SITUS OF THE TAX - A STUDY OF ITS

IMPLEMENTATION
(Pursuant to Republic Act 7160, the
Local Government Code of 1991)

by
Florecita P. Flores
Local Government Research and
Consultancy Service


Republic Act No. 7160, otherwise known

as the Local Government Code of 1991,
under Book II (Local Taxation and Fiscal
Matters), in Title One (Local Government
Taxation) prescribed the situs of the tax for
purposes of collection of the tax on
business.


Situs is defined L(atin) for Situation;

Location e.g. location or place of crime or
business. Site; position; the place where a
thing is considered, for example with
reference to jurisdiction over it, or the right
or power to tax it. It imports fixedness of
location. Situs of property, for tax purposes,
is determined by whether the taxing state
has sufficient contact with the personal
property sought to be taxed to justify in
fairness the particular tax. (Blacks Law
Dictionary, Centennial Edition (1891-1991)
p.1387)


The situs rule is defined as a

provision of tax law setting out the
factors which determine where a
particular asset is situated or deemed
to be situated for tax purposes. The
location of the assets may be a
decisive element in determining tax
liability. (International Tax Glossary,
Second Edition, International Bureau
of Fiscal Documentation, 1992 IBFD
Publications BV)

The Taxes on Business

It is necessary to first establish
the taxes, fees and charges on
business which are authorized in
the Local Government Code
(Code, for brevity), and the
Local Government Units (LGUs,
for brevity) which may levy such
taxes, fees and charges.

Province: (Section 134)

Tax on the Transfer of Real Property Ownership
(Sec.135)

Tax on Business of Printing and Publication
(Sec. 136)

Franchise Tax (Sec. 137)

Tax on Sand, Gravel and Other Quarry
Resources (Sec. 138)

Professional Tax (Sec. 139)

Amusement Tax (Sec. 140)

Annual Fixed Tax For Every Delivery Truck or
Van of Manufacturers or Producers, Wholesalers
of, Dealers, or Retailers in, Certain Products.
(Sec. 141)

Municipalities/Cities (Section 142 and Section 151)

Tax on manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, wines, or
manufacturers of any article of commerce of whatever
kind or nature (Sec. 143 [a])

Tax on wholesalers, distributors or dealers in any article
of commerce of whatever kind or nature (Sec.143 [b])

Tax on exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or retailers
of essential commodities (Sec. 143 [c])

Tax on Retailers (Sec. 143 [d])

Tax on Contractors (Sec. 143 [e])

Tax on banks and other financial institutions (Sec. 143
[f])

Tax on peddlers (Sec. 143 [h])

Tax on any business , not otherwise specified in the
preceding paragraphs, which the sanggunian concerned
may deem proper to tax.

Barangays (Section 152)

Taxes on retailers with fixed business establishments
with gross sales or receipts of the preceding calendar
year of P50,000.00 or less, in the case of cities and
P30,000.00 or less, in the case of municipalities (Sec.
152[a])

Services fees or charges for services rendered in
connection with the regulation or the use of barangayowned properties or service facilities such as palay,
copra, or tobacco dryers (Sec. 152 [b])

Barangay Clearance any license or permit for any
business or activity located or conducted within the
bagangay (Sec. 152[c])

Other fees and charges on the following: (Sec. 152 [d])

On commercial breeding of fighting cocks, cockfights and
cockpits

On places of recreation which charges admission fees; and

On billboards, signboards, neon signs, and outdoor
adverstisements.

Scope of Taxing Power of the LGUs

(Section 151)

Except as otherwise provided in this Code, the
city may levy taxes, fees, and charges which the
province or municipality may impose: Provided,
however, That the taxes, fees and charges
levied and collected by highly urbanized and
independent component cities shall accrue to
them and distributed in accordance with the
provisions of this Code.


The rates of taxes that the city may levy may
exceed the maximum rates allowed for the
province or municipality by not more than fifty
percent (50%) except the rates of professional
and amusement taxes.

