372 SUPREME COURT REPORTS ANNOTATEDCompañia General de Tabacos de Filipinas vs. City of

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ANNOTATION

DOUBLE TAXATION

I. Nature

Double taxation has been otherwise described as "directduplicate taxation". It exists when the same property istaxed twice, when it should be taxed but once (VictoriasMilling Co., Inc. v. Mun. of Victorias, Negros Occidental, L­21183­ Sept. 27, 1968. 25 SCRA 192, 209, citing Cooley onTaxation, 4th ed., Vol. I, p. 475 and Attorney General v.Supervisors of Sanilac County, 71 Mich. 16, 38 N.E. 639).

It has also been defined as "taxing the same persontwice by the same jurisdiction for the same thing".(Victorias Milling Co., Inc. v. Mun. of Victorias, NegrosOccidental,

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supra, citing Cooley, supra, and Harvey Coal & Coke Co. v.Dillon, 59 W.Va. 605, 53 S.E. 928.) As stated in Spanish,there is double taxation "cuando la misma propriedad sesujeta a dos impuestos por la misma entidad e Gobierno,para el mismo fin y durante el mismo periodo de tiempo"(Manila Motor Co., Inc. v. Ciudad de Manila, [1941] 72Phil. 336, 339, citing Cooley, supra, at 475­479; cited inVictorias Milling Co., Inc. v. Mun. of Victorias, Negros

Occidental, supra, at 209­210).

II. Requisites

A. Taxpayer Must be Taxed Twice.—As the definition of theterm implies, there is double taxation when the sameperson is taxed twice (See definition in Victorias MillingCo., Inc. v. Mun. of Victorias, Negros Occidental, supra, at209­210; see also Commissioner of Internal Revenue v.Lednicky, L­18169, L­18262, L­21434, July 31, 1964).

B. By the same Government or Jurisdiction.—For doubletaxation to exist, the taxpayer must be taxed twice for thebenefit of the same governmental entity (Commissioner ofInternal Revenue v. Lednicky, supra; Cf. ManilaInterIsland Gas Service, Inc., [1956] 99 Phil. 847, andManufacturers Life Ins. Co. v. Meer, [1951] 89 Phil. 451).Where an American taxpayer is made to pay two taxes forthe same income by the Philippine government where theincome is derived and by his own national government, theUnited States, there is no double taxation (Commissioner ofInternal Revenue v. Lednicky, supra). And even if there is,"as between the Philippines, where the income was earnedand where the taxpayer is domiciled, and the UnitedStates, where that income was not earned and where thetaxpayer did not reside, it is indisputable that justice andequity demand that the tax on the income should accrue tothe benefit of the Philippines. Any relief from the allegeddouble taxation should come from the United States, andnot from the Philippines since the former's right to burdenthe taxpayer is solely predicated on his citizenship, withoutcontributing to the production of

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the wealth that is being taxed" (Commissioner of InternalRevenue v. Lednicky, supra).

Double taxation cannot be invoked "where on tax isimposed by the state and the other is imposed by the city"(Punsalan v. Municipal Board of Manila, supra, citingCooley, supra, at p. 492) it being widely recognized that

taxes maybe exacted on the same occupation, calling oractivity by both the state and its political subdivisions(Punsalan v. Municipal Board of Manila, supra, citing 51Am. Jur. 341).

Thus, an ordinance of the City of Manila imposing amunicipal occupation tax on persons exercising variousprofessions in the city was held as not violative of the ruleon double taxation even if the taxpayers were alreadysubjected to occupation tax under Section 201 of the TaxCode (Punsalan v. Municipal Board of Manila, supra).

C. Exaction Must be a Tax, Not a License.—It is in theessence of double taxation that the exaction on thetaxpayer on the same object must be a tax as distinguishedfrom a license. A license fee is imposed in the exercise ofpolice power by the state for the purpose of regulating acalling or occupation while a tax is imposed by the state inthe exercise of its power of taxation for the purpose ofraising revenues.

Where a municipal ordinance imposes a license fee onstorage, installations, use and transportation ofcompressed and liquified inflammable gases in the exerciseof police power of the state while another municipalordinance imposes a sales tax based upon gross receipts inthe exercise of its inherent taxing power, there is no doubletaxation (City of Manila v. Inter­Island Gas Service, Inc.,supra, at 853­854).

