NPC v.

Cabanatuan City Action: A petition for review of the Decision and the Resolution of the CA finding NPC liable to pay franchise tax to City of Cabanatuan. Fact: NAPOCOR, the petitioner, is a government-owned and controlled corporation created under Commonwealth Act 120. It is tasked to undertake the development of hydroelectric generations of power and the production of electricity from nuclear, geothermal, and other sources, as well as, the transmission of electric power on a nationwide basis. For many years now, NAPOCOR sells electric power to the resident Cabanatuan City. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax representing 75% of 1% of the formers gross receipts for the preceding year. Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended. Issue: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a non-profit organization? (2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)? Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code. To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is not engaged in business. (2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used. 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:chanrobles virtual law library (a) Income tax, except when levied on banks and other financial institutions; (b) Documentary stamp tax; (c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein; (d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned; (e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise; (f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code; (k) Taxes on premiums paid by way of reinsurance or retrocession; (l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles; (m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives Code of the Philippines" respectively; and cralaw (o) Taxes, fees or charges of any kind on the National Government , its agencies and instrumentalities, and local government units.

Phil Petroleum Corporation vs. Mun of Pililia, Rizal Paras, J.: Facts: Petitioner, Philippine Petroleum Corporation (PPC) owns and maintains an oil refinery conducting business within the municipality of Pililia, Rizal. P.D. 231 or the local tax code of 1973 provide for the Municipality to impose taxes on business on any article of commerce. Thereafter, Provincial Circular 2673 was issued directing all provincial, City and municipal treasurers to refrain from collecting any local imposed in petroleum products. In 1974, P.D. 426 amended certain provisions of P.D. 231. The municipality of Pililia, through Municipal Tax ordinance 1, S-1974, imposed tax on business. In the RTC, respondent received a favorable decision, directing herein petitioner to pay the tax and fees impose unto it. Petitioner contended that Provincial Arcular 26-73 suspended the effectively of local tax ordinances of the local tax code. ISSUE: Whether or not Provincial Circular No. 26-73 supersedes the provisions of P.D. 231 as amended by P.D. 426? RULING: The court ruled in the negative, stating that in case of discrepancy between the basic law and on implementing rule or regulation, the former prevails. P.D. 426, amending the local tax code repealed P.C. No. 26-73 and 26-A73 where section 19 of which stated the municipality may impose taxes on business manufacturers importers or producers of any article of commerce of whatever kind or nature Thus, the order of the lower court was affirmed by SC with certain modification. In the case at bar, the provisions of the local tax code of 1974 supersedes P.C. 26-73, likewise upholding the constitutional right granted to local autonomy to imposed taxes

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THE SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric cooperatives organized and existing under PD 269, as amended, and registered with the National Electrification Administration (NEA). Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party. From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the Philippine Government, acting through the National Economic council (now National Economic Development Authority) and the NEA, entered into six loan agreements with the government of the United States of America, through the United States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax. Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines? (2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments? Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938. First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, the government is the one that funds those socalled electric cooperatives, while in the latter, the members make equitable contribution as source of funds. a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00. b. Extent of Government Control over Cooperatives The extent of government control over electric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric cooperatives o ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be selfsufficient and independent organizations with minimal government intervention or regulation. Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of the power by the local governments is b eyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the local government units and to limit exemptions from local taxation to entities specifically provided therein. Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class. (2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.

MANILA ELECTRIC COMPANY vs. PROVINCE OF LAGUNA FACTS Manila Electric Company (MERALCO) on various dates (the latest being January 19, 1983) was granted franchises by various municipalities of Laguna. On Sept. 12 1991, RA 7160 "Local Government Code of 1991" (LGC) was enacted to take effect on Jan.1 1992 enjoining local goverment units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations, consistent with the basic policy of local autonomy. Respondent Laguna Province enacted Ordinance No. 01-92 (effective Jan. 1, 1993) providing, in part: Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within this province, including the territorial limits on any city located in the province

MERALCO was then sent a demand letter to pay the corresponding tax. MERALCO paid the tax under protest (approx. Php19.5M) and later on filed a formal claim for refund. It contends that the stated Section 2.09 of the LGC contravened the provisions of Section 1 of PD 551, which provides: Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light, heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current. Such franchise tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or befo re the twentieth day of the month following the end of each calendar quarter or month, as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current. MERALCO then filed a complaint for refund with a prayer for the issuance of a writ of preliminary injunction and/or TRO at the RTC of Sta. Cruz, Laguna. The RTC dismissed the complaint and ruled that the Ordinance was valid, binding, reasonable and enforceable. ISSUES W/N the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as MERALCO is concerned, is violative of the nonimpairment clause of the Constitution and Section 1 of Presidential Decree No. 551? NO W/N the LGC, has repealed, amended or modified Presidential Decree No. 551? YES RULING (As an intro for the ruling as stated by the SC:) Local Governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute. Presently, Under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of the Local Government Units (LGU). Under the now prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions; (b) each local government unit will have its fair share of available resources; (c) the resources of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and just. 1. While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. 2. The Local Government Code of 1991 explicitly authorizes provincial governments, notwithstanding any exemption granted by any law or other special law, x x x (to) impose a tax on businesses enjoying a franchise". (Section 137 of the LGC) Indicative of the legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local government units, LGC has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain entities. This law states: Section 193 Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. The Code, in addition, contains a general repealing clause in its Section 534; thus: Section 534. Repealing Clause. x x x. (f) All general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly. 3. MERALCO further contends that in a plethora of cases including Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light Company, Inc., the phrase "shall be in lieu of all taxes and at any time levied, established by, or collected by any authority" exempted the franchise holder from any other tax imposed by the then Internal Revenue Cod and local ordinaces. The SC holds otherwise. In the recent case of the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V. Reyes, et al., the Court has held that the phrase in lieu of all taxes have to give way to the peremptory language of the Local Government Code specifically providing for the withdrawal of such exemptions, privileges, and that upon the effectivity of the Local Government Code all exemptions except only as provided therein can no longer be invoked by MERALCO to disclaim liability for the local tax. In fine, the Court has viewed its previous rulings as laying stress more on the legislative intent of the amendatory law whether the tax exemption privilege is to be withdrawn or not rather than on whether the law can withdraw, without violating the Constitution, the tax exemption or not.

