in pursuance of the constitutional policy to ensure autonomy to local governments and to enable them to attain fullest development of self-reliant communities. These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. Reason for the withdrawal: the tax exemption resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. Iloilo Bottlers Inc vs City of Iloilo 1998 The tax imposed under Ordinance No.. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied bu the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority. Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo. 3. Fundamental Principles Section 130 and 132, LGC

Pepsi-Cola Bottling Co. vs City of Cabanatuan 1968 Issue: WON there was an implied repeal by RA 7160 of the MERALCOs franchise insofar as the latter imposes a 2% tax in lieu of all taxes and assessments of whatever nature. YES. A general law cannot be construed to have repealed a special law by mere implication unless the intent to repeal or alter is It is true that the uniformity essential to the valid exercise of the power of taxation does not require identity or equality under all circumstances, or negate the authority to classify the objects of taxation. The classification made in the exercise of this authority to be valid must however be

reasonable and this requirement is not deemed satisfied unless: 1) It is based upon substantial distinctions which make real differences 2) These are germane to the purpose of the legislation or ordinance 3) The classification applies, not only to present conditions, but also, to future conditions substantially identical to those of the present 4) The classification applies equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question. Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by dealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from tax. City of Baguio vs De Leon 1968 Where, as here, Congress has expressed its intention, the statute must be sustained even though double taxation results. Argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city xxx it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Equality in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Gaston vs Republic Planters Bank 1988 The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry. The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State. The stabilization fees in question are levied by the State upon sugar millers, planters, and producers for a special

purposethat of financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market. The fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statue, administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any is to be transferred to the general funds of the Government. Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine treasury, which may be paid out only in pursuance of an appropriation made by law. Progressive Development Corporation vs QC 1989 Both the Local Autonomy Act and the Charter of responded clearly show that respondent is authorized to fix the lices fee collective from and regulate the business of petitioner as operator of privately owned market. License fee distinguished from tax: The former is imposed in the exercise of police power primarily for the purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. Thus if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the pulic interest in healt morals, safety and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable realtion to the probably expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. When an activity, occupation or profession is of such a character that inspection or superviosn by public officials is reasonable necessary for the safeguarding and fuhterance of pulci health, morals, and safety or the general welfare, the legislatire may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. Accordingly, the charge of a fixed sum which bears no

relation at all to the cost of inspection and regulation may be held to be tax rather than an exercise of the police power. The operation of a privately owned market, is correctly noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close supervision and control by the respondent City for the protection of the health of the public. Eg. Maintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and related standards, for the prevention of fraud and imposition upon buying public. Matalin Coconut Co. Inc vs Municipal Council of Malabang Lanao Del Sur 1986 Ordinance on police inspection fee The grant of power to tax under the provision of the Local Autonomy Act, which a liberal rule has been followed in construing municipal ordinances, is sufficiently plenary to cover everything excepting those which are mentioned therein subject only to the limitation that the tax so levied is for public purposes just and uniform. The ordinance in question partakes of the nature of a tax although denominated as police inspection fee since its undeniable purpose is to raise revenue. We cannot agree with the RTC that the tax imposed is a percentage tax on sales which is beyong the scope of the municipalities authority to levy under Section 2 of the LAA. Municipalities, and municipal districts are prohibited from imposing any percentage tax on sales or other taxes in any form based thereon. The tax imposed in the ordinance in question is not a percentage tax. It is a fixed tax of P.30 per bag of cassava starch or flour shipped out of the municipality. It is not based on sales. The tax levied must be for public purpose, just and uniform. Police inspection fee is unjust and unreasonable. Villanueva vs City of Iloilo 1968 A municipal license tax means an imposition or exaction on the right to use or dispose of property, to pursue a business, occupation or calling or to exercise a privilege. Double taxation: when permissible and when prohibited: Equality and uniformity of taxation: In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing districts during the same taxing period,

and they must be the same kind or character of tax. It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind of character. Taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority. The fact that the owners of other classes of buildings in the City do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Ericsson Telecommunications Inc vs City of Pasig 2007 WON assessed deficiency of local business taxes should be based on gross receipts. Gross receipts include money or its equivalient actually or constructively received in consideration of services rendered or articles sold, exchanged, or leased whether actual or constructive. Gross revenue covers money or its equivalent actually or constructively received, including the value of services rendered or articles old, exchanged or leased, the payment of which is yet to be received. The imposition of local business tax based on petitioners gross revenue will inevitably result in the constitutionally proscribed double taxationtaxing of the same person twice by the same jurisdiction for the same thinginasmuch as petitioners revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Bagatsing vs Ramirez 1976 Raising of revenue is the principal object of taxation. An ordinance which imposes rentals, permit fees, tolls and other fees is a tax ordinance. The entrusting of the collection of market stall fees to a private firm does not destroy the public purpose of a tax ordinance. Asiatic Integrated Corporation collects the fees under a management and operating contract. The fees collected do not go direct to the private coffers of the coporation. The Ordinance was not for the corporation but for the purpose of raising revenues for the city. Asiatic Integrated Corporation vs Alikpala 1975 4. Common Limitations Section 133, LGC

BLGF Nov 26, 2007

Progressive Development Corporation vs QC 1989 Philippine Petroleum Corporation vs Municipality of Pililia Pepsi-Cola Bottling Company vs Municipality of Tanauan People vs Nazario First Philippine Industrial Corporation vs CA LTO vs City of Butuan MCIAA vs Marcos MIAA vs CA B. Levy of Tax; Tax Ordinance Section 186-193