BLGF Opinion dated August 5, 2002

ISSUE: WON Pepsi Cola Products Philippines Inc. (PCPPI) should be consider
as a manufacturer for purposes of paying local business tax notwithstanding its
maintenance of depots and sales offices in various cities and municipalities for
purposes of selling to retailers, wholesalers, and distributors.
OPINION: YES. The maintenance of the sales offices is only an incident of PPCIs
main business which is manufacturing. This means, that a manufacturer who is
engaged in such activity is not considered as engaged in another commercial
activity as a wholesaler, retailer, distributor or contractor.
(Note: Business tax schedules on wholesalers, retailers, and distributors
are higher than the rate on manufacturers. See IRR of LGC, Section 232 for
tax schedule.)
Article 131 (o) of the LGC defines manufacturer as:
(o) "Manufacturer" includes every person who, by physical or chemical process,
alters the exterior texture or form or inner substance of any raw material or
manufactured or partially manufactured product in such manner as to have
been put in its original condition, or who by any such process alters the quality
of any such raw material or manufactured or partially manufactured products so
as to reduce it to marketable shape or prepare it for any of the use of industry,
or who by any such process combines any such raw material or manufactured or
partially manufactured products with other materials or products of the same or
of different kinds and in such manner that the finished products of such process
or manufacture can be put to a special use or uses to which such raw material or
manufactured or partially manufactured products in their original condition could
not have been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines the same to
produce such finished products for the purpose of their sale or distribution
to others and not for his own use or consumption;
The terms "wholesaler", "retailer" and "dealer" invariably contemplate a middleman
or one who sells someone else's products, and this necessarily excludes one who
sells what he manufactures. They are defined as follows:

A wholesaler is defined as "a merchant middleman who sells chiefly to

retailers, other merchants, or industrial, institutional and commercial users
mainly for resale or business use" (Webster's Third New International
Dictionary [1986]);
A retailer is defined as a merchant middleman who sells goods mainly to
ultimate consumers. (Blacks Law Dictionary)
A dealer "means one whose business is to buy and sell merchandise, goods
and chattels as a merchant. He stands immediately between the producer or
manufacturer and the consumers and depends for his profit not upon the labor

he bestows upon his commodities but upon the skill and foresight with which
he watches the market." (Section 131 [k]) of the LGC)
Apart from the foregoing limitation against classifying a manufacturer as a
wholesaler, retailer or distributor with respect to selling its own products, the
relevant provisions of the IRR of the LGC appear to also prohibit classifying and
taxing a business entity as a wholesaler, distributor, or dealer where the business
entity is properly classified as a manufacturer. (Section 232 of the IRR of LGC
provides a different tax schedule for manufacturers, and wholesalers,
manufacturers and distributors.)
Lastly, Section 242 of the IRR defines a Branch or Sales Office as:
(2) 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 orders and/or
issues sales invoices independent of a branch with sales office shall be considered
as a sales office.