I. Specific Provisions in the Code and its

Implementing Rules and Regulations (IRR) on
Situs of the Tax:

(A) Sec. 150. - (a) For purposes of collection
of the taxes under Section 143 of this Code,
manufacturers, assemblers, repackers, brewers,
distillers, rectifiers and compounders of liquor,
distilled spirits and wines, millers, producers,
exporters, wholesalers, distributors, dealers,
contractors, banks and other financial
institutions, and other businesses, maintaining or
operating branch or sales outlet elsewhere shall
record the sale in the branch or sales outlet
making the sale or transaction, and the tax
thereon shall accrue and shall be paid to the
municipality where such branch or sales outlet is
located.


In cases where there is no such branch or

sales outlet in the city or municipality
where the sale or transaction is made, the
sale shall be duly recorded in the principal
office and the taxes due shall accrue and
shall be paid in such city or municipality.

(b) The following sales allocation shall
apply to manufacturers, assemblers,
contractors, producers, and exporters with
factories, project offices, plants and
plantations in the pursuit of their business:


Thirty percent (30%) of all sales recorded

in the principal office shall be taxable by
the city or municipality where the
principal office is located;

Seventy percent (70%) of all sales
recorded in the principal office shall be
taxable by the city or municipality where
the factory, project office, plant or
plantation is located.

(c) In case of a plantation located at a
place other than the place where the
factory is located, said seventy percent
(70%) mentioned in subparagraph (b) of
subsection (2) above shall be divided as
follows:


(i.) Sixty percent (60%) to the city

or municipality where the factory
is located; and

(ii) Forty percent (40%) to the city
or municipality where the
plantation is located.


(d) In cases where a manufacturer,

assembler, producer,

exporter or contractor has two (2) or
more factories, project offices, plants
or plantations are located in different
localities, the seventy percent (70%)
sales allocation mentioned in
subparagraph (b) or subsection (2)
above shall be prorated among the
localities where the factories, project
offices, plants and plantations are
located in proportion to their
respective volumes of production
during the period for which the tax is
due.


(e) The foregoing sales

allocation shall be applied
irrespective of whether or not
sales are made in the locality
where the factory, project
office, plant or plan is located.

(B). Art. 243. - (a) Definition of Terms

Principal Office - the head or main office of the

business appearing in the pertinent documents
submitted to the Securities and Exchange Commission
or the Department of Trade and Industry, or other
appropriate agencies, as the case may be. The city or
municipality specifically mentioned in the Articles of
Incorporation or official registration papers as being the
official address of said principal office shall be
considered as the situs thereof. In case there is a
transfer or relocation of the principal office to another
city or municipality, it shall be the duty of the owner,
operator or manager of the business to give due notice
of such transfer or relocation to the local chief
executives of the cities or municipalities concerned
within fifteen (15) days after such transfer or relocation
is effected.


Branch or Sales Office a fixed

place in a locality which conducts
operations of the business as an
extension of the principal office.
Offices used only as display areas of
the products where no stocks or
items are stored for sale, although
orders for the products may be
received thereat, are not branch or
sales offices, as herein
contemplated. A warehouse which
accepts order and/or issues sales
invoices independent of a branch
with sales office, shall be considered
as a sales office.


Warehouse buildings utilized for

the storage of products for sale and
from which goods or merchandise
are withdrawn for delivery to
customers or dealers, or by persons
acting in behalf of the business. A
warehouse that does not accept
orders and/or issue sales invoices
as aforementioned shall not be
considered a branch or sales office.


Plantation - a tract of
agricultural land planted to trees
or seedlings whether fruit
bearing or not, uniformly spaced
or seeded by broadcast methods
or normally arranged to allow
highest production.For purposes
of this Article, inland fishing
ground shall be considered as
plantation.


