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G.R. No. L-36081

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RepublicofthePhilippines
SUPREMECOURT
Manila
THIRDDIVISION
G.R.No.L36081April24,1989
PROGRESSIVEDEVELOPMENTCORPORATION,petitioner,
vs.
QUEZONCITY,respondent.
Jalandoni,Herrera,DelCastillo&Associatesforpetitioner.

FELICIANO,J.:
On24December1969,theCityCouncilofrespondentQuezonCityadoptedOrdinanceNo.7997,Seriesof1969,
otherwiseknownastheMarketCodeofQuezonCity,Section3ofwhichprovided:
Sec. 3. Supervision Fee. Privately owned and operated public markets shall submit monthly to the
Treasurer'sOffice,acertifiedlistofstallholdersshowingtheamountofstallfeesorrentalspaiddailyby
each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as
supervision fee. Failure to submit said list and to pay the corresponding amount within the period
herein prescribed shall subject the operator to the penalties provided in this Code ... including
revocationofpermittooperate.....1
TheMarketCodewasthereafteramendedbyOrdinanceNo.9236,Seriesof1972,on23March1972,whichreads:
SECTION1.Thereisherebyimposedafivepercent(5%)taxongrossreceiptsonrentalsorleaseof
spaceinprivatelyownedpublicmarketsinQuezonCity.
xxxxxxxxx
SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public
markets shall submit ... a monthly certified list of stallholders of lessees of space in their markets
showing...:
a.nameofstallholderorlessee
b.amountofrental
c.periodoflease,indicatingthereinwhetherthesameisonadaily,monthlyoryearlybasis.
xxxxxxxxx
SECTION4....Incaseofconsistentfailuretopaythepercentagetaxforthe(3)consecutivemonths,
the City shall revoke the permit of the privatelyowned market to operate and/or take any other
appropriate action or remedy allowed by law for the collection of the overdue percentage tax and
surcharge.
xxxxxxxxx2
On15July1972,petitionerProgressiveDevelopmentCorporation,ownerandoperatorofapublicmarketknownas
the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against
respondent before the then Court of First Instance of Rizal on the ground that the supervision fee or license tax
imposed by the abovementioned ordinances is in reality a tax on income which respondent may not impose, the
samebeingexpresslyprohibitedbyRepublicActNo.2264,asamended.
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In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned
ordinances,maintainingthatthetaxongrossreceiptsimposedthereinisnotataxonincome.TheSolicitorGeneral
also filed an Answer arguing that petitioner, not having paid the ten percent (10%) supervision fee prescribed by
OrdinanceNo.7997,hadnopersonalitytoquestion,andwasestoppedfromquestioning,itsvaliditythatthetaxon
grossreceiptswasnotataxonincomebutoneimposedfortheenjoymentoftheprivilegetoengageinaparticular
tradeorbusinesswhichwaswithinthepowerofrespondenttoimpose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest the five percent
(5%) tax under Ordinance No. 9236 for the months of June to September 1972. Two (2) days later, on 25
September1972,petitionermovedforjudgmentonthepleadings,allegingthatthematerialfactshadbeenadmitted
bytheparties.
On21October1972,thelowercourtdismissedthepetition,ruling 3thatthequestionedimpositionisnotataxonincome,butrathera
privilegetaxorlicensefeewhichlocalgovernments,likerespondent,areempoweredtoimposeandcollect.

Havingfailedtoobtainreconsiderationofsaiddecision,petitionercametousonthepresentPetitionforReview.
The only issue toberesolvedhereiswhetherthetaximposedbyrespondent on gross receipts of stall rentals is
properlycharacterizedaspartakingofthenatureofanincometaxor,alternatively,ofalicensefee.
WebeginwiththefactthatSection12,ArticleIIIofRepublicActNo.537,otherwiseknownastheRevisedCharter
ofQuezonCity,authorizestheCityCouncil:
xxxxxxxxx
(b)Toprovideforthelevyandcollectionoftaxesandothercityrevenuesandapplythesametothe
paymentofcityexpensesinaccordancewithappropriations.
(c)Totax,fixthelicensefee,andregulatethebusinessofthefollowing:
...preparationandsaleofmeat,poultry,fish,game,butter,cheese,lardvegetables,breadandother
provisions.4
ThescopeoflegislativeauthorityconferredupontheQuezonCityCouncilinrespectofbusinesseslikethatofthe
petitioner,iscomprehensive:thegrantofauthorityisnotonly"[to]regulate"and"fixthelicensefee,"butalso"to
tax"5
Moreover,Section2ofRepublicActNo.2264,asamended,otherwiseknownastheLocalAutonomyAct,provides
that:
Anyprovisionoflawtothecontrarynotwithstanding,allcharteredcities,municipalities and municipal
districtsshallhaveauthoritytoimposemunicipallicensetaxesorfeesuponpersonsengagedinany
occupationorbusiness,orexercisingprivilegesincharteredcities,municipalitiesormunicipaldistricts
byrequiringthemtosecurelicensesatratesfixedbythemunicipalboardorcitycouncilofthecity,the
municipalcouncilofthemunicipality,orthemunicipaldistrictcouncilofthemunicipaldistricttocollect
fees and charges for service rendered by the city, municipality or municipal district to regulate and
impose reasonable fees for services rendered in connection with any business, profession or
occupationbeingconductedwithinthecity,municipalityormunicipaldistrictandotherwisetolevyfor
publicpurposesjustanduniformtaxeslicensesorfees:...6
It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority extending to
almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public
purposes,justanduniform,"doesnottransgressanyconstitutionalprovisionandisnotrepugnanttoacontrolling
statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly show that respondent is authorized to fix the license fee collectible from and
regulatethebusinessofpetitionerasoperatorofaprivatelyownedpublicmarket.

Petitioner,however,insistthatthe"supervisionfee"collectedfromrentals,beingareturnfromcapitalinvestedinthe
constructionoftheFarmersMarket,practicallyoperatesasataxonincome,oneofthoseexpresslyexceptedfrom
respondent'staxingauthority,andthusbeyondthelatter'scompetence.PetitionercitesthesameSection2ofthe
LocalAutonomyActwhichgoesontostate:8
... Provided, however, That no city, municipality or municipal district may levy or impose any of the
following:
xxxxxxxxx
(g)Taxesonincomeofanykindwhatsoever
Theterm"tax"frequentlyappliestoallkindsofexactionsofmonieswhichbecomepublicfunds.Itisoftenloosely
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used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently
calledtaxesalthoughlicensefeeisalegalconceptdistinguishablefromtax:theformerisimposedintheexerciseof
police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for
purposesofraisingrevenues. 9Thus,ifthegeneratingofrevenueistheprimarypurposeandregulationismerelyincidental,theimpositionisatax
butifregulationistheprimarypurpose,thefactthatincidentallyrevenueisalsoobtaineddoesnotmaketheimpositionatax.10

Tobeconsideredalicensefee,theimpositionquestionedmustrelatetoanoccupationoractivitythatsoengages
the public interest in health, morals, safety and development as to require regulation for the protection and
promotionofsuchpublicinteresttheimpositionmustalsobearareasonablerelationtotheprobableexpensesof
regulation,takingintoaccountnotonlythecostsofdirectregulationbutalsoitsincidentalconsequencesaswell. 11
Whenanactivity,occupationorprofessionisofsuchacharacterthatinspectionorsupervisionbypublicofficialsisreasonablynecessaryforthesafeguardingand
furtheranceofpublichealth,moralsandsafety,orthegeneralwelfare,thelegislaturemayprovidethatsuchinspectionorsupervisionorotherformofregulation
shallbecarriedoutattheexpenseofthepersonsengagedinsuchoccupationorperformingsuchactivity,andthatnooneshallengageintheoccupationorcarry
outtheactivityuntilafeeorchargesufficienttocoverthecostoftheinspectionorsupervisionhasbeenpaid.12Accordingly,achargeofafixedsumwhichbears
norelationatalltothecostofinspectionandregulationmaybeheldtobeataxratherthananexerciseofthepolicepower.13

