TAXATION

POWER OF TAXATION 2. Non-revenue Purposes

(a) Promotion of general welfare
 Process of collecting money to defray expenses of the government  Taxation can be used as an implement of police power
 Inherent power of the state: no need for a constitution or enabling e.g. Excise Tax: a type of business tax; higher rate of tax can be
statute for the State to exercise the power of taxation imposed to certain industries (cigarettes, alcohols because the state
LOCAL GOVERNMENT UNITS AND POWER OF TAXATION discourages the use of these products)
1 (b) Regulation
 Prior to the 1987 Constitution, there needs to be an enabling law before  PAL v Edu: The state imposed a regulatory tax (imposed to raise
LGUs can collect taxes. revenues and regulate a subject matter)
 With the effectivity of the 1987 Constitution, the power of taxation is no (c) Reduce Social Inequity
longer delegated to the LGUs but is directly conferred by the  Progressive System of Taxation
Constitution.  “Ability to pay” principle: the higher the income, the higher the tax.
 The Constitution has a provision on Local Autonomy (Article X) (d) Encourage Economic Growth
 Congress can grant incentives to promote a particular industry
Sec.5 Each local government unit shall have the power to create its own sources of
(e) Protectionism
revenues and to levy taxes, fees and charges subject to such guidelines and limitations
 Imposition of custom duties to protect locally manufactured goods
as the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local governments. e.g. “smuggled goods”

TAXATION BEING A POWER LIFEBLOOD DOCTRINE

1. Inherent  Taxes are lifeblood of nation and without taxes, the states cannot exist.
2. Supreme, Plenary, Unlimited and Comprehensive  The source of the power to tax is the main existence of the state
 Can cover all subject matters provided in accordance with JUSTIFICATIONS OF THE POWER OF TAXATION
limitations (both inherent and constitutional limitations)
1. Benefits-Received Theory
POWER TO TAX: POWER TO DESTROY?  We pay taxes because of the protection that we receive
2. Symbiotic Relationship Theory
Justice Marshall: The power to tax includes the power to destroy  Notwithstanding reluctance, we must pay because without it, the
government cannot provide protection to its citizens.
 The state can use the power of taxation to kill any business 3. Necessity Theory
Justice Holmes: The power to tax does not include the power to destroy while this  Taxes are necessary for the government to operate
court sits  Lifeblood doctrine

How to reconcile? The principle of Justice Marshall applies only to valid taxes, Benefits-Received Theory Symbiotic Relationship
while that of Justice Holmes applies to invalid taxes. Theory
Benefits have been received, We must pay tax because
 If a tax imposed is valid, it can be used by the state to destroy. so we must pay tax. benefits will be received from
 If it is an invalid tax, the state cannot use the power to tax to destroy the government
a business. CHARACTERISTICS OF THE POWER OF TAXATION

1. Must be for public purpose

OBJECTIVES OF THE POWER OF TAXATION  Produce direct or indirect benefits to the people
e.g. Collection of tax to prevent tuberculosis
1. Revenue Purposes
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 o Living in a healthy society is an indirect intangible benefit
2. Inherent
3. Inherently Legislative CIR vs. Algue
 The power of taxation can only be exercised by the legislature by  Lifeblood doctrine
“Taxes are the lifeblood of the government and so should be collected without unnecessary
enactment of a law authorizing a tax
hindrance. On the other hand, such collection should be made in accordance with law as any
4. Territorial arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
 It can only be exercised within the jurisdiction of the state the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
5. Recognizes Tax Exemption of State taxation, which is the promotion of the common good, may be achieved”
2 6. Limited
 Symbiotic Relationship Theory
Sison vs. Ancheta  Those who can contribute must do so
 Power to tax is the power to build  Government responds to the taxes that we pay in the form of
 With the modern times, there is a need for more revenues to meet tangible and intangible benefits
increasing social challenges. “It is said that taxes are what we pay for civilization society. Without taxes, the government
 Lifeblood doctrine would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
“It is manifest that the field of state activity has assumed a much wider scope xxx Hence the reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the is able to must contribute his share in the running of the government. The government for its part,
performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent is expected to respond in the form of tangible and intangible benefits intended to improve the lives
decision, taxes being the lifeblood of the government, their prompt and certain availability is of the of the people and enhance their moral and material values. This symbiotic relationship is the rationale
essence. of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.”

 Taxes must be reasonably collected

Philippine Health Care Providers vs. CIR
 Documentary Stamp Tax of PHCP: 376
Net worth of PHCP: 259M (assets minus liabilities)
 PHCP alleges that the state is taxing it out of existence
 CIR alleges the principle of “Power to tax is the power to destroy”
 Involved valid tax
 VAT was found valid; DST was invalid
 DST can only be collected if the industry is an insurance provider.
PHCP is not an insurance provider but a health service provider.
Thus, DST cannot be imposed upon it.
 Since DST is an invalid tax (being imposed to a health service
provider), the power to tax is not the power to destroy.
 While it is true that the power to tax is unlimited, supreme, plenary,
unlimited and comprehensive, it must be exercised with precaution to
avoid injury to proprietary rights of taxpayer. It must be fairly,
equally and uniformly imposed.
“The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing the
business of an entity is another matter and should not be allowed. It is counter-productive and
ultimately subversive of the nation’s thrust towards a better economy which will ultimately benefit
the majority of our people”
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“Even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.
If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all
the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed.”
NAPOCOR vs. City of Cabanatuan
 Source of the exercise of taxing power: the very existence of the state
 Theory behind the power of taxation: Necessity
 So that the government can also provide for the citizens
 To promote general welfare
 LGU can exercise the power of taxation
 Directly conferred by the Constitution (Sec 5. Article X, 1987
Constitution)
 The Local Government Code was enacted by the Congress
Q: Does it grant the power to tax to the LGUs?
A: No. It only sets limitation to the taxing power of the state and does
not grant the power to collect the tax. It is the Constitution that grants
the power to tax.
Philippine Airlines vs. EDU
 Fees are being imposed to PAL in the form of registration fees.
 SC: they are actually taxes.
 “They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and On the one hand, a tax credit reduces the tax due, including -- whenever applicable -- the
inspection, and are for that reason limited in amount to what is necessary to cover the cost of the income tax that is determined after applying the corresponding tax rates to taxable income. A tax
services rendered in that connection. deduction, on the other, reduces the income that is subject to tax in order to arrive at taxable
income. To think of the former as the latter is to avoid, if not entirely confuse, the issue. A tax credit
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, is used only after the tax has been computed; a tax deduction, before.”
then the exaction is properly called a tax.”
 The fees are used for construction of highways. Only a portion is used for  Elements of the Power of Eminent Domain
the operation of the motor vehicles. Since the fees are used for a public 1. Taking of private property: 20% of the gross sale
purpose, they are considered taxes. 2. For public use: discount for the senior citizens
3 3. For just compensation: tax credit
Tio vs. Videogram Regulatory Board
 The corporation can incur whatever has been lost through the grant of
 Taxes were not considered oppressive and were upheld to be valid. tax credit.
“It is beyond serious question that a tax does not cease to be valid merely because it regulates,  RA 9994: The 20% discount is already considered as tax deduction.
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 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. “ THREE STAGES IN THE TAX PROCESS
1. Levy
 Tax was used both as a regulatory and revenue measure  Power of Taxation can be exercised through the law-making body
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the  How? By enactment of laws
realization that earnings of videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an additional source of revenue
 Nature: inherently legislative

 Tax as an instrument of police power: to protect video industry 2. Assessment

 Tax does not cease to be valid merely because it regulates, discourages  Computation of taxes
or even definitely deters the activities taxed.  Nature: administrative

Lutz vs. Araneta 3. Collection

 Administrative in character
 Tax as an implement of police power to promote general welfare
PRINCIPLES OF A SOUND TAX SYSTEM
“The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power and is
1. Fiscal Adequacy
not a pure exercise of taxing power.
 Fiscal: money
As sugar production is one of the great industries of the Philippines and its promotion,
protection and advancement redounds greatly to the general welfare, the legislature found that the Adequacy: sufficient
general welfare demanded that the industry should be stabilized, and provided that the distribution  Sufficient funds
of benefits had to sustain.”  As much as possible, there would be no deficit and excessive surplus.

CIR vs. Central Luzon Drug Corporation 2. Administrative Feasibility

 Tax Credit vs. Tax Deduction  Tax laws should be capable of convenient, just and effective
Tax Credit: deduction from tax liability administration
Tax Deduction: reduction from the income
“xxx Tax deduction -- defined as a subtraction "from income for tax purposes," or an 3. Theoretical Justice
amount that is "allowed by law to reduce income prior to [the] application of the tax rate to compute  Founded on the “ability-to-pay” principle
the amount of tax which is due."  Pay because you’re able
 Kindred concept of progressive system of taxation

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  The higher the income, the higher the tax  Moreover, the issue on the implementation is premature because it
remains to be seen how the taxing authority will actually implement the
 Section 28, Article VI of the Constitution VAT on tollway operations. Any declaration by the Court that the manner
The Congress must evolve a progressive system of taxation of its implementation is illegal or unconstitutional would be premature.

Q: Will a violation of these principles result to unconstitutionality of the tax law?

A:
Definition and Characteristics of Taxes
4 General Rule: NO
These are merely principles. They are guidelines and are therefore not mandatory  Taxes are enforced, proportionate contribution levied by the law-making
authority which has territorial jurisdiction over the source of the tax.
The Constitution provides that the Congress must evolve a progressive system of
taxation, but does not prohibit regressive system of taxation. For example, VAT is Characteristics:
valid eventhough it does not consider the ability to pay principle because it is 1. ENFORCED
automatically imposed upon the consumers. The progressive system of taxation is  Mandated by law
merely encouraged and regressive system of taxation is merely frowned upon.  Poll tax: mandatory, but non-payment would not subject the person to
imprisonment
Except: If a law is violative of theoretical justice and in effect is harsh, oppressive
and confiscatory such that it violates due process. Article III, Section 20 (1987 PC)
No person shall be imprisoned for debt or non-payment of a poll tax
Diaz v. Secretary of Finance
Concept of Administrative Feasibility Q: Can a person legally refused to pay taxes?
 Petitioner was assailing the validity of the impending imposition of A: No. The privilege of living in a civilized society is a benefit derived from payment
value-added tax (VAT) of taxes to the government.
by the Bureau of Internal Revenue (BIR) on the collections of tollway
operators
 The implementation of Section 108 of NIRC is not administratively 2. PROPORTIONATE CONTRIBUTION
feasible  Progressive System of taxation and ability to pay principle.

“In order to claim input VAT, the name, address and tax identification number of the tollway 3. LEVIED BY LAW-MAKING AUTHORITY
user must be indicated in the VAT receipt or invoice. The manner by which the BIR intends to  Only the Congress has the authority to levy taxes through enactment of laws.
implement the VAT by rounding off the toll rate and putting any excess collection in an escrow
 Exceptions:
account is also illegal, while the alternative of giving change to thousands of motorists in order to
meet the exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on tollway a. Local Government Units
operations is not administratively feasible” b. Flexible Tariff Clause

 Supreme Court: non-observance of the canon of administrative Article VI, Sec 28 (2), 1987 PC
feasibility would not make the law invalid. The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage
 “Administrative feasibility is one of the canons of a sound tax system. It simply means that the dues, and other duties or imposts within the framework of the national development program of the
tax system should be capable of being effectively administered and enforced with the least Government.
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid except to the extent that specific constitutional or statutory limitations are
c. Purely Administrative Functions
impaired.[34] Thus, even if the imposition of VAT on tollway operations may seem burdensome
to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or
the Constitution.” 4. HAVE TERRITORIAL JURISDICTION OVER THE SOURCE OF TAX
 Tax Situs (Section 42 of Tax Code)
 Place of Taxation

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 5. PERSONAL IN NATURE The validity of a statute depends upon the powers of Congress at the time of its passage or approval,
not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an
 One cannot make others liable for his own tax liability
amendment of the organic law, removing, with retrospective operation, the constitutional limitation
Note: Tax Liability vs. Burden of Tax infringed by said statute. Xxx Inasmuch as the land on which the projected feeder roads were to be
 Tax Liability constructed belonged then to respondent Zulueta, the result is that said appropriation sought a
 Direct mandate of law private purpose, and hence, was null and void”
 Burden of Tax
 Who will shell out the funds
5 INTERNATIONAL COMITY
 Courteous recognition and friendly relations between two sovereign
Q: VAT is an indirect tax. When someone buys a meal from Mcdonalds, a part of
states
the purchase price that the consumer pays is the VAT. Is it a violation of the nature
of Tax as personal in nature? Q: Can the Philippine Government impose tax to the income of the US
A: No. Only the burden of tax is shifted to the consumer and not the tax liability. Government?
A: No. It will be a violation of international comity
Capital Gains Tax (CGT)
 Commonly the seller pays the tax of the property being sold. Illustration:
However, they can stipulate that the buyer will pay the CPG Manny Pacquaio is a Filipino citizen who is also being given an income by other
instead. states during his competitions.
Q: If the buyer did not pay the tax, can the government run after the buyer? Q: Is his income subject to tax?
A: Yes, regardless of the source of income, because of his citizenship.
A: No. CPG is personal in nature. What was only shifted to the buyer was the
burden of tax and not the tax liability. Hence, the liability remains to the seller.
Withholding Tax
The government should run after the seller. The remedy of the seller is to file a
 Income earned by an employee
complaint against the buyer.  The payor is the withholding agent: the employer. He serves as the
collector of the government
6. PUBLIC PURPOSE
 Basic test of public purpose: it must be used for the support of the Illustration:
government Manny Pacquaio is being paid an income by Las Vegas.
 To promote welfare for the common good. Q: Can this income be subject to a withholding tax?
A: No. It would be a violation of international comity. The Philippines cannot
constitute the foreign corporation (“Top Rank Corp”) as a withholding agent, since
the corporation has no business in the Philippines.
Pascual vs. Secretary of Public Works and Communications et al.
 A law was enacted wherein funds were appropriated for the
Obligation of Pacquaio is to declare the income for income tax.
construction of Pasig feeder road terminals, which have no connection
with any government highway.
 Respondent Zulueta donated the feeder roads to the government
INHERENTLY LEGISLATIVE
AFTER the enactment of the law.
 The power to tax cannot be delegated to other branches of the
 SC: The law was invalid because public funds were appropriated for a
government
private property. At the time of the enactment of the law, the property
 Exceptions:
is still a private property.. The donation by Zulueta was made only to
1. LGU’s taxing power
give semblance of legality to the project.
2. President’s taxing power
3. Purely administrative function
“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.

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  Congress has the power to determine coverage of taxation, object of  Tax Situs
taxation, nature of taxation, the kind of tax to be imposed, and the tax  Depends on the subject matter
rate.  Right
 Real property
Double Taxation  Personal Property
 Principles:
Pepsi-Cola Bottling Company vs. Municipality of Tanauan  Source Principle
 There was no double taxation because there are different taxing  Citizenship Principle
authorities  Residence Principle
6
“Moreover, double taxation, in general, is not forbidden by our fundamental law, since we have not Source Principle
adopted as part thereof the injunction against double taxation found in the Constitution of the
 State can impose tax to an income if such income has been earned in that
United States and some states of the Union. Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same State
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.” Citizenship Principle
 Tax is imposed to the income of all citizens of the State
 There was no undue delegation of the power of taxation
“It is a power that is purely legislative and which the central legislative body cannot delegate Residence Principle
either to the executive or judicial department of the government without infringing upon the  Tax is imposed to the income of the residents of a state
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 Taxes on Properties
governments in respect of matters of local concern. xxx Section 5, Article XI provides: "Each local
 Real properties: where it is located
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."  Personal properties
 Tangible: where it is located
 Intangible: mobilia sequitur persona
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. City of Butuan
follows the domicile of its owner

Double taxation is not prohibited by our Constitution. It is only
Illustration:
unconstitutional if it is obnoxious.
Ryan is a Filipino Citizen who resides in Japan
 Type kinds of Double Taxation
Direct Indirect He owns a condo at Japan
Same type Same type He earns P30,000 per month
Same subject matter Same subject matter
Same taxable period Same taxable period Q: May the condominium be imposed with real property tax?
Same taxing authorities Different taxing A: No. It is located outside the Philippines.
authorities
 However, the imposition of tax of 6% was found to be violative of due Eclectic Theory
process and is considered confiscatory and obnoxious by the Supreme  Tax laws cannot extend beyond territorial jurisdiction of a State
Court
Q: May the income of Ryan be subject to income tax in the Philippines?
Xxx 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 A: Yes. The income is based on a right. Ryan is still a Filipino citizen who can be
be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless imposed with income tax by the Philippine Government even though he is a non-
of the volume of their sales, and even if the same exceeded those made by said agents or consignees resident.
of producers or merchants established outside the City of Butuan, would be exempt from the  Citizenship Principle
disputed tax

TERRITORIALITY Q: BUT is it subject to tax?

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 A: No. RA 8429 (Tax Code) provides that only resident-citizens shall be subject to
tax within or outside the Philippines
Others are subject to tax only if the source is from the Philippines
TAX EXEMPTIONS
 GOCCs are not exempted from tax, except if charter so provides that
they are exempted.
7 it is not organized as a stock or non-stock corporation.
Light Rail Transit Authority vs. Central Board of Assessment Appeals
 The carriageways and passenger terminal stations are not public
roads. They were merely elevated and only serve as improvements.
“ XXX it must be emphasized that these structures do not form part of such roads, since the former
have been constructed over the latter in such a way that the flow of vehicular traffic would not be
impeded. These carriageways and terminal stations serve a function different from that of the public
roads. The former are part and parcel of the light rail transit (LRT) system which, unlike the latter, are
not open to use by the general public. The carriageways are accessible only to the LRT trains, while
the terminal stations have been built for the convenience of LRTA itself and its customers who pay
the required fare.”
 Petitioner is a GOCC and is not exempted from real property taxes
“ Though the creation of the LRTA was impelled by public service -- to provide mass
transportation to alleviate the traffic and transportation situation in Metro Manila -- its
operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status
and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much
like any private corporation engaged in the mass transport industry. Given that it is engaged in a
service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial
property subject to tax, notwithstanding its claim of being a government-owned or controlled
corporation.”
Mactan Cebu International Airport Authority vs. Hon. Ferdinand J. Marcos
(1996)
 GOCC’s are taxable entities.
Exception: If the charter provides for exemption.
 However, the charter of MCIAA was already repealed upon
enactment of the Local Government Code
 Instrumentalities of the government are exempted from real property
taxes as provided by the Local Government Code. They are not taxable
entities.
2 Aspects:
MCIAA case on June 15 2015
 MCIAA is no longer a GOCC and is now a government instrumentality
 In 2006, MIAA case was decided and Supreme Court considered it as
an instrumentality, subject to tax exemption
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 MCIAA filed a petition to the Court saying that it has the same
functions with the MIAA and must also be exempted from real
property taxes  granted
Manila International Airport Authority vs. Court of Appeals
 MIAA is not a government-owned or controlled corporation Section
2(13) of the Introductory Provisions of the Administrative Code because
 MIAA is a government instrumentality vested with corporate powers.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex.
 20% of its income reverts back to the government.
 Under Section 133 of the LGC, it is exempt from taxes
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units
 MIAA is exempt from real property taxes but not as to those
properties leased to private entities, since these are taxable entities.
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person;
Portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from
real estate tax. For example, the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such
land area for a consideration to a taxable person and therefore such land area is subject to real
estate tax.
CONSTITUTIONAL LIMITATIONS
1. Due Process Clause
a. Substantive Due Process
 No tax imposed if no law enacted
b. Procedural Due Process
 Government cannot levy property if no opportunity to be heard is
given.
 “The imposition of the MCIT is constitutional. An income tax is arbitrary and confiscatory if it taxes
Basic Concepts to understand the CREBA Case capital, because it is income, and not capital, which is subject to income tax. However, MCIT is
Gross Sales: amount received from a business imposed on gross income which is computed by deducting from gross sales the capital spent by a
Cost of Sales: expenditure directly related to the earning of gross sales corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross
sales. Clearly, the capital is not being taxed.”
Gross Income: Gross Sales minus Cost of Sales
Expenses: merely incidental expenditures  Taxation as an attribute of sovereignty
Net Income: Gross Income minus Expenses
“Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this
8 Illustration: means that in the legislature primarily lies the discretion to determine the nature (kind), object
Atty. Carantes wants to sell 40 pcs of Boy Bawang. Her capital costs P40 (P1 per (purpose), extent (rate), coverage (subjects) and situs (place) of taxation.It has the authority to
piece). She sold it for P5 per piece. prescribe a certain tax at a specific rate for a particular public purpose on persons or things within its
jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why
Gross Sales: P200 it should be imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and
where it shall be imposed.”
Cost of Sales: P40
Gross Income: P160
 Creditable Withholding Tax is valid
Expense: P14 (jeepney fare)
Net Income: P146
Concept of CWT
- Imposed on the Gross Selling Price/Market Value of the property at the
CREBA v. The Hon. Executive Secretary Alberto Romulo
time of the sale
 Under the Tax Code, a corporation can become subject to the
Illustration
Minimum Corporate Income Tax (MCIT) at the rate of 2% of gross
Real Property: P5M
income, beginning on the 4th taxable year immediately following the
Seller receives 95% of this price
year in which it commenced its business operations, when such MCIT
Buyer withholds 5% and remits it directly to BIR
is greater than the normal corporate income tax.
 CREBA argued, among others, that the use of gross income as MCIT Thus, petitioner alleges that it is confiscatory because the seller will not be
base amounts to a confiscation of capital because gross income, unlike assured that he/she will receive income.
net income, is not realized gain. It will be like imposing a tax even if
there is no income yet. SC Ruling: CWT is Valid. It is imposable on the income. At the end of the year,
 In our earlier illustration, if the gross income is only P160 income will be totaled and the CWT will be deducted.
and the tax imposed is P170, there will be a net loss of –P10
 Thus, CREBA alleges that it is confiscatory It is not an additional tax imposition but an advance payment of it during the
taxable year. It only deals with method of tax collection.
Supreme Court: MCIT is valid and is not confiscatory.
 MCIT is not an additional tax imposition. “The withholding tax system was devised for three primary reasons: first, to provide the taxpayer a
convenient manner to meet his probable income tax liability; second, to ensure the collection of
“It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously income tax which can otherwise be lost or substantially reduced through failure to file the
low. The MCIT merely approximates the amount of net income tax due from a corporation, pegging corresponding returns and third, to improve the governments cash flow. This results in administrative
the rate at a very much reduced 2% and uses as the base the corporations gross income.” savings, prompt and efficient collection of taxes, prevention of delinquencies and reduction of
governmental effort to collect taxes through more complicated means and remedies”
The rationale of MCIT is to prevent declaration of normal income tax that is
suspiciously low. Illustration:
Real Property: P1m
Tax Code aims to prevent corporations from bloating up their expenses to appear Tax (30%): P300,000
that they have no income. CWT: P250,000

 MCIT is not a tax on a capital 300,000

Taxation I
S.Y. 2016-2017, 1st semester
 - 250,000  Supreme Court: Ordinance is unconstitutional
-----------
P50,000  Creditable next year  Violative of Due Process
The fee imposed is not merely fore regulatory purposes but is actually for
If you have no income revenue. It results to a withdrawal of livelihoods from aliens without due process
0
- 250,000  Violative of Equal Protection Clause
---------
9 250,000  Can be utilized next taxable year “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
Q: What if the business suffered loss until closure? Will CWIT be a confiscation of equal protection clause of the Constitution does not forbid classification, it is imperative that the
property? classification should be based on real and substantial differences having a reasonable relation to the
A: If the taxpayer cannot utilize the CWT, he can petition for tax refund 2 years subject of the particular legislation. The same amount of P50.00 is being collected from every
from payment. 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”
 The government did not forfeit the CWT
 The power granted to the mayor was an undue delegation of power

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of
COCA COLA Case his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to
 Tax Ordinance No. 7794, Section 21 provides for the exemption of set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by
Coca-Cola from additional taxes apart from local business tax requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus
 Year 2000: The City of Manila amended the ordinance and removed conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building
the tax exemption of Coca-Cola permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or
prevent an activity per se lawful.
Supreme Court: the amendatory law was null and void for non-
compliance with the publication requirement, which is a requirement Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide
of due process the mayor in the exercise of the power which has been granted to him by the ordinance
 Double Taxation: two ordinances imposed the same kind of tax
Same subject: privilege of doing business Mayor cannot impose tax: violation of legislative nature of taxation
Same taxing authority: City of Manila
Same purpose: contribution of revenue  The fee is for revenue purpose
Same jurisdiction: City of Manila  Power of taxation is inherently legislative
Same period: per calendar year  Mayor is granted unrestricted authority
Same character: Local Business Tax

 Direct Duplicate Taxation: the taxing measure becomes obnoxious

 Double Taxation is not unconstitutional.
However, if it constituted direct double taxation and results to a City of Baguio vs. de Leon
measure that is obnoxious and confiscatory, it becomes  There is no double taxation since there are two different taxing
unconstitutional and violative of due process. authorities
1. National government
2. City of Baguio
Mayor Antonio J. Villegas vs.Hiu Chiong Tsai Pao Ho  Indirect double taxation is not prohibited by the Constitution. What is
prohibited is an obnoxious taxing measure such as direct double
 Ordinance provides for an imposition of employer permit (P50) to alien taxation.
residents before employment

Taxation I
S.Y. 2016-2017, 1st semester
 Sison v Ancheta
 Instances of due process violation: Reminder on how to answer questions
1. Beyond jurisdiction of the state If the argument is based on “procedural due process answer that the law is
2. Not for a public purpose unconstitutional
3. Retroactive statute that is so harsh and unreasonable If the argument is based on the issuance going beyond the limits of the law 
4. When it becomes oppressive and arbitrary. answer that the issuance is illegal

CIR v. MJ Lhuiller
10
CIR v. CA and Fortune  Due Process violation
 Procedural due process  5% tax is imposed on pawn shops where the law imposed such tax
 2 types of administrative issuances: ONLY to lending investors
1. Legislative Rule  The issuance imposed the same tax without notice and hearing
2. Interpretative Rule
Supreme Court
Legislative Rule Interpretative  The issuance is unconstitutional for violation of due process
Rule  The issuance is illegal for going beyond the provision of the law
Nature Subordinate Guidelines
legislation 2. Equal Protection Clause
Purpose Provide details of Interprets the  All persons subject of legislation shall be treated alike under similar
the law law circumstances, both in privilege conferred and liabilities imposed.
Force Force and effect Force and effect
of a law, given of a law but is ABAKADA Guro vs. Purisima
weight by the merely given  Definition of Rational Basis Test
court and must weight by the  There should be a reasonable foundation in the classification
be binding upon courts of the subject matter of the tax and such classification should
the courts not be arbitrary.
Requirement Publication, Issuance  Grant of incentives to BIR and BOC employees
notice and
hearing Supreme Court:
 There is substantial distinction with employees of other agencies
 BIR and BOC are revenue-generating agencies
 Substantial classification.
 Memorandum Circular: administrative issuance  Reasonable foundation
 Reclassified cigarette brands to locally manufactured bearing  Classification is not arbitrary
foreign brands
 Higher tax rates are imposed
 The issuance adds burden to taxpayer  Legislative Rule Association of Custom Brokers vs. Manila
 As a legislative rule, it should have undergone publication, notice  Ordinance imposed tax to all vehicles passing through the City of
and hearing. Manila but only to those registered in the City of Manila
 Not having complied with the requirements, the rule should be  The taxes were used for construction of roads
unconstitutional
 When the issuance is merely interpretative, its applicability needs Issue: Was there a violation of the Equal Protection Clause?
nothing further than its mere issuance
 Administrative issuance cannot go beyond the limits of the law. Supreme Court: Yes
 If it goes beyond the law, it will be an illegal administrative  There is no substantial distinction between those vehicles registered
issuance in Manila and those that are not. They are all passing through the
City roads.
Taxation I
S.Y. 2016-2017, 1st semester
  There is violation of Equal Protection Clause  Hence,
unconstitutional
Shell vs. Vano
 Tax is imposed to all installation managers
 There was only one installation manager in the whole municipality
Equality and Uniformity
 All taxable articles of the same class shall be taxed at the same rate
 The legislature, in the exercise of its taxing power, has authority to make
a reasonable classification
 Inequalities resulting from singling out a particular class does not
infringe any constitutional provision or limitation.

11 Issue: Was there a violation of Equal Protection Clause for the act of singling Tan v. Del Rosario
out the petitioner?  Difference of tax treatment between single proprietors and
corporations/partnerships
Supreme Court: No.
 Tax imposed is applicable to all installation managers who will occupy Individual Taxpayer Corporations/Partnerships
the same profession in the future. Subject to scheduler tax rates Subject to fixed rate
 Depend on income brackets (tax  Pegged at 30%
Ormoc Sugar Central vs. Ormoc Treasurer tables)
 Tax imposed to “Ormoc Sugar Central” (specifically mentioned in the  5%-32%
ordinance) Schedular system of taxation Global tax system
 There is violation of Equal Protection Clause for singling out the  Income of taxpayer should be  All kinds of income are
industry classified into its nature combined
(e.g. income from profession is (e.g. corporate income and prizes
Shell vs. Vano Ormoc Sugar Central subject to normal tax while will be both based on fixed rate
The classification is based on The law evidently singled out not the individual earned prize is of 30%)
profession. sugar industry but Ormoc Sugar subject to a withholding tax od
Applicable to all industries with the Central itself. 10%)
same profession
There is no violation of Equal There is violation of Equal Protection  Petitioner alleges violation of Equal Protection Clause
Protection Clause Clause  Supreme Court: No violation. There is a substantial distinction
between individual taxpayers and corporations/partnerships.
 Taxing authorities have the power to classify subjects of tax
as long as classification complies with the 4 elements
a. Based on substantial distinction
Kapatiran vs. Tan b. Germane to the purpose of the law
 Value-added Tax c. Applicable to future conditions
 No violation of uniformity principle d. Applicable to all members of the same class
 It is imposed to all goods except as to those exempt by law
Rate: 0-10% Philreca vs. DILG
Now: VAT is pegged at the rate of 20%  Philreca is a cooperative registered under PD 269
 No violation of equitability principle  A law was passed imposing real property taxes on cooperatives
 It recognizes exemption of those individuals who do not reach registered under PD 269
the threshold amount  Local Government Units
 If amount is less than P200,000  Exempt from VAT Sec 190: Blanket withdrawal of tax exemptions
Now: P1,919,500 is the threshold amount Sec 234: Enumerates properties exempt from tax, one of which are
 Small storeowners (sari-sari stores) are exempt from VAT, properties of duly registered cooperatives under RA 6938
since their income is only for daily sustenance Issue: Was there a violation of Equal Protection Clause?
 Farmers selling farm and marine products: also exempt from
VAT
Taxation I
S.Y. 2016-2017, 1st semester
 Held: No. American Bible Society vs. City of Manila
There is a substantial distinction between cooperatives registered under PD  License fee is imposed prior to conduct of activity
269 and RA 6938 No payment of fee, no selling of bibles

PD 269
Members are not required to pay
reasonable contributions; Only
membership fee of P5.00 which is
12 non-refundable
Cooperatives must be controlled by
NEA
Those registered under PD 269 are not exempted from real property taxes.
RA 6938 Issue: Was there a prior restraint imposed by the government?
25-25 rule compliance
25% of authorized contributions Held: Yes
must be subscribed, The religious institution will not be able to express their religious belief
25% of subscribed contribution must
be paid. “The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . .
Subsidiarity Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive
it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this
 They can act on their own
form of missionary evangelism can close all its doors to all those who do not have a full purse.
without much governmental Spreading religious beliefs in this ancient and honorable manner would thus be denied the needy”
control or supervision
 Still controlled by government
Q: What if after the ABS sells the bible, it earned P2M and the government
but exercises subsidiarity
imposed VAT on that earning?
A: There will be no violation of Freedom of Religion since there is no prior
restraint.

Judy Anne Santos v People If the tax is an imposition before the activity, there is a violation of Freedom of
 Case of Regine: dismissed by prosecutor Religion. If the tax is imposed after the activity, there is no prior restraint and no
 Case of Judy Anne: not dismissed violation of constitutional freedom of religion.

Issue: Was there a violation of Equal Protection Clause? Tolentino vs. Secretary of Finance
 No violation of Free Exercise Clause since the licensed fees are not
Held: NO. prior restraints.
 Prosecution of guilty and non-prosecution of non-guilty is not violative  Imposition of VAT to particular sectors is not prior restraint but an
of equal protection clause. administrative imposition

Refer to People v. Dela Pena (?)

 Statute in conformity with a valid classification is valid.  Progressivity
 There is a violation of Equal Protection Clause only if the application  Petitioner: VAT is an indirect tax and regressive tax which does not
and enforcement of a law leads to undue discrimination consider the ability to pay of the taxpayer
 Equal Protection Clause cannot be invoked as a defense if you do not  Supreme Court: Constitution does not prohibit regressive system of
have clean hands. taxation.

NON-IMPRISONMENT FOR NON-PAYMENT OF POLL TAXES

FREEDOM OF RELIGION  Poll tax/Persons Tax
1. Free-exercise Clause Subject: person
 A freedom to act on a religious belief without restraint by E.g. Community tax, cedula
government Other kinds of taxes:
 The restraint must be a prior restraint 1. Property Tax
2. Excise Tax
2. Non-establishment Clause  Transaction, right, interest or privilege
 An appropriation law must not favor a particular religion Income tax: right to earn income
 No funds must be appropriated in favor of a religion Donor tax: privilege of donating gratuitously.

