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And because of this, while the situs rule in local business taxation had been existing for
years, there are still inconsistencies in its implementation by LGUs. Many LGUs have
varying interpretations of this rule. Thus we regularly encounter cities or municipalities
imposing or attempting to impose taxes on revenues/receipts already taxed by other
localities. Similarly, there are some taxpayers who fail to follow the rule on situs. The result
payment of tax within the wrong city or municipality.
In short, there is confusion on the application of the situs rule in local business taxation, both
on the part of the LGUs and taxpayers. It may be because the rules are not clear. Or even if
the rule is clear, some simply choose to ignore if it is not beneficial to their cause.
Whatever the cause of the differences in the implementation of the situs rule, the cases
decided by the courts should provide the best guide for its application. For instance, the LGC
clearly provides that businesses maintaining or operating branch or sales outlet elsewhere
shall record the sale in the branch or sales outlet making the sale or transaction, and the tax
thereon shall accrue and shall be paid to the municipality where such branch or sales outlet
is located. Despite its clarity, this is often the cause of dispute between the taxpayer and the
LGU.
A case in point is CTA AC Case 76 recently decided by the Court of Tax Appeals. In this
case, the treasurer of the city where the head office of the taxpayer is located sought to
impose local business tax on the revenue derived by the taxpayer from the operation of its
branches in other cities. It argued that it has the authority to assess business taxes on
revenues not properly taxed by the other cities. The Court ruled that this is impermissible,
because to do so would be sanctioning or encroaching upon the prerogatives of another coequal and autonomous local government.
Indeed, taxes are the lifeblood of the government. Everybody is called to contribute his
rightful share for the support of the government. But the assessment and collection of taxes
should not be enforced arbitrarily to the detriment of the taxpaying public. The situs of the
tax rule in local taxation is provided precisely to guide both the tax authority and taxpayers
for the proper allocation and distribution of taxes to the affected localities where the taxpayer
does his business or part of his business.
* * * *
The author is the senior partner of Du-Baladad and Associates Law Offices (BDB Law), a
member-firm of World Tax Services (WTS) Alliance.
The article is for general information only and is not intended, nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article
to any actual or particular tax or legal issue should be supported therefore by a professional
study or advice. If you have any comments or questions concerning the article, you may email the author at fulvio.dawilan@bdblaw.com.ph or call 403-2001 local 310.
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