Experimental Farms - agricultural

lands utilized by a business or
corporation to conduct studies, tests,
researches or experiments involving
agricultural, agribusiness, marine, or
aquatic, livestock, poultry, diary and
other similar products for the purpose of
improving the quality and quantity of
goods or products. On-site sales of
commercial quantity made in
experimental farms shall be similarly
imposed the corresponding tax under
Article 233 and allocated in paragraph
(b) of this Article.

(b) Sales Allocation

(1) All sales made in a locality

where there is a branch or sales
office or warehouse shall be
recorded in said branch or sales
office or warehouse and the tax
shall be payable in the city or
municipality where the same is
located.


In cases where there is no such

branch, sales office or
warehouse in the locality where
the sale is made, the sale shall
be recorded in the principal
office along with the sales made
by said principal office and the
tax shall accrue to the city or
municipality where said principal
office is located.


In cases where there is a factory, project

office, plant or plantation, in pursuit of
business, thirty percent (30%) of all sales
recorded in the principal office shall be
taxable by the city or municipality where
the principal office is located and seventy
percent (70%) of all sales recorded in the
principal office shall be taxable by the
city or municipality where the factory,
project office, plant or plantation is
located; LGUs where only experimental
farms are located shall not be entitled to
the sales allocation provided in this
subparagraph.


In case of a plantation located in a

locality other than that where the
factory is located, the seventy
percent (70%) sales allocation shall
be divided as follows:

(i) Sixty percent (60%) to the city or
municipality where the factory is
located, and

(ii) Forty percent (40%) to the city or
municipality where the plantation is
located.


In cases where there are two (2) or more

factories, project offices, plants or
plantations located in different localities,
the seventy percent (70%) sales
allocation shall be prorated among the
localities where such factories, project
offices, plants and plantations are
located in proportion to their respective
volumes of production during the period
for which the tax is due. In the case of
project offices of service and other
independent contractors, the term
production shall refer to the costs of
projects actually undertaken during the
tax period.


The sales allocation in

paragraph (b) hereof shall be
applied irrespective of whether
or not sales are made in the
locality where the factory, project
office, plant or plantation is
located. In case of sales made
by the factory, project office,
plant or plantation, the sale shall
be covered by subparagraphs
(1) or (2) above.


In case of manufacturers or producers

which engage the services of an
independent contractor to produce or
manufacture some of their products,
these rules on situs of taxation shall
apply except that the factory or plant and
warehouse of the contractor utilized for
the production and storage of the
manufacturers products shall be
considered as the factory or plant and
warehouse of the manufacturer


(c) Port of Loading - The city or

municipality where the port of loading
is located shall not levy or collect the
tax imposable in Article 233 of this
Rule unless the exporter maintains in
said city or municipality its principal
office, a branch, sales office or
warehouse, factory, plant or
plantation in which case, the rule on
the matter shall apply accordingly.

Sales made by route trucks, vans, or

vehicles
For route sales made in a locality
where a manufacturer, producer,
wholesaler, retailer or dealer has a
branch or sales office or
warehouse, the sales are recorded
in the branch, sales office or
warehouse and the tax due thereon
is paid to the LGU where such
branch, sales office or warehouse is
located.


For route sales made in a locality

where a manufacturer, producer,
wholesaler, retailer or dealer has a
branch, sales office or warehouse,
the sales are recorded in the
branch, sales office or warehouse
from where the route trucks
withdraw their products for sale, and
the tax due on such sales is paid to
the LGU where such branch, sales
office or warehouse is located.

Based on subparagraphs (1) and (2) above,

LGUs where route trucks deliver merchandise
cannot impose any tax on said trucks except
the annual fixed tax authorized to be imposed
by the province in Art. 231 of this Rule on
every delivery truck or van or any motor
vehicle used by manufacturers, producers,
wholesalers, dealers or retailers in the delivery
or distribution of distilled spirits, fermented
liquors, soft drinks, cigars or cigarettes, and
other products as may be determined by the
sangguniang panlalawigan and by the city,
pursuant to Article 223 of this Rule.


