Kathang Isip, Inc. (Kii) is a domestic corporation engaged in the business of manufacturing, importing, exporting, and distributing toys both locally and abroad. Its principal office is located in Kalookan City, Philippines. It has 50 branches in different cities and municipalities in the country. When Kii applied for renewal of its mayor’s permit and licenses in its principal office in January this year, Kalookan City demanded payment of the local business tax on the basis of the gross sales reported by the corporation in its audited financial statements for the preceding year. Kil protested, contending that Kalookan City may tax only the sales consummated by its principal office but not the sales consummated by its branch offices located outside Kalookan City.
When Kalookan City denied the protest, Kil engaged the services of Atty. Kristeta Kabuyao to file the necessary judicial proceedings to appeal the decision of Kalookan City. Atty. Kabuyao is a legal expert, but resides in Kalibo, Aklan where her husband operates a resort. She, however, practices in Metro Manila, including Kalookan City. The counsel representing the city, in the case filed in Kalookan City by KII, questioned the use of Atty. Kabuyao’s Professional Tax Receipt (PTR) issued in Aklan for a case filed in Kalookan City.
(a) Is Kll’s contention that Kalookan City can only collect local business taxes based on sales consummated in the principal office meritorious? (2.5%)’
(b) Is the Kalookan City counsel correct in saying that Atty. Kabuyao’s PTR issued in Aklan cannot be used in Kalookan? (2.5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** (a) Yes, KII's contention is **meritorious**. (b) No, the Kalookan City counsel is **incorrect**. **Legal Basis:** Under **Section 150** of the LGC, sales made at a branch or sales outlet accrue and are
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Quick check
Under Section 150 of the Local Government Code, how are local business taxes allocated for a corporation with branch offices in different municipalities?
Local business taxes on sales consummated at established branches accrue directly to the local government units where the branches are located.
Under Section 139 of the Local Government Code, what privilege does the payment of a professional tax confer upon a licensed lawyer?
Payment of the professional tax in one province or city entitles a professional to practice anywhere in the Philippines.
Can Kalookan City assess local business taxes on the total nationwide gross sales reported in a corporation's audited financial statements if the corporation operates fifty branches nationwide?
Section 150 of the Local Government Code prohibits the principal office city from taxing gross sales generated by outside branches.
What is the legal effect of presenting a Professional Tax Receipt issued in Aklan when filing a court case in Kalookan City?
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Under Section 150 of the Local Government Code, what percentage of local business tax on sales made at a factory or branch accrues to the municipality where the factory is located when sales are recorded in the principal office?
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Learn more about these topics
1. Local Tax Allocation
Under Section 150 of the Local Government Code, manufacturers, assemblers, or distributors maintaining a branch or sales outlet in a municipality must record sales made at that branch and pay the corresponding local business tax directly to the local government unit where the branch is physically located. When gross sales are generated through established branches outside the principal office location, the principal office city cannot tax total nationwide gross sales. The local business tax base of the principal office city is restricted to sales consummated at the principal office itself, preventing double local taxation across jurisdictions.
2. Professional Tax Privilege
Under Section 139 of the Local Government Code, payment of the professional tax in the province or city where a professional practices or maintains a principal office entitles the individual to practice their profession anywhere in the Philippines without being subjected to any other local professional tax. A lawyer who pays the annual professional tax in one province or city receives a valid Professional Tax Receipt that must be recognized by all courts and administrative bodies nationwide. Local government units cannot restrict legal practice or invalidate a Professional Tax Receipt issued in another Philippine jurisdiction.
3. Situs of Taxation
The situs of local business taxation for multi-branch corporations is strictly governed by statutory rules under the Local Government Code to ensure equitable tax revenue allocation among local government units. For sales recorded at established branch offices, seventy percent of the local business tax accrues to the city or municipality where the factory or branch is located, while thirty percent accrues to the principal office location. Consequently, a local government unit where the principal office resides exceeds its statutory taxing authority when it levies local business taxes on gross sales generated by outside branches.