Taxation I
S.Y. 2016-2017, 1st semester

Q: If a person does not pay poll tax, will he be liable for an offense?
A: Yes, through the Revised Penal Code and not by non-payment of taxes.
NON-IMPAIRMENT CLAUSE
o No law shall be passed abridging contracts
o Also applies to taxation
o Applicable only in the exercise of government of its proprietary function.
13  If in the exercise of government’s sovereignty function, non-
impairment clause should not be invoked.
Casanova vs. Hord
 Non-impairment clause has been applicable since 1902
 Government entered into a contact with the taxpayer
 The non-impairment clause applies because the contract was entered
into by the exercise of the State’s proprietary function.
Cagayan Power vs. CIR
 Congress granted tax exemption in favor of Cagayan Power
 Cagayan power will only pay 3% franchise tax.
 Congress enacted Internal Revenue Code
 All corporate taxpayers shall pay income tax
 Cagayan Power: invokes non-impairment clause. It asked for
amendment of its charter so that it will only pay 3% franchise tax
only.
Supreme Court
 No impairment of contract
o The state exercised its governmental function
o What is granted is a legislative franchise.
o Constitution provides that the State may grant public
franchise subject to amendment, revocation and alteration by
the Congress.
o Congress may enact a law revoking the previously granted
franchise. Hence, the tax exemption may also be revoked.
 Cagayan Power must pay taxes from the effectivity of the Internal
Revenue Code up to the amendment of its charter.
MERALCO vs. Province of Laguna
 Contractual tax exemptions: tax exemption granted in a contract
between government and taxpayer, such is present in cases of
government bonds and debenture
 Government bonds: offered by banks
 Risk-averse
 High interest
 Fixed rates
Taxation I
S.Y. 2016-2017, 1st semester
 There could be tax exemption
 Invoking non-impairment clause is applicable if what is granted is
Contractual Tax Exemption
 RA 100678: T-bills
 Grant of tax exemption depends on type of bill obtained for a
period based on the stipulation of the grant
 Interest income shall be exempt from tax
Legally, income is subject to 20% final withholding tax. But with
the enactment of this law, interest income is exempt from tax.
 The law states that the exemption is good for 5 years. After lapse of 2
years, Congress revoked the exemption
Q: Was there a violation of the non-impairment clause?
A: Yes. The contract was through the exercise of proprietary function of the
state, and thus the non-impairment clause can be invoked. What is involved is
a government loan agreement
Government: debtor
Taxpayer: creditor
RCPI vs. Provincial Assessor
 Legislative franchise
 RCPI shall be exempt from real property tax
 Charter was granted prior to enactment of LGC
 Section 191 of LGC provides for the blanket withdrawal of tax
exemptions previously granted to entities, except as to those
enumerated under Sec 234
ISSUE: Was there a violation of Non-impairment Clause?
HELD: No.
Grant of legislative franchise is revocable. It is an exercise of governmental
function so non-impairment clause cannot be invoked.
Bayantel: same as Cagayan Power
Smart Communications: legislative franchise repealed by Congress
Problem
Government enacted RA 11111 which provides that all enterprises which will
invest P10m and employ atleast 100 employees shall avail of income tax holiday
for a period of 5 years.
X Corporation invested P10m and employed 100 employees.
After 2 years, Congress enacted a law revoking exemption.
Q: Can the non-impairment clause be invoked?
 A: No. No contract was executed between government and taxpayer. For non-
impairment clause to be invoked, there must be a contract.
2. Classroom
Tax exemption granted by RA 11111 is only a privilege that is given to those who Classroom & Gym
comply under the law. Canteen

If there is a contractual taxpayer exemption, non-impairment clause shall be Boutiques If owned by B Family Corp, will it be exempted
invoked. from Property Tax?
14 A: Yes. Ownership is immaterial. It is used for
TRADITIONALLY EXEMPTED TAXPAYERS actually, directly and exclusively for educational
purpose.
Article VI, Section 28 (3)
Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, Q: Is this subject to property tax?
non-profit cemeteries, and all lands, buildings and improvements, actually, directly, and exclusively used A: Yes. It is not exclusively used for an educational purpose.
for religious, charitable, or educational purposes shall be exempt from taxation.
Q: What about the part of the building that is used as a classroom?
1. Subject Matter of the Tax: Lands, buildings, improvement
 Property tax only Lung Center of the Philippines vs. QC
 Not excise tax; Not poll tax  “Actually, directly and exclusively used” means “solely used”.
 The building must be entirely used for religious, education or
2. Usage of Property: Actually, directly, exclusively charitable purpose.
 Not the ownership of property but the usage
3.
3. Purpose: Religious, charitable or educational The building is owned by a charitable
Building institution. At first it was used for
 If three elements are present, the institution is exempt from property tax. orphans. Afterwards, it was leased to
Lot Systems College Plus (a proprietary
Illustrations educational institution)
Lot
1.
P-Mall Church P-mall owned by diocese
Q: Is the building exempt from real property tax?
A: As to its first use, it is exempt since it was for charitable purpose.
When it was leased to Systems College, it is no longer exempt from property
tax. By virtue of the lease agreement, the institution earned rental income. It was
used for a commercial purpose. The direct benefit of the owner is its proprietary
Mall’s rental income: P1m/year
Entire amount goes to church use.