In addition to the annual fixed tax,

cities may also collect from same
manufacturers, producers,
wholesalers, retailers, and dealers
using route trucks a mayors
permit fee which shall be imposed
in a local tax ordinance pursuant
to Article 434 in relation to Article
233 of this Rule.

II. The Department of Finance also

issued specific guidelines on Situs of the
tax for several industries:

Banks and Other Banking Institutions - Local
Finance Circular No. 1-93 (6/16/93)

Section 5. Situs of the Tax. For purposes of
collection of the tax, the following shall apply (a)
All transactions filed with or negotiated in the
branch shall be recorded in said branch and the
gross receipts derived from said transactions
shall be taxable by the city or municipality where
such branch is located. The rule shall be applied
to:


transactions negotiated with and

approved by the branch
manager under his own
authority; or

transactions filed and negotiated
in the branch but being beyond
the approving authority of the
branch manager are forwarded
to the Head Office for final
approval.


(b) The gross receipts derived from

transactions made by the Head Office,
except gross receipts recorded in the
branches, shall be taxable by the city or
municipality where said Head Office is
located.

(c) In case there is a transfer or relocation
of the Head Office or of any branch to
another city or municipality, the bank shall
give due notice of such transfer or
relocation to the chief executives of the
cities or municipalities concerned within
fifteen (15) days after such transfer or
relocation is effected.

On Insurance Companies Local Finance

Circular No. 2-93 (6/16/93)

Section 5. Situs of the Tax. - For purposes of collection
of the tax, the following shall apply - (a) Insurance
contracts/policies issued by the Head Office or branch
shall be recorded in said office or branch as the case
may be and the premiums and/or gross receipts due on
such contracts/policies shall be taxable by the city or
municipality where such Head Office or branch to which
such premiums or gross receipts were actually paid is
located. This rule shall be applied irrespective of
whether the insurance contracts/policies were solicited or
negotiated by insurance agents, or brokers who are not
residents of the city or municipality where the branch is
located or affiliated with or assigned to such branch.


The offices of an insurance agent, or

broker, shall not be considered a branch
and shall not be subject to the situs of
taxation rule.

All insurance premiums and/or gross
receipts from transactions not recorded
in the branches of the insurance
companies in accordance with paragraph
(a) above shall be recorded in the Head
Office and taxable by the city or
municipality where said Head Office is
located.


In case there is a transfer or

relocation of the Head Office or of
any branch to another city or
municipality, the insurance
companies shall give due notice of
such transfer or relocation to the
chief executives of the cities or
municipalities concerned within
fifteen (15) days after such transfer
or relocation is effected

On Financing Companies - Local Finance

Circular No. 3-93 (6/16/93)

Section 5. Situs of the Tax. - For

purposes of collection of the tax, the
following shall apply - (a) All transactions
made by the branch shall be recorded in
said branch and the gross receipts derived
from said transactions shall be taxable by
the city or municipality where such branch
is located.

The gross receipts derived from

transactions made by the Head Office,
except gross receipts recorded in the
branches, shall be taxable by the city or
municipality where the Head Office is
located.


(c) In case there is a transfer or
relocation of the Head Office or of any
branch to another city or municipality, the
bank (sic) shall give due notice of such
transfer or relocation to the chief
executives of the cities or municipalities
concerned within fifteen (15) days after
such transfer or relocation is effected.

On Exporters - Local Finance Circular

No. 4-93 (7/30/93)

Section 5. Situs of the Tax. - (a) Definition of
Terms

(1) Principal Office - shall refer to the head or
main office of the exporter indicated in the
pertinent documents submitted to the Securities
and Exchange Commission, Department of
Trade and Industry or other appropriate
agencies, the city or municipality specifically
mentioned in the Articles of Incorporation and
other official registration papers being the official
address of said Principal Office shall be
considered as the situs thereof.


(2) Branch of Sales Office a fixed place

in a locality which conducts operations of
the business as an extension of the
principal office. Offices used only as
display areas of the products whre no
stock or items are stored for sale, although
orders for the products where no stock or
items are stored for sale, although orders
for the products may be received thereat,
are not branch or sales offices as herein
contemplated. A warehouse which
accepts orders and/or issues sales
invoices independent of a branch with
sales office shall be considered as sales
office.


(3) Warehouse - a building utilized for

the storage of products for sale and
from which goods or merchandise are
withdrawn for delivery to customers or
dealers, or by persons acting in
behalf of the business. A warehouse
that does not accept orders and/or
issue sales invoices as
aforementioned shall not be
considered a branch or sales office.



Sales Allocation For purposes of collection of

the tax, the following shall apply:
(1)All export transactions made by the branch
shall be recorded in said branch and the gross
sales or receipts derived from said transaction
shall be taxable by the city or municipality
where such branch is located.
(2)The gross sales or receipts derived from
export transactions made by the Principal
Office, except gross sales or receipts recorded
in the branches shall be taxable by the city or
municipality where said Principal Office is
located


(3)In cases where there is no such branch or

sales office, in the locality where the sale is
made, the sale shall be recorded in the principal
office along with the sales made by said principal
office and the tax shall accrue to the city or
municipality where said principal office is
located.

(4)In cases where there is a factory or plant in
pursuit of business, thirty percent (30%) of all
sales recorded in the principal office shall be
taxable by the city or municipality where the
principal office is located and seventy percent
(70%) of all sales recorded in the principal office
shall be taxable by the city or municipality where
the factory or plant is located.


(5)In cases where there are two or more

factories or plants located in different localities,
the seventy percent (70%) sales allocation shall
be prorated among the localities where such
factories or plants are located in proportion to
their respective volumes of production during the
period for which the tax is due.

(6) The sales allocation in paragraph (b) hereof
shall be applied irrespective of whether or not
sales are made in the locality where the factory
or plant is located. In case of sales made by the
factory or plant, the sale shall be covered by
subparagraphs (1) or (2) above.


(7) In case of manufacturers or producers which

engage the services of an independent
contractor to produce or manufacture some of
their products, these rules on situs of taxation
shall apply except that the factory or plant and
warehouse of the contractor utilized for the
production and storage of the manufacturers
products shall be considered as the factory or
plant and warehouse of the manufacturer, the
independent contractor shall not be taxed on the
basis of the gross sales of its production of the
manufacturers products but on the gross
receipts as independent contractor under Sec.
143 (e) of the LGC, as implemented under Art.
232 (e) of its IRR.

On Construction Contractors Local Finance Circular

No. 3-95 (5/22/95)

Definition of Terms.

Head/Principal Office - shall refer to the main office
of the construction contractor indicated in the
pertinent documents submitted to either the
Securities and Exchange Commission (SEC) or
other appropriate government agencies, as the case
may be. The city or municipality specifically
mentioned in the Articles of Incorporation and other
official registration papers as being the official
address of said Head Office/Principal Office shall be
considered as the situs thereof.


Branch Office is a fixed place

in a locality which conducts
operations of the business as
an extension of the principal
office.

Project Office - shall mean
the field office in the
construction site. It is
equivalent to the factory of a
manufacturer,



For purposes of collection of the tax, the

following rules shall apply:
(1) All gross receipts realized from
domestic projects or contracts undertaken by
the branch office shall be recorded in the said
branch office and the tax thereon shall be
payable to the city or municipality where said
branch is located.
(2) In cases where there is no branch office,
the gross receipts from domestic projects or
contracts shall be recorded in the Head Office/
Principal Office and the same shall be
allocated as follows:



Thirty percent (30%) of the gross receipts shall

be taxable by the city or municipality where
the principal office is located; and
(ii) Seventy percent (70%)of the gross
receipt shall be taxable by the city or
municipality where the project office is located.
In cases where there are two (2) or more
project offices located in different localities, the
seventy percent (70%) allocation stated in
subparagraph (2) (ii) above shall be prorated
among the localities where such project offices
are located in proportion to the work
accomplished based on the cost of the projects
or contracts actually undertaken in the locality
during the tax period for which the tax is due.