The rule on double taxation does not invalidate a cityordinance imposing a license fee for the privilege ofengaging in the sale of liquor which is justified as in theexercise of police power­ by the city for the purpose ofregulating the selling of liquor—an activity which mayendanger health and morals—even if another ordinancealready imposes taxes on the sales of general merchandise

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for revenue purposes based on the sales made of the samearticle or merchandise (Compañia General de Tabacos DeFilipinas v. City of Manila, L­16619, June 29, 1963). "It isalready well settled in this connection that both a licensefee and a tax may be imposed on the same business or

occupation, or for selling the same article, this not being inviolation of the rule against double taxation. This isprecisely the case of the ordinances involved in the case atbar" (Compañia General de Tabacos de Filipinas v. City ofManila, supra, citing Bentley Gray Dry Goods Co. v. City ofTampa, 137 Fla. 641, 188 So. 758, McQuillin, MunicipalCorporations, Vol. 9, 3rd ed., p. 83).

D. Same object of Taxation.—The two or more taxesobjected to must cover the same object to constitute doubleor multiple taxation (See Victorias Milling Co., Inc. v. Mun.of Victorias, Negros Occidental, supra, at 210).

There is no double taxation in the following cases:(1) Where an owner of a fishpond is subjected to real

estate tax on his fishpond and a merchant's tax because itis apparent that the real estate tax is a tax on the propertyitself while the merchant's tax is a tax upon the occupationor industry of the taxpayer in which he is engaged (Molinav. Rafferty [1918] 37 Phil. 545, 557).

(2) Where the taxpayer who is engaged both in themanufacture of sugar and in the warehousing businesswhich is carried on in relation to the operation of his sugarcentral, the two taxes imposed upon him namely, one onhis warehousing business and the other on the operationsof his sugar central, do not constitute double taxation. "Asis clear from the facts, respondent's warehousing business,although carried on the relation to the operation of itssugar central, is a distinct and separate business taxableunder a different provision of the Tax Code. There can beno double taxation where the state merely imposes a tax onevery separate and distinct business in which a party isengaged" (Commissioer of Internal Revenue v. Hawaiian­Philippine Co., L­16315, May 30, 1964),

(3) Where a mercantile partnership which is taxed for

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its business consigns its merchandise to a commissionmerchant to sell it on commission, the two may besubjected separately to two different taxes on theirrespective businesses. The fact that the tax to be paid bythe commission merchant and the tax to be paid by the

merchant for carrying on their businesses is determined inthe same way does not constitute in any sense doubletaxation (Gil Hermanos v. Hord, [1908] 10 Phil. 218, 220­221).

(4) Where municipal license taxes are imposed by anordinance on operators of sugar centrals and sugarrefineries, the fact that in computing the amount of taxesto be paid by the sugar refinery the cost of the raw sugarcoming from the sugar central is not deducted does notnecessarily mean that the taxpayers are taxed twice on theraw sugar. "First. The two taxes cover two different objects.Section 1 of the ordinance taxes a person operating sugarcentrals or engaged in the manufacture of centrifugalsugar. While under Section 2, those taxed are the operatorsof sugar refinery mills. One occupation or business isdifferent from the other. Second. The disputed taxes areimposed on occupation or business. Both taxes are not onsugar. The amount thereof depends on the annual sugaroutput capacity of the mills concerned, regardless of theactual sugar milled. Plaintiffs argument perhaps couldmake out a point if the object of taxation here were thesugar it produces, not the business of producing. There isno double taxation" (Victorias Milling Co., Inc. v. Mun. ofVictorias, Negros Occidental, supra, at 209­210).

(5) A taxpayer who is already paying real estates taxeson his property as well as income tax on the income derivedtherefrom may be subjected to the real estate dealers' taxon his rentals. "It is well settled rule that license tax maybe levied upon a business or occupation although the landor property used therein is subject to property tax, and thatthe state may collect an ad valorem tax on property used ina calling, and at the same time impose a license tax on thepursuit of that calling, the imposition of the latter kind oftax being in no sense a double tax"

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(Sanchez v. Collector of Internal Revenue, [1955] 97 Phil.687, 690, citing People v. Mendaros, L­6975, May 27, 1955,[unrep.] 97 Phil. 958­959).

(6) A, secures a 20­year endowment policy for P5,­000

from A Co. and pay an annual premium of P250. A pays thefirst ten yearly premium amounting to P2,500 and on thisamount, A Co. pays the corresponding taxes under Section250 of the Tax Code. Suppose also that the cash value ofsaid policy after the payment of the 10th annual premiumamounts to P1,000. When on the 11th year, the annualpremium fell due and the insured A, remