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1989-04-24 | G.R. No. 36081


On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series
of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which imposed 10% supervision
fee based on the gross receipts from stall rentals to the City.

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972,
which reads: SECTION 1. There is hereby imposed a five percent (5%) tax on gross receipts on rentals or
lease of space in privately-owned public markets in Quezon City.


On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public market
known as 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 above-mentioned ordinances is in reality a tax on income
which respondent may not impose, the same being expressly prohibited by Republic Act No. 2264, as


contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross
receipts imposed therein is not a tax on income. The Solicitor General also filed an Answer arguing that
petitioner, not having paid the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had
no personality to question, and was estopped from questioning, its validity; that the tax on gross receipts
was not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular
trade or business which was within the power of respondent to impose.

Trial Court: lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on
income, but rather a privilege tax or license fee which local governments, like respondent, are empowered
to impose and collect.

Issue: whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized
as partaking of the nature of an income tax or, alternatively, of a license fee.


Topic – Distinguish Tax from license fee

The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often
loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees
are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is
imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed
under the taxing power primarily for purposes of raising revenues. 9 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 public interest in health, morals, safety and development as to require regulation for the
protection and promotion of such public interest; the imposition must also bear a reasonable relation to
the probable expenses of regulation, taking into account not only the costs of direct regulation but also
its incidental consequences as well.
The "Farmers' Market and Shopping Center" being a public market in the sense of a market open to and
inviting the patronage of the general public, even though privately owned, petitioner's operation thereof
required a license issued by the respondent City, the issuance of which, applying the standards set forth
above, was done principally in the exercise of the respondent's police power.

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350
passed on 30 January 1967 by respondents's local legislative body authorizing petitioner to establish and
operate a market with a permit to sell fresh meat, fish, poultry and other foodstuffs.14 The same
resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by
and comply with the ordinances, rules and regulations prescribed for the establishment, operation and
maintenance of markets in Quezon City."

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 Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather
a license tax or fee for the 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, instead of one of regulation under the police power, 18
it nevertheless will be presumed to be reasonable. 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 unreasonableness of the questioned

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is
hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of merit. SO ORDERED