b. Local Business Tax

Simultaneous Imposition of Franchise Tax and Local Business Tax

A business tax is imposed on the privilege of engaging in the business of contracting a system of communications, whereas a franchise tax is imposed for the exercise of enjoying a franchise. While the city tax and franchise tax are both imposed by the same taxing authority, on the same subject matter and for the same taxing period, the imposition thereof does not constitute double taxation as they are not of the same kind or character (Sky Cable v. Quezon City, CTA AC No. 102)¹

Taxing powers of Municipalities

SCOPE: Except as otherwise provided in the LGC, the municipalities may levy taxes, fees and charges not otherwise levied by provinces. (LGC, Sec. 142)²

Tax on Various Types of Businesses (LGC, Sec. 143)³

The municipality may impose taxes on the following:

• On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of:
• liquors,
• distilled spirits, and
• wines or
• manufacturers of any article of commerce of whatever kind or nature (other than those mentioned in No. 3).
• On wholesalers, distributors, or dealers of
• any article of commerce of whatever kind or nature. (The businesses in No. 1 shall not be subject to the tax in No. 2)
• On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of the following essential commodities (where the rate prescribed does not exceed ½ of the regular rate under (a), (b), (d))
• Rice and corn;
• Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt and other agricultural, marine, and fresh water products, whether in their original state or not;
• Cooking oil and cooking gas;
• Laundry soap, detergents, and medicine;
• Agricultural implements, equipment and post-harvest facilities, fertilizers, pesticides and other farm inputs;
• Poultry feeds and other animal feeds;
• School supplies; and
• Cement.
• On retailers.

However, barangays shall have the exclusive power to levy taxes on gross sales or receipts of the preceding calendar year of P50,000.00 or less for cities, and P30,000.00 or less for the municipalities

• On contractors and other independent contractors
• On banks and other financial institutions, at a rate not exceeding 50% of 1% on the gross receipts of the preceding calendar year derived from:
• interest
• commissions and
• discounts from lending activities,
• income from financial leasing,
• dividends,
• rentals on property and profit from exchange or sale of property,
• insurance premium.

Note: All other income and receipts of banks and financial institutions not enumerated above shall be excluded from the taxing authority of the LGU concerned. (IRR of LGC, Art. 232(f))⁴

• On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding P50.00 per peddler annually.

Note: Delivery trucks, vans, or motor vehicles used by manufacturers, producers, wholesaler, dealers or retailers, which are liable to the provinces under Sec. 141 of LGC⁵, shall be exempt from peddler’s tax imposed here. (IRR of LGC, Art. 232(g))

• On any business, not otherwise specified above, which the Sanggunian concerned may deem proper to tax. However, for businesses subject to the excise, value-added or percentage tax, the tax rate shall not exceed 2% of gross sales of the preceding calendar year.

Note: Any business engaged in the production, manufacture, refining, distribution, or sale of:

• Oil,
• Gasoline, or
• Other petroleum products -shall not be subject to any local tax imposed in Sec. 143. (IRR of LGC, Art. 232(h))

Note: The sanggunian may prescribe a schedule of graduated tax rates but in no case to exceed the rates prescribed in the LGC.

Updated: However, a holding company is not per se a financial intermediary subject to this tax, as the test is the regular performance of functions as a financial intermediary for profit rather than isolated investment transactions (City of Davao and Bella Linda N. Tanjili v. Randy Allied Ventures, Inc., G.R. No. 241697, 29 July 2019).

Ceiling on Business Tax Imposable on Municipalities

Municipalities within the MMA may levy higher tax rates than those municipalities outside MMA, as long as these rates do not exceed by more than 50% the maximum rates prescribed in Sec. 143⁹ – Tax on various types of business. (LGC, Sec. 144)¹⁰

Tax on Retirement of Business

A business subject to municipal tax shall, upon termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be paid before the business is considered officially retired. (LGC, Sec. 145)¹¹

Termination shall mean that business operations are stopped completely. Any change in ownership, management and/or name of the business shall not constitute termination. (IRR of LGC, Art. 241)¹²

LBT is paid for the privilege of carrying a business during the year it is paid, and not for the previous year (although the tax base may be the gross sales of the previous year because LBT is paid at the start of the year). If the tax paid is more than the tax due on said gross sales or receipts of the current year upon retirement, the business is entitled to a tax credit, otherwise, the business shall pay for the difference. (Mobil Philippines, Inc. v. City Treasurer of Makati and the Chief of the License Division of the City of Makati, G.R. No. 154092, 14 July 2005)¹³

Rules on Payment of Business Taxes

It shall be payable for every separate or distinct establishment or place where the business subject to the tax is conducted. One line of business does not become exempt by being conducted with some other business for which such tax has been paid.

The tax on a business must be paid by the person conducting the same.

In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC¹⁴, the tax shall be computed as follows:

• If subject to the same rate – compute the tax based on the combined total gross sales or receipts of the said 2 or more related businesses.
• If subject to different rates – compute the tax separately. (LGC, Sec. 146)¹⁵

Port of Loading

GR: The city or municipality where the port of loading is located shall not levy and collect the LBT.

EXCEPTION: The exporter maintains in said city or municipality its principal office, a branch, sales office or warehouse, factory, plant, or plantation (same rule shall apply)

Sales Made by Route Trucks, Vans, or Vehicles

For route sales made in a locality where there is a branch/sales office, such sale shall be taxed by the city or municipality where such branch/sales office is located. If there is no branch/sales office, such shall be taxed by the city or municipality of the branch/sales office where route trucks withdraw their products for sale is located. Therefore, a city or municipality does not acquire the right to tax route sales merely because the trucks deliver merchandise there. The province may impose the annual fixed tax on qualifying delivery vehicles (LGC, Sec. 141)¹⁶; any applicable mayor’s permit fee is a separate matter. (LGC, Sec. 147)¹⁷

Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering soft drinks. They served as selling units. Thus, the corporation was engaged in the separate business of selling or distributing soft drinks independently of its business of bottling them. The situs of the act of distributing must be within city limits before the entity can be taxed. (Iloilo Bottlers, Inc. v. City of Iloilo, G.R. No. L-52019, 19 August 1988)¹⁸

Situs According to the Cases:

Excise Tax – not dependent on the domicile of the taxpayer, but on the place in which the act is performed or the occupation is engaged in; not upon the location of the office, but the place where the act is perfected. (Allied Thread Co., Inc. v. City Mayor of Manila, G.R. No. L-40296, 21 November 1984)²¹

Sales Tax – it is the place of the consummation of the sale, associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation, and not merely the place of the perfection of the contract. (Shell Co., Inc. v. Municipality of Sipocot, Camarines Sur, G.R. No. L12680)²²