CASES IN TAXATION BATCH 2 (CASE DIGEST)

1) GOMEZ v. PALOMAR, GR No. L-23645, October 29, 1968 (25 SCRA 827)
FACTS:
Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It
did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner.
Petitioner now assails the constitutionality of the statute claiming that RA 1635 otherwise known
as the Anti-TB Stamp law is violative of the equal protection clause because it constitutes mail
users into a class for the purpose of the tax while leaving untaxed the rest of the population and
that even among postal patrons the statute discriminatorily grants exemptions. The law in
question requires an additional 5 centavo stamp for every mail being posted, and no mail shall
be delivered unless bearing the said stamp.
ISSUE:
Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the equal
protection clause?
HELD:
No. It is settled that the legislature has the inherent power to select the subjects of taxation and
to grant exemptions. This power has aptly been described as "of wide range and flexibility."
Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses
the greatest freedom in classification. The reason for this is that traditionally, classification has
been a device for fitting tax programs to local needs and usages in order to achieve an equitable
distribution of the tax burden. The classification of mail users is based on the ability to pay, the
enjoyment of a privilege and on administrative convenience. Tax exemptions have never been
thought of as raising revenues under the equal protection clause.
2) LUTZ v. ARANETA, GR No. L-7859, December 22, 1955 (98 PHIL 148)
FACTS:
Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of
Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its
constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar,
alleging that such enactment is not being levied for a public purpose but solely and exclusively
for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar
industry situation at the time of the enactment was in an imminent threat of loss and needed to
be stabilized by imposition of emergency measures.
ISSUE:
Is CA 567 constitutional, despite its being allegedly violative of the equal protection
clause, the purpose of which is not for the benefit of the general public but for the rehabilitation
only of the sugar industry?
HELD:
Yes. The protection and promotion of the sugar industry is a matter of public concern, it
follows that the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative discretion must be allowed to
fully play, subject only to the test of reasonableness; and it is not contended that the means
provided in the law bear no relation to the objective pursued or are oppressive in character. If
objective and methods are alike constitutionally valid, no reason is seen why the state may not
levy taxes to raise funds for their prosecution and attainment. Taxation may be made the
implement of the state's police power.

3) TIO vs. VRB, GR No. L-75697, June 18, 1987 (151 SCRA 208)
"The public purpose of a tax may legally exist even if the motive which impelled the legislature
to impose the tax was to favor one industry over another."
FACTS:
The petitioner assails the validity of PD 1987 entitled an "Act creating the Videogram
Regulatory Board," citing especially Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government. Petitioner contends that aside from its being a rider
and not germane to the subject matter thereof, and such imposition was being harsh,
confiscatory, oppressive and/or unlawfully restraints trade in violation of the due process clause
of the Constitution.
ISSUE:
Is PD 1987 a valid exercise of taxing power of the state?
HELD:
Yes. It is beyond serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes
is one so unlimited in force and so searching in extent, that the courts scarcely venture to
declare that it is subject to any restrictions whatever, except such as those rest in the discretion
of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents.
This is, in general, a sufficient security against erroneous and oppressive taxation. The levy of
the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating
the video industry, particularly because of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of pornographic video tapes. And while it was
also an objective of the DECREE to protect the movie industry, the tax remains a valid
imposition. The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another.
4) CITY OF BAGUIO vs. DE LEON, GR No. L-24756, October 31, 1968 (25 SCRA 938)
"There is no double taxation where one tax is imposed by the state and the other is imposed by
the city."
FACTS:
The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329,
thereby amending the city charter empowering it to fix the license fee and regulate businesses,
trades and occupations as may be established or practiced in the City. De Leon was assessed for
P50 annual fee it being shown that he was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is
no statury authority which expressly grants the City of Baguio to levy such tax, and that there it
imposed double taxation, and violates the requirement of uniformity.
ISSUE:
Are the contentions of the defendant-appellant tenable?
HELD:

No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of
revenue, thus the ordinance cannot be considered ultra vires for there is more than ample
stature authority for the enactment thereof. Second, an argument against double taxation may
not be invoked where one tax is imposed by the state and the other is imposed by the city, so
that where, as here, Congress has clearly expressed its intention, the statute must be sustained
even though double taxation results. And third, violation of uniformity is out of place it being
widely recognized that there is nothing inherently obnoxious in the requirement that license fees
or taxes be exacted with respect to the same occupation, calling or activity by both the state and
the political subdivisions thereof.
5) BAGATSING vs. RAMIREZ, GR No. L-41631, December 17, 1976 (74 SCRA 306)
"The entrusting of the tax collection to private entities does not destroy the public purpose of a
tax ordinance."
FACTS:
Aside from the issue on publication, private respondent bewails that the market stall fees
imposed in the disputed City Ordinance No. 7522, which regulates public markets and prescribes
fees for rentals of stalls, are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the said
corporation in a "Management and Operating Contract."
ISSUE:
Does the delegation of the collection of taxes to a private entity invalidates a tax
ordinance and defeats its public purpose?
HELD:
No. The assumption is of course saddled on erroneous premise. The fees collected do not
go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object it serves. The
entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So
long as the purpose is public, it does not matter whether the agency through which the money is
dispensed is public or private. The right to tax depends upon the ultimate use, purpose and
object for which the fund is raised. It is not dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in applying it. The people may be taxed for
a public purpose, although it be under the direction of an individual or private corporation.
6) PASCUAL vs. SECRETARY OF PUBLIC WORKS, GR No. L-10405, December 29, 1960 (110 PHIL
331)
"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from
such expenditure, is merely incidental in the promotion of a particular enterprise."
FACTS:
Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with
injunction, upon the ground that RA No. 920, which apropriates funds for public works particularly
for the construction and improvement of Pasig feeder road terminals. Some of the feeder roads,
however, as alleged and as contained in the tracings attached to the petition, were nothing but
projected and planned subdivision roads, not yet constructed within the Antonio Subdivision,
belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected feeder
roads do not connect any government property or any important premises to the main highway.
The respondents' contention is that there is public purpose because people living in the
subdivision will directly be benefitted from the construction of the roads, and the government
also gains from the donation of the land supposed to be occupied by the streets, made by its
owner to the government.

ISSUE:
Should incidental gains by the public be considered "public purpose" for the purpose of
justifying an expenditure of the government?
HELD:
No. It is a general rule that the legislature is without power to appropriate public revenue
for anything but a public purpose. It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of the
interest to be affected nor the degree to which the general advantage of the community, and
thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public
or to the state, which results from the promotion of private interest and the prosperity of private
enterprises or business, does not justify their aid by the use public money.The test of the
constitutionality of a statute requiring the use of public funds is whether the statute is designed
to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public.
7) COMMISSIONER vs. BOAC, GR No. L-65773-74 April 30, 1987 (149 SCRA 395)
"The source of an income is the property, activity or service that produced the income. For such
source to be considered as coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines."
FACTS:
Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of
deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the
fiscal years 1959 to 1971. BOAC is a 100% British Government-owned corporation organized and
existing under the laws of the United Kingdom, and is engaged in the international airline
business. During the periods covered by the disputed assessments, it is admitted that BOAC had
no landing rights for traffic purposes in the Philippines. Consequently, it did not carry passengers
and/or cargo to or from the Philippines, although during the period covered by the assessments,
it maintained a general sales agent in the Philippines Wamer Barnes and Company, Ltd., and
later Qantas Airways which was responsible for selling BOAC tickets covering passengers and
cargoes. The CTA sided with BOAC citing that the proceeds of sales of BOAC tickets do not
constitute BOAC income from Philippine sources since no service of carriage of passengers or
freight was performed by BOAC within the Philippines and, therefore, said income is not subject
to Philippine income tax. The CTA position was that income from transportation is income from
services so that the place where services are rendered determines the source.
ISSUE:
Are the revenues derived by BOAC from sales of ticket for air transportation, while having
no landing rights here, constitute income of BOAC from Philippine sources, and accordingly,
taxable?
HELD:
Yes. The source of an income is the property, activity or service that produced the income.
For the source of income to be considered as coming from the Philippines, it is sufficient that the
income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The tickets exchanged hands here and
payments for fares were also made here in Philippine currency. The site of the source of
payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine
territory, enjoying the protection accorded by the Philippine government. In consideration of such
protection, the flow of wealth should share the burden of supporting the government.

8) ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR, GR Nos. 141104 & 148763, June 8, 2007
(524 SCRA 73, 103)
"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic
or statute law and should not be permitted to stand on vague implications."
"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."
FACTS:
Petitioner Corporation, a VAT-registered taxpayer engaged in mining, production, and sale
of various mineral products, filed claims with the BIR for refund/credit of input VAT on its
purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990
and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition
for review before the CTA. The latter denied the claims on the grounds that for zero-rating to
apply, 70% of the company's sales must consists of exports, that the same were not filed within
the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on
April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for
refund/credit. The petitioner, on the other hand, contends that CTA failed to consider the
following: sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year
prescriptive period should be counted from the date of filing of the last adjustment return which
was April 15, 1993, and not on every end of the applicable quarters; and that the certification of
the independent CPA attesting to the correctness of the contents of the summary of suppliers
invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims.
ISSUE:
Did the petitioner corporation sufficiently establish the factual bases for its applications for
refund/credit of input VAT?
HELD: No. Although the Court agreed with the petitioner corporation that the two-year
prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the
date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA
are taxed as exports because these export processing zones are to be managed as a separate
customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively
considered as foreign territory, it still denies the claims of petitioner corporation for refund of its
input VAT on its purchases of capital goods and effectively zero-rated sales during the period
claimed for not being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity

claiming the exemption. The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to stand on vague
implications.

9) BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, GR No. L-18125, May 31, 1963 (8 SCRA
224)
"A tax on property of the Government, whether national or local, would merely have the effect of
taking money from one pocket to put it in another pocket."
FACTS:
National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage
systems placed under it, took over the Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It
was assessed by the Provincial Assessor of Laguna, for purposes of real estate taxes, on the real
properties owned by Cabuyao Waterworks. The respondent protested claiming it is exempted
from the payment of real estate taxes in view of the nature and kind of said property and
functions and activities of petitioner. The petitioner denied the protest arguing that such real
properties are subject to real estate tax because although said properties belong to the Republic
of the Philippines, the same holds it, not in its governmental, political or sovereign capacity, but
in a private, proprietary or patrimonial character, which, allegedly, is not covered by the
exemption contained in section 3(a) of Republic Act No. 470.
ISSUE: Are the real properties owned by the respondent public corporation subject to real estate
tax?
HELD: No. Republic Act No. 470 makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private, proprietary or patrimonial
character. And where the law does not distinguish neither may we, unless there are facts and
circumstances clearly showing that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. Indeed, the noun "property" and the verb
"owned" used in said section 3(a) strongly suggest that the object of exemption is considered
more from the view point of dominion, than from that of domain. Moreover, taxes are financial
burdens imposed for the purpose of raising revenues with which to defray the cost of the
operation of the Government, and a tax on property of the Government, whether national or
local, would merely have the effect of taking money from one pocket to put it in another pocket.
Hence, it would not serve, in the final analysis, the main purpose of taxation. What is more, it
would tend to defeat it, on account of the paper work, time and consequently, expenses it would
entail.

10) PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. CITY OF BUTUAN, GR No. L-22814, August
28, 1968 (24 SCRA 789)
"The classification made in the exercise of power to tax, to be valid, must be reasonable ."
FACTS:
Plaintiff-appellant Pepsi-Cola sought to recover the sums paid by it under protest, to the
City of Butuan, and collected by the latter, pursuant to its Municipal Ordinance No. 110 which
plaintiff assails as null and void because it partakes of the nature of an import tax, amounts to
double taxation, highly unjust and discriminatory, excessive, oppressive and confiscatory, and
constitutes an invalid delegation of the power to tax. The ordinance imposes taxes for every case
of softdrinks, liquors and other carbonated beverages, regardless of the volume of sales, shipped
to the agents and/or consignees by outside dealers or any person or company having its actual
business outside the City.
ISSUE:
Does the tax ordinance violate the uniformity requirement of taxation?
HELD:
Yes. The tax levied is discriminatory. Even if the burden in question were regarded as a tax
on the sale of said beverages, it would still be invalid, as discriminatory, and hence, violative of
the uniformity required by the Constitution and the law therefor, since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for
or on behalf of other merchants, regardless of the volume of their sales, and even if the same
exceeded those made by said agents or consignees of producers or merchants established
outside the City of Butuan, would be exempt from the disputed tax. It is true that the uniformity
essential to the valid exercise of the power of taxation does not require identity or equality under
all circumstances, or negate the authority to classify the objects of taxation. The classification
made in the exercise of this authority, to be valid, must, however, be reasonable and this
requirement is not deemed satisfied unless: (1) it is based upon substantial distinctions which
make real differences; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally to all
those who belong to the same class.
11) PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF TANAUAN, GR No. L31156, February 27, 1976
(69 SCRA 460)
"Legislative power to create political corporations for purposes of local self-government carries
with it the power to confer on such local governmental agencies the power to tax.
FACTS:
Plaintiff-appellant Pepsi-Cola commenced a complaint with preliminary injunction to
declare Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos.
23 and 27 denominated as "municipal production tax" of the Municipality of Tanauan, Leyte, null
and void. Ordinance 23 levies and collects from soft drinks producers and manufacturers a tax of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked, and Ordinance 27 levies
and collects on soft drinks produced or manufactured within the territorial jurisdiction of this
municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity. Aside from the undue delegation of authority, appellant contends that it allows double
taxation, and that the subject ordinances are void for they impose percentage or specific tax.
ISSUE:
Are the contentions of the appellant tenable?
HELD:

No. On the issue of undue delegation of taxing power, it is settled that the power of
taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people. It is a power
that is purely legislative and which the central legislative body cannot delegate either to the
executive or judicial department of the government without infringing upon the theory of
separation of powers. The exception, however, lies in the case of municipal corporations, to
which, said theory does not apply. Legislative powers may be delegated to local governments in
respect of matters of local concern. By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries with it the power to confer on
such local governmental agencies the power to tax.
Also, there is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating
authority specifies the limitations and enumerates the taxes over which local taxation may not
be exercised. The reason is that the State has exclusively reserved the same for its own
prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, so
that double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of
the same governmental entity or by the same jurisdiction for the same purpose, but not in a case
where one tax is imposed by the State and the other by the city or municipality.
On the last issue raised, the ordinances do not partake of the nature of a percentage tax
on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether
sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks
is considered solely for purposes of determining the tax rate on the products, but there is not set
ratio between the volume of sales and the amount of the tax.