In the case of overseas construction

projects, the construction contractor shall
declare separately the gross receipts
realized therefrom, which shall not be
subject to the business tax.

In case of pre-fabricated works which are
paid for in accepted freely convertible
currency with attendant installation works
outside the Philippines, the gross
receipts realized therefrom shall be
subject to not more than one-half (1/2) of
the rate prescribed for in Sec. 3 (a)
hereof.


In case there is a transfer or

relocation of the Head/Principal
Office or any branch to another
city or municipality, the
construction contractor shall give
due notice of such transfer or
relocation to the cities or
municipalities concerned within
fifteen (15) before such transfer
or relocation is effected.

Query of. Republic-Asahi Glass

Corporation

The company has its principal office, factory
and sales offices located in the Municipality of
Pasig;

all sales are recorded in Pasig and the taxes
due are paid thereat;

the company also has ten (10) depots located
in two (2) municipalities and eight (8) cities
where its products are stored for sale and
accepts orders from dealers in their respective
areas.


In the DOF opinion (which was signed

by an Undersecretary), the provincial
depots were considered
warehouses following the definition
in subparagraph (3) of Article 243, to
wit:

A building utilized for the storage of
products for sale and from which
goods and merchandise are
withdrawn for delivery to customers or
dealers, or by persons acting in
behalf of the business.


Hence, while all the sales made by the

principal office, factory and sales offices
located in Pasig should be recorded and
the tax due paid thereat, if the provincial
depots accepts orders and/or issue sales
invoices, such orders and/or sales shall be
recorded in the said depot and the tax due
shall be paid to the city or municipality
where the depot is located.


It will be noted that the DOF opinion was largely

based on the facts as alleged by the taxpayer in
determining the tax situs of the principal office,
factory and sales offices. With respect to the
provincial depots, the taxpayer only alleged that
it was used for storage of products and to accept
orders from dealers in the area. It was the DOF
which filled out the missing facts that would
establish the tax situs of the depots i.e., if the
depots accept orders and/or issue sales
invoices, such orders or sales must be recorded
in the depot and the tax paid to the city or
municipality where the depot was located.

Query of Kenram Philippines, Inc

These facts were disclosed in three (3) letters
which provided piece-meal information on the
operations of the company, as follows:

In the first letter, it was represented that the
sales, invoicing and collection of the company
was made in the principal office located in the
Municipality of Pasig;

that no sale is consummated (sic) in the plantation
and farm office located in the Municipality of Isulan,
Sultan Kudarat;

that likewise, no sale is consummated at the Port

of General Santos City where the storage tank
for the palm oil shipped to Manila is located;


In a second letter, representations

were further made that the plantation
is solely planted with palm trees that
bear fruits known as Fresh Fruit
Bunches; the fruits are milled by
another company for extraction of
palm oil which is sold domestically.

Then, in a third letter, it was explained
that kernels are also extracted from
the nuts of the fresh fruits and these
are cleaned, dried and packed in
bags for export.


BLGF replied that sales allocation under Art

243 of the IRR shall apply such that seventy
percent (70%) of the sales recorded in the
principal office in Pasig shall be taxable by the
municipality of Isulan, Sultan Kudarat where the
plantation is located while the remaining thirty
percent (30%) shall be taxable by the
municipality of Pasig. With respect to the palm
oil sold domestically and the kernels that are
exported, BLGF expressed the view that the
issue was not its tax situs but the nature of the
products i.e., the palm oil and the kernels, which
BLGF considered as agricultural products
under Sec. 143 (2) of the Code, taxable at
one-half of the rate prescribed therein, to wit:


On exporters, and on manufacturers, millers,

producers,

wholesalers, distributors, dealers or retailers of
essential commodities enumerated hereunder at
a rate not exceeding one half (1/2)
of the
rates prescribed under subsections (a), (b) and
(d) of this Section:

x x x

Wheat or cassava flour, meat, dairy products,
locally
manufactured, processed or preserved food,
sugar, salt and other agricultural, marine, fresh
water products, whether in original state or not.
(italics, ours)


In this situation, BLGF relied on

the representations of the
taxpayer in giving its opinion on
the situs queries except with
respect to the storage tank
located in the port of loading in
General Santos City on which
BLGF requested more
information.


