Pepsi-Cola vs.

Municipality of Tanauan
PEPSI-COLA BOTTLING CO. OF THE PHILS., INC. vs. MUNICIPALITY OF
TANAUAN
69 SCRA 460
GR No. L-31156, February 27, 1976

"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.

Pepsi-Cola vs. Municipality of Tanauan

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In

September 1962, the Municipality approved Ordinance No. 23 which levies
and collects “from soft drinks producers and manufacturers a tai of one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked.”
In December 1962, the Municipality also approved Ordinance No. 27 which
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 of volume capacity.”
Pepsi Cola assailed the validity of the ordinances as it alleged that they
constitute double taxation in two instances: a) double taxation because
Ordinance No. 27 covers the same subject matter and impose practically the
same tax rate as with Ordinance No. 23, b) double taxation because the two
ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which
allows for the delegation of taxing powers to local government units; that
allowing local governments to tax companies like Pepsi Cola is confiscatory
and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued,
among others, that only Ordinance No. 27 is being enforced and that the latter
law is an amendment of Ordinance No. 23, hence there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether
or not there is double taxation.
HELD: No. There is no undue delegation. The Constitution even allows such
delegation. 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. Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: “Each local government unit shall have
the power to create its sources of revenue and to levy taxes, subject to such
limitations as may be provided by law.” Withal, it cannot be said that Section 2
of Republic Act No. 2264 emanated from beyond the sphere of the legislative
power to enact and vest in local governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well taken.
Further, Pepsi Cola’s assertion that the delegation of taxing power in itself
constitutes double taxation cannot be merited. 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 unlike in other
jurisdictions. 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.