Mactan Cebu (MCIAA) vs. Marcos GR 120082 September 11, 1996 261 SCRA 667 Davide Jr., .: (CJ) FACTS: Mactan Cebu International Airport Authority (MCIAA) was created to principally undertake to economical, efficient and effective control, management and supervision of the Mactan International Airport and such other airports as may be established in the province of Cebu Section 14 of its charter excempts the Authority from payment of realty taxes but in 1994, the City Treasurer demanded payment for realty taxes on several parcels of land belonging to the other. MCIAA filed a petition in RTC contending that, by nature of its powers and functions, it has the same footing of an agency or instrumentality of the national government. The RTC dismissed the petition based on Section 193 & 234 of the local Government Code or R.A. 7160. Thus this petition. ISSUE: Whether or not the MCIAA is excempted from realty taxes? RULING: With the repealing clause of RA 7160 the tax exemption provided. All general and special in the charter of the MCIAA has bee n expressly repeated. It state laws, acts, City Charters, decrees, executive orders, proclamations and administrative regulations, or part of parts thereof which are inconsistent with any of the provisions of the Code are hereby repeated or modified accordingly. Therefore the SC affirmed the decision and order of the RTC and herein petitioner has to pay the assessed realty tax of its properties effective January 1, 1992 up to the present. HAGONOY MARKET VENDOR ASSOCIATION vs. MUNICIPALITY OF HAGONOY On October 1, 1996, the Sangguniang Bayan of Hagonoy, Bulacan, enacted an ordinance, Kautusan Blg. 28, which increased the stall rentals of the market vendors in Hagonoy. Article 3 provided that it shall take effect upon approval. The subject ordinance was posted from November 4-25, 1996. In the last week of November, 1997, the petitioners members were personally given copies of the approved Ordinance and were informed that it shall be enforced in January, 1998. On December 8, 1997, the petitioners President filed an appeal with the Secretary of Justice assailing the constitutionality of the tax ordinance. Petitioner claimed it was unaware of the posting of the ordinance. Respondent opposed the appeal. It contended that the ordinance took effect on October 6, 1996 and that the ordinance, as approved, was posted as required by law. Hence, it was pointed out that petitioners appeal, made over a year later, was already time-barred. The Secretary of Justice dismissed the appeal on the ground that it was filed out of time, i.e., beyond thirty (30) days from the effectivity of the Ordinance on October 1, 1996, as prescribed under Section 187 of the 1991 Local Government Code. Citing the case of Taada vs. Tuvera, the Secretary of Justice held that the date of effectivity of the subject ordinance retroacted to the date of its approval in October 1996, after the required publication or posting has been complied with, pursuant to Section 3 of said ordinance. ISSUE Was the appeal by the petitioner with the Secretary of Justice time-barred? RULING YES. Section 187 of the Local Govt Code requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within thirty (30) days from effectivity of the ordinance and even during its pendency, the effectivity of the assailed ordinance shall not be suspended. In the case at bar, Municipal Ordinance No. 28 took effect in October 1996. Petitioner filed its appeal only in December 1997, more than a year after the effectivity of the ordinance in 1996. Clearly, the Secretary of Justice correctly dismissed it for being time-barred. At this point, it is apropos to state that the timeframe fixed by law for parties to avail of their legal remedies before competent courts is not a mere technicality that can be easily brushed aside. The periods stated in Section 187 of the Local Government Code are mandatory. Ordinance No. 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals. Being its lifeblood, collection of revenues by the government is of paramount importance. The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived from its revenues and collections. Thus, it is essential that the validity of revenue measures is not left uncertain for a considerable length of time. Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances. Jardine Davies Insurance vs. Aliposo GRN 118900 February 27, 2003 Callejo, Sr. J.: FACTS: Makati enacted Municipal Ordinance 92-072 which provides for the schedule of real estate, business and franchise taxes in Makati. PRCI appealed the ordinance with the DOJ assailing invalidity due to lack of public hearing, in violation of RA 7160. DOJ declared it null and void while pending appeal to SC, Makati continued to implement the ordinance. Petitioner Jardine paid its deficiency taxes without any protest. In 1995, Jardine requested for tax credit or refund which Makati denied reasoning that until nullified by final judgment of competent court, the ordinance remained in full force & effect. RTC dismissed petitioners case ruling that plaintiffs cause of action has prescribed. Petition for review under Rule 45 was fil ed. ISSUE: Whether or not a protest must first be filed before an action for refund/credit in instituted. RULING: As a general precept, a taxpayer may file a complaint assailing the validity of the ordinance and praying for a refund of its overpayments without first filing a protest to the payment of taxes due the ordinance. However, petitioner was prescribed from filing its complaint with RTC for the reason that petitioner failed to appeal to Sec. of the Justice within 30 days from affectivity of ordinance as provided by Sec 187, RA 7160. Failure of taxpayer to interpose the requisite appeal to DOJ is fatal to its complaint for a refund. Any delay in implementing tax measures would be to the detriment of the public. It is for this reason that protests over tax ordinances are required to be done within certain time frames. Moreover, petitioner even paid without any protest the amounts of taxes assessed by respondents as provided for in the ordinance. The complaint was a mere afterthought.