(4) Wenphil Corporation is a duly

registered domestic corporation
engaged in the operation of Wendys
hamburger restaurants. It holds the
exclusive franchise to operate Wendys
restaurants so all its outlets are
company-owned.


Its principal office is located in Muntinlupa City

It has forty-five (45) outlets or restaurants in
different localities in Metro Manila and nearby
provinces

It maintains its sale commissary in the City of
Marikina which serves as a central receiving,
quality inspection and warehouse area for some
goods which the companys suppliers deliver in
bulk

No sales are made in the commissary; deliveries
or withdrawals from the commissary are through
vans to the various outlets outside Marikina
recorded in stock cards with no sales invoices
being issued.


Issue: The Chief, Business Permits and

Licenses Office of the City Treasurers
Office informed Wenphil that the
commissary was treated as Cold Storage
and Processing Plant and a major integral
part of the various Outlets of Wendys
Hamburger restaurants; that these outlets
are dependent to a large measure on said
Plant. Thus, said office treated
all materials withdrawn as sales and,
taxable.


Citing Art. 243(b) on Sales Allocation. BLGF

opined that with respect to the forty-five (45)
outlets of Wenphil in different localities, 100% of
sales made in the said outlets shall be taxable
by the local government units where the same
are located. The City of Marikina where only the
commissary is maintained and where there is no
sales outlet, shall not share in the business tax
that is paid by the sales outlets. Accordingly, the
City of Marikina may only impose a Mayors
permit fee and other regulatory fees and charges
on Wenphil for the operation of a Cold Storage
and Processing Plant.

Query of SM Prime Holdings, Inc:

SM Prime Holdings, Inc. maintains its
principal office in Makati. However, said
principal office performs administrative
functions only;

The corporation conducts its business
operations through the following Shopping
Malls:

SM City located North EDSA, Quezon City

SM Centrepoint located at Sta. Mesa, City of Manila

SM Southmall located in the City of Las Pinas

SM City located in Cebu City

SM Bacoor in Bacoor, Cavite


The income derived from the operation of said

shopping malls includes rentals from store
spaces, receipts from cinemas, bowling alleys,
skating rinks and parking fees and the gross
receipts are reported and the corresponding
local business taxes are paid to the cities where
the shopping malls are located

Issue: The ICO Treasurer of Makati assessed
SM Prime Holdings deficiency assessment
based on a 30%-70% allocation of taxable sales
i.e. that the City of Makati was entitled to 30%
thereof.

BLGF pointed out that since the business

operations of SM Prime Holdings were
conducted through the different shopping malls
that it maintains and not in its principal office
located in Makati, the said shopping malls
partake of the nature of a branch or sales office.
Accordingly, the transactions involved should be
recorded in such branch or sales office and
the local business taxes due on said gross
receipts from rentals should be paid in the city
where the same is located pursuant to the
provisions of subparagraph (1) of Article 243 (b)
of the Implementing Rules and Regulations of
the Code.


BLGF also advised that while it appears from

the provisions of Art 243 of the IRR
implementing Section 150 of the Code, in
determining the proper situs of the taxes due,
the term sales is used, this should not be
strictly construed as being limited to the sale of
goods or products whether they are in their
original form , or are manufactured, or processed
before being sold in the market. Rather, the
term used in the IRR should be interpreted to
mean also other forms of receipts or income as,
for example, receipts for services rendered by
contractors or income realized by banks and
other financial institutions in their operations as
contemplated under Section 150 of the Code
itself.

END