Chapter 1 – General Principles of Taxation

Situs of taxation
Situs of taxations means place of taxation. The rule is that the state which has
jurisdictions to tax the person, property or transactions may rightfully levy and collect the tax.
Situs of taxation shall be as follows:
1. Business, Occupation or transaction – place where the business is conducted; the place
where the occupation is practice, or the place where the transactions took place.
2. Real and tangible personal property – location of property.
3. Intangible personal property – Domicile of the owner unless the property has acquired a
business situs in another jurisdiction.
4. Income – Place where the same is earned, or citizenship or domicile of the owner.
5. Gratuitous transfer of property – Residence or citizenship of the taxpayer, or location of
the property.
The basic forms of escape from taxation are:
A. Those that do not reduce the revenue collection of the government:
1. Shifting – This is a transfer of the tax burden by one on whom the tax is assessed to
another. This is exemplified by the different taxes on business.
2. Capitalization – It is the reduction of the selling price of income-producing property by
an amount equal to the capitalized value of future taxes that may be paid by the
purchaser.
3. Transformation – It is a method by which the manufacturer or producer upon whom the
tax is imposed pays the tax and strives to recover such expense through lower
production cost without sacrificing the quality of the product.
Shifting and capitalization are means of escape through process of exchange, while
transformations are means through process of production.
B. Those that result in loss of revenue to the government:
1. Tax evasion – It refers to fraudulent or forbidden schemes or devices designed to lessen
or defeat taxes. This is also known as Tax Dodging.
2. Tax avoidance – The exploitation by the taxpayer of legally permissible alternative tax
rates or methods of assessing taxable property or income, in order to reduce tax
liability.
3. Exemption from taxation – It is the grant of immunity to particular persons or
corporations or to persons or corporations of a particular class from a tax which persons
and corporations generally within the same taxing district are obliged to pay.