Q: Is the Mall exempt from property tax? Systems College Plus

A: No. It is used for a commercial purpose. It does not matter if it is owned by  It is not the ownership or the indirect use that matters.
diocese. It is the usage of property that determines its exemption from property  Look on the direct usage of property.
tax.
Q: What if instead of a lease agreement, the building was donated to the SCP?
Q: What if the church was also being subjected to income tax? A: It will be exempt from property tax.
A: It is subject to income tax (excise tax: right to earn income)
What constitution covers is exemption from property tax. Lladoc v. CIR
 One corporation gave P100,000 to a diocese to build a church.
 The money was used to build a church.
Taxation I
S.Y. 2016-2017, 1st semester
  The diocese was compelled to pay donee’s tax. The diocese avails of
constitutional exemption from taxes.  Lung Center accepts paying patients.

Issue: Was the contract of donation subject to donee’s tax? 1st Question: Is it a charitable institution?
Held: Yes.  Yes
The subject matter of donee’s tax is the privilege of receiving donations. It is in Acceptance of paying patients will not reduce the character of Lung
the form of an excise tax. Center as charitable institution.
 Constitutional exemption applies only to property tax and not
15 to donee’s tax. To determine whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the enterprise, its
corporate purposes, its constitution and by-laws, the methods of administration, the
ABRA VALLEY vs. AQUINO nature of the actual work performed, the character of the services rendered, the
indefiniteness of the beneficiaries, and the use and occupation of the properties.
Director’s residence Student Residence
In the legal sense, a charity may be fully defined as a gift, to be applied consistently with
Exempted from property tax existing laws, for the benefit of an indefinite number of persons, either by bringing their
Incidental use minds and hearts under the influence of education or religion, by assisting them to establish
 Under the 1935 constitution, the themselves in life or otherwise lessening the burden of government. It may be applied to
term “used exclusively” includes the incidental use. almost anything that tend to promote the well-doing and well-being of social man. It
embraces the improvement and promotion of the happiness of man. The word
charitable is not restricted to relief of the poor or sick. The test of a charity and a charitable
Exemption extends to facilities which are incidental to and reasonably organization are in law the same. The test whether an enterprise is charitable or not is
necessary for the accomplishment of the main purposes. whether it exists to carry out a purpose reorganized in law as charitable or whether it
is maintained for gain, profit, or private advantage.
*Note, however, that this has been abandoned in the 1987 Constitution. Note
also the case of Lung Center of the Philippines. xxx

As a general principle, a charitable institution does not lose its character as such and its
BISHOP OF NUEVA SEGOVIA exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
Old Cemetery Incidental money received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons
Remainder & Convent Exempt managing or operating the institution.

Church Vegetable 2nd Question: Is it actually, directly and exclusively used for a charitable
Yard & Garden Incidental purpose?
Convent  No
The portion leased to doctors for private clinics is not exempt from property
*This case was also filed during the effectivity of 1935 tax.
Exempt Constitution. Other portions: exempt

 Supreme Court directed the City Assessor to determine which portion

LUNG CENTER OF THE PHILIPPINES
is leased to private individuals and are not exempt from property tax.
 Non-stock, non-profit hospital
 Those that are not used for proprietary purpose are constitutionally
exempted.
Vacant/ Hospital Elliptical
Idle lot Orchid and
Portion Garden Center
(accepts CIR vs. ST. LUKES
lease for
entrance fee)  Non-stock, non-profit corporation
private
clinics
Taxation I
S.Y. 2016-2017, 1st semester
 Issue: Is the income subject to tax exemption under the Constitution? Q: Is the revenue exempt from income tax?
A: Yes.
Held: No. The constitutional exemption pertains only to property tax.
 Subject Matter: Revenue
 Ownership: Non-stock, non-profit educational institution
ARTICLE XIV, SEC 4(3), 1987 CONSTITUTION  Usage: Educational Purpose
All revenues and assets of non-stock, non-profit educational institutions
used actually, directly and exclusively for educational purposes shall be exempt 2. A non-stock, non-profit corporation had a revenue of P10m.
16 from taxes and duties. Upon the dissolution or cessation of the corporate existence Revenue was used for charitable purposes.
of such institution, their assets shall be disposed of in the manner provided by the
law. Q: Is the revenue exempt from income tax?
Proprietary educational institutions, including those cooperatively A: No.
owned, may likewise be entitled to such exemptions subject to the limitations
provided by law including restrictions on dividends and provisions for  Subject Matter: Revenue
reinvestment.  Ownership: Non-stock, non-profit educational institution
 Usage: CHARITABLE PURPOSE (Not educational purpose
Subject Matter: Revenues and Assets
Taxes: Excise tax (based on a right/privilege), and Property Tax  To invoke Sec 4(3), Article XIV of the Constitution, the purpose must be
 Does not include poll/capitation tax. EDUCATIONAL.
Ownership: Non-stock, non-profit educational institutions
Usage: Educational Purpose Q: When is a corporation non-stock and non-profit?
A:
RECALL the previous illustration Non-profit: No portion of the income is distributed to its members
Non-stock: The structure of the corporation is not divided into shares (?)
Classroom
The Articles of Incorporation commonly specifies the character of the corporation
Canteen Classroom/ as being non-stock, non-profit. However, the purpose of the corporation must be
Gym aligned with its designation as a non-stock, non profit corporation.
Boutique

Exempt from property tax (Section 28(3),

Article VI)

It is owned by B Family Corporation. It collects tuition fees from students and

uses the same for computer and laboratory equipments.

Q: Is the revenue used for educational purposes?

A: YES!

Q: But is it owned by a non-stock, non-profit educational institution?

A: NO. It is a Family Corporation.

Illustrations:
1. SLU is a non-stock, non-profit educational institution.
It sold concert tickets to purchase computer and laboratory equipments.
Note that the revenues were from the act of selling the tickets, not from the
tuition fees.

Taxation I
S.Y. 2016-2017, 1st semester