12) OSMEA vs. ORBOS, GR No. 99886, March 31, 1993 (220 SCRA 703)
" To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies
that the legislature determines matter of principle and lays down fundamental policy."
FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of PD 1956, as amended by EO
137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or impose
additional amounts on petroleum products which proceeds shall accrue to the Oil Price Stabilization Fund
(OPSF) established for the reimbursement to ailing oil companies in the event of sudden price increases.
The petitioner avers that the collection on oil products establishments is an undue and invalid delegation
of legislative power to tax. Further, the petitioner points out that since a 'special fund' consists of monies
collected through the taxing power of a State, such amounts belong to the State, although the use thereof
is limited to the special purpose/objective for which it was created. It thus appears that the challenge
posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D.
1956, as amended, partake of the nature of the taxation power of the State.
ISSUE: Is there an undue delegation of the legislative power of taxation?
HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from the
special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in

what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny
and review of the COA. The Court is satisfied that these measures comply with the constitutional
description of a "special fund."
With regard to the alleged undue delegation of legislative power, the
Court finds that the provision conferring the authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which the authority must be exercised. In addition to
the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump
rates, P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of
the Fund.

13) VILLEGAS vs. HIU CHIONG, GR No. L-29646, November 10, 1978 (86 SCRA 270)
"A tax law should be declared invalid if it fails to lay down standards to guide or limit the actions of the
taxing authority."
FACTS: The Municipal Board of Manila enacted Ordinance No. 6537 which prohibits aliens from being
employed or to engage or participate in any position or occupation or business, without first securing an
employment permit from the Mayor of Manila and paying the permit fee of P50.00. The respondent
challenged the validity of the ordinance upon the contention that it does not qualify as a valid exercise of
the power to tax for, as a revenue measure imposed on aliens employed in the City of Manila, the
ordinance is discriminatory and violative of the rule of the uniformity in taxation, and as a police power
measure, it makes no distinction between useful and non-useful occupations, imposing a fixed P50.00
employment permit, which is out of proportion to the cost of registration and that it fails to prescribe any
standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on
delegation of legislative powers:
ISSUE: Is there a valid exercise of the taxing power of the local government?
HELD: None. First, the ordinance is not a regulatory or police power measure; it is but a revenue measure
guised in a police power measure. Second, the P50.00 fee is unreasonable not only because it is excessive
but because it fails to consider valid substantial differences in situation among individual aliens who are
required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it
is imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being
collected from every employed alien whether he is casual or permanent, part time or full time or whether
he is a lowly employee or a highly paid executive.
On the illegal delegation part of the argument,
Ordinance No. 6537 is void for it does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any
policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained
by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus
conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of permits, such
ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity
per se lawful.
16) THE STANDARD OIL COMPANY OF NEW YORK vs POSADAS, G.R. No. L-34029 February 26, 1931
(55 PHIL 715)
FACTS:
Standard is a foreign corporation duly authorized to do business in the Philippines. They delivered
in the Philippines for the use of US Army, fuel oil and asphalt. Collector of Internal Revenue demanded a
tax of one and one-half per cent upon the value of the merchandise by virtue of section 1459 of the
Administrative Code and Act No. 3243 of the Philippine Legislature. During the same period Standard
delivered fuel to US Navy to be paid in New York, and which contract provided that all internal revenue
taxes and charges under the laws of the Philippine Islands were to be assumed and paid by the United
States Navy. Collector collected sales tax which was paid by Standard under protest. Standard sue for
refund.
ISSUE:
Was the sales of merchandise made in the Philippines to the United States Army and the United
States Navy are subject to the sales tax?

HELD:

No. It would be absurd to think that a derivative sovereignty like the Government of the Philippine
Islands, could tax the instrumentalities of the very Government which brought it into existence. If a
sovereign State of the American Union cannot abridge or restrict the activities of the United States
Government, much less can a creature of that Government, as the Philippine Government is, do so. (Note
the well-considered opinion of Attorney-General Wickersham of June 8, 1912, appearing in 29 Opinions,
Attorneys-General, United States, 442.)Judgment reversed, and the record ordered returned to the court
of origin for further proceedings, without express finding as to costs in either instance.
17)