Inthecaseatbar,the"FarmersMarket&ShoppingCenter"wasbuiltbyvirtueofResolutionNo.7350passedon30
January1967byrespondents'slocallegislativebodyauthorizingpetitionertoestablishandoperateamarketwitha
permittosellfreshmeat,fish,poultryandotherfoodstuffs.14Thesameresolutionimposeduponpetitioner,asaconditionforcontinuous
operation, the obligation to "abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of
marketsinQuezonCity."15

The"Farmers'MarketandShoppingCenter"beingapublicmarketinthe'senseofamarketopentoandinvitingthe
patronage of the general public, even though privately owned, petitioner's operation thereof required a license
issuedbytherespondentCity,theissuanceofwhich,applyingthestandardssetforthabove,wasdoneprincipallyin
theexerciseoftherespondent'spolicepower. 16The operation of a privately owned market is, as correctly noted by the Solicitor General,

equivalent to or quite the same as the operation of a governmentowned market both are established for the rendition of service to the general public, which
warrantsclosesupervisionandcontrolbytherespondentCity,17fortheprotectionofthehealthofthepublicbyinsuring,e.g.,themaintenanceofsanitaryand
hygienicconditionsinthemarket,complianceofallfoodstuffssoldthereinwithapplicablefoodanddrugandrelatedstandards,forthepreventionoffraudand
impositionuponthebuyingpublic,andsoforth.

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on
income, not a city income tax (as distinguished from the national income tax imposed by the National Internal
RevenueCode)withinthemeaningofSection2(g)oftheLocalAutonomyAct,butratheralicensetaxorfeeforthe
regulation of the business in which the petitioner is engaged. While it is true that the amount imposed by the
questioned ordinances may be considered in determining whether the exaction is really one for revenue or
prohibition,insteadofoneofregulationunderthepolicepower,18itneverthelesswillbepresumedtobereasonable.Local'governments
are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to
particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonablenessofthequestionedrates.19Thus:

[A]n ordinance carries with it the presumption of validity. The question of reasonableness though is
opentojudicialinquiry.Muchshouldbeleftthustothediscretionofmunicipalauthorities.Courtswillgo
slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be
prohibitory,arbitrary,unreasonable,oppressive,orconfiscatory.Arulewhichhasgainedacceptanceis
thatfactorsrelevanttosuchaninquiryarethemunicipalconditionsasawholeandthenatureofthe
businessmadesubjecttoimposition.20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so
grosslydisproportionatetothecostsoftheregulatoryservicebeingperformedbytherespondentastocompelthe
Courttocharacterizetheimpositionasarevenuemeasureexclusively.Thelowercourtcorrectlyheldthatthegross
receiptsfromstallrentalshavebeenusedonlyasabasisforcomputingthefeesortaxesduerespondenttocover
the latter's administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to the public. The
useofthegrossamountofstallrentalsasbasisfordeterminingthecollectibleamountoflicensetax,doesnotby
itself,upontheonehand,convertorrenderthelicensetaxintoaprohibitedcitytaxonincome.Upontheotherhand,
ithasnotbeensuggestedthatsuchbasishasnoreasonablerelationshiptotheprobablecostsofregulationand
supervisionofthepetitioner'skindofbusiness.For,ordinarily,thehighertheamountofstallrentals,thehigherthe
aggregate volume of foodstuffs and related items sold in petitioner's privately owned market and the higher the
volumeofgoodssoldinsuchprivatemarket,thegreatertheextentandfrequencyofinspectionandsupervisionthat
maybereasonablyrequiredintheinterestofthebuyingpublic.Moreover,whatwestartedwithshouldberecalled
here:theauthorityconferredupontherespondent'sCityCouncilisnotmerely"toregulate"butalsoembracesthe
power"totax"thepetitioner'sbusiness.
Finally, petitioner argues that respondent is without power to impose a gross receipts tax for revenue purposes
absentanexpressgrantfromthenationalgovernment.Asageneralrule,theremustbeastatutorygrantforalocal
governmentunittoimposelawfullyagrossreceiptstax,thatunitnothavingtheinherentpoweroftaxation.21Therule,
however,findsnoapplicationintheinstantcasewherewhatisinvolvedisanexerciseof,principally,theregulatorypoweroftherespondentCityandwherethat
regulatorypowerisexpresslyaccompaniedbythetaxingpower.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is hereby
AFFIRMEDandtheCourtResolvedtoDENYthePetitionforlackofmerit.
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SOORDERED.
Fernan,C.J.,Gutierrez,Jr.,BidinandCortes,JJ.,concur.

Footnotes
1Rollo,p.102Italicssupplied.
2RecordsonAppeal,pp.1415Underscoringsupplied.
3Ibid,pp.5868.
446OfficialGazette4732(1950)Italicssupplied.CertainportionsoftheCharterhadbeenamended
byR.A.5541,65OfficialGazette,p.7126(1968).Theamendatorylaw,however,didnotintroduceany
changetotheportionquotedabove.
5See,inthisconnection,PacificCommercialCo.v.Romualdez,etal.,49Phil.917(1927).
6Section2ofR.A.2264hasbeenamendedbyR.A.4497,62OfficialGazette,p.8616(1966)
Underscoringsupplied.R.A.2264wasfurtheramendedbyP.D.No.145,69OfficialGazette,p2418
(1973),whichhoweverdidnotaffecttheabovequotedportion.
7NinBayMiningCo.v.MunicipalityofRoxas,14SCRA660(1965)SeealsoC.N.Hodgesv.
MunicipalBoardoftheCityofIloilo,et.al.,19SCRA28(1967)andVillanuevav.CityofIloilo,26
SCRA578(1968).
8supra,note6underscoringsupplied.
9CompaniaGeneraldeTabacosdeFilipinasv.CityofManila,118Phil.3838SCRA370(1963)
PacificCommercialCo.v.Romualdez,49Phil,917(1927).
10ManilaElectricCompanyv.ElAuditorGeneralyLaComision
deServiciosPublicos,73Phil.133(1941)Republicv.PhilippineRabbitBusLines,32
SCRA215(1970).
11CityofIloilov.Villanueva,105Phil.337(1959).
12ManilaElectricCompanyvs.ElAuditorGeneralylaComisiondeServiciosPublicos,supra,at134
135.
13SerafinSaldanav.CityofIloilo,104Phil,28.(1958).
14RecordonAppeal,p.10.
15Ibid.
16InCityofJacksonville,etal.v.Ledwith7So.at892[1890]26Fla.163,itwasheldthatapermitto
establishamarketwas:
"fromthenatureofamarket,alicense.Itisapermittodosomethingwhichcouldnotbe
donebeforewithoutsuchpermit,andhenceisthegrantofalicense.xxx[T]hepowerto
establishmarketsiswithinthepolicepower,and[thusis]xxxthepowertocharge,asa
policeregulation,afeeforthepermitorlicenseforsellingmeatsorvegetablestherein,xx
x.Thefee,however,isnotataxforrevenue,butachargeunderthepolicepower,andits
amountistobecontrolledbytheprinciplesgoverninginsuchcases."
17BrieffortheRespondent,pp.67Rollo,p.172.
18E.g.,Calalangv.LorenzoandVillar,97Phil.212(1955).
19Procter&GamblePMCv.MunicipalityofJagna94SCRA894(1979)NorthernPhil.TobaccoCo.v.
MunicipalityofAgoo,31SCRA304(1970)andSanMiguelBrewery,Inc.v.CityofCebu,43SCRA
275(1972).
20VictoriasMillingCo.,Inc.v.MunicipalityofVictorias,NegrosOccidental,25SCRA192at205
(1968),citing9McQuillinMunicipalCorporations,3rded.,at65.
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InAtkinsv.Philips,8So.at431(1890)26Fla.281,theSupremeCourtofFloridaheld:
21CityofOzamisv.Lumapas,65SCRA33(1975).
TheLawphilProjectArellanoLawFoundation

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