TAXATION DEFINITION Power of the State to demand enforced contributions for public purposes.

POLICE POWER Power of the State to enact such laws in relation to persons and property as may promote public health, safety, morals, and the general welfare of the public. Only the government and its political subdivisions. Use of property is regulated for the purpose of promoting the general welfare. Operates upon a community, a class of individuals or their property. No transfer of ownership of the property seized, at most there is restraint on the injurious use of the property. Restraint on the exercise of a right.

EMINENT DOMAIN Power of the State to take private property for public use upon paying to the owner a just compensation to be ascertained according to law. May be granted to public service or public utility companies. Property is taken for public use

BENEFITS RECEIVED

AUTHORITY EXERCISING POWER

Only the government or its political subdivisions. Enforced contribution is demanded for the support of the government. Operates upon a community, a class of individuals or their property. Money contributed in the concept of taxes becomes part of public funds

AMOUNT OF IMPOSITION

PURPOSE

Presumed that the taxpayer receives the equivalent of what he contributed in the form of protection from the government, and the enjoyment of living in a civilized society Generally no limit as to the amount of tax to be imposed.

Persons affected receives no direct benefit but only as such as may arise from the maintenance of the healthy economic standard of society

Person affected receives just compensation for the property taken from him.

PERSONS AFFECTED

EFFECT

Operates on an individual as the owner of a particular property. There is transfer of ownership or a lesser right (e.g. lease), of the property.

RELATIONSHIP TO CONSTITUTION

Subject to certain Constitutional limitations

Amount imposed should not be more that that sufficient to cover the cost of the license and the necessary expenses of regulation. Relatively free from Constitutional limitations and is superior to the nonimpairment provisions.

No amount imposed, since it is property which is taken.

Subject to certain Constitutional limitations (e.g. inferior to the nonimpairment of contracts clause).

DISTINCTION OF TAX FROM OTHER CHARGES 1) Distinction of Tax from Toll Toll is a sum of money collected for the use of something, generally applied to the consideration which is paid for the use of road, bridge or the like, of a public nature. Toll Demand of proprietorship Paid for use of another persons property Amount is based on the cost of construction or maintenance of the public improvements used Imposes by the Government or by Private Entities Tax Demand of sovereignty Paid for the support of the Government Amount is based on the necessities of the State

Application

Exceptional both as to time and place

Has general application

3) Distinction of Tax from License Fee License Fee or Permit is a charge imposed under the police power for the purpose of regulations. License Fee For regulation Involves an exercise of police power Amount is limited to the necessary expenses of regulations Imposed on the right to exercise a privilege Legal compensation or reward of an officer for specific services Tax For revenue Involves exercise of taxing power Amount is generally not limited Imposed on persons, property and the right to exercise a privilege Enforced contribution assessed by sovereign authority to defray public expenses Does not necessarily make the business illegal

Whose demand Paid for what

Imposed for what Exercise of what power Amount of imposition

Basis

Subject imposition

of

Authority imposes

that

Imposed by Government only

Purpose

2) Distinction of Tax from Special Assessment Special Assessment is an enforced proportional contribution from owners of lands for special benefits resulting from public improvements. Special Assessment On land only Tax On persons, property, or the exercise of privilege Personal liability of the person taxed Based on the necessities of the government without any special benefit directly accruing to the taxpayer 4)

Consequence failure to pay

for

Makes the act or business illegal

Levied on what

Distinction of Tax from Debt Debt Based on contract Assignable May be paid in kind No imprisonment for non-payment Governed by ordinary Tax Based on law Generally not assignable Generally payable in money Imprisonment for non-payment except poll tax Governed by special prescriptive period

Whose liability Basis

personal

Not a personal liability of the person assessed Based wholly on the special benefits to the property assessed

Basis Assignability Payment mode Consequence for failure to pay Prescriptive period

Interest

prescriptive period Draws interest when stipulated or when there is default

Does not draw interest except when default

5) Distinction of Tax from Penalty Penalty Designed to regulate conduct Imposed by Government or Private entities Tax Aimed at raising revenue Imposed by Government only

Purpose Authority that imposes

CONSTITUTIONAL LIMITATIONS A. Direct 1) Due process Should not be harsh, oppressive, or confiscatory (Substantive) By authority of valid law (Substantive) Must be for a public purpose (Substantive) Imposed within territorial jurisdiction (Substantive) No arbitrariness in assessment and collection (Procedural) Right to notice and hearing (Procedural) 2) Equal protection All persons subject to legislation shall be treated alike, under like circumstances and conditions both in privileges conferred and liabilities imposed. Power to tax includes power to classify provided: (a) Based on substantial distinction (b) Apply to present and future conditions (c) Germane to purpose of law (d) Apply equally to all members of the same class 3) Non-impairment clause Rules (a) When government is party to contract granting exemption cannot be withdrawn without violating nonimpairment clause (b) When exemption generally granted by law withdrawal does not violate (c) When exemption granted under a franchise may be revoked; Consti provides that franchise is subject to amendment, alteration, or repeal by Congress.

4) Must be uniform and equitable Uniform: all articles or properties of the same class taxed at same rate Equity: apportionment must be more or less just in the light of taxpayers ability to shoulder tax burden 5) Non-imprisonment for non-payment of poll tax Taxpayer may be imprisoned for non-payment of other kinds of taxes where the law so expressly provides. 6) Congress shall evolve a progressive system of taxation As resources of the taxpayer becomes higher, his tax rate likewise increases (ex. Income tax) Constitution does not prohibit regressive taxes; this is a directive upon Congress, not a justiciable right. 7) All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments It is the bill, not the law, that must originate from House; bill may undergo extensive changes in Senate Rationale: members of House are more sensitive to local needs. 8) Freedom of religion Activities simply and purely for propagation of faith are exempt (e.g. sale of bibles and religious articles by nonstock, non-profit organization at minimal profit). Tax is unconstitutional if it operates as a prior restraint on exercise of religion Income even of religious organizations from any activity conducted for profil or from any of their property, real or personal, regardless of disposition of

such income, is taxable 9) Freedom of press/expression Tax that operates as a prior restraint invalid. If fee is only for purpose of defraying cost of registration and not for exercise of privilege, no violation. 10) Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries and all lands, buildings and improvements ACTUALLY, DIRECTLY and EXCLUSIVELY USED for charitable, religious and educational purposes shall be exempt from taxation Pertains only to real estate tax. Test of exemption: actual use of the property, not ownership Use of word exclusively means primarily rather than solely. Exemption extends to property incidental to or reasonably necessary for the accomplishment of the purposes mentioned. 11) Tax exemption of all revenues and assets of (a) non-stock, non-profit educational institutions (b) used ACTUALLY, DIRECTLY AND EXCLUSIVELY for educational purposes Exemption covers income, property, donors tax, and customs duties (distinguish from previous which pertains only to property tax) Revenue must both be (a) derived from an activity in pursuance of educational purpose; and (b) proceeds must be used for the same purpose (ex. hospital adjunct to medical school tax exempt) (ex. Interest income not exempt). Income exempt provided it is used for maintenance or improvement of institution. Distinguish from tax treatment of (a) proprietary educational institutions

(Preferential Tax); and (b) government educational institutions (exempt, ex. UP) 12) Delegated authority of President to impose tariff rates, import and export quotas, tonnage and wharfage dues delegated by Congress through a law subject to Congressional limits and restrictions within the framework of national development program 13) Law granting tax exemption (includes amnesties, condonations and refunds) shall be passed with concurrence of Congress majority of all members voting separately Relative majority (majority of quorum) is sufficient to withdraw exemption. 14) No use of public money or property for religious purposes except if priest is assigned to armed forces, penal institutions, government orphanage or leprosarium 15) Special purpose - special fund for said purpose, balance goes to general funds 16) Veto power of the President - revenue/tariff bill 17) Power of review of the SC 18) Power of Local Government to create their own sources and levy taxes, fees, charges 19) Just share of local government in national revenue which shall be automatically released. 20) Tax exemption of all revenues and assets of (a) proprietary or cooperative educational institutions (b) subject to limitations provided by law 21) Tax exemption of grants, endowments, donations or contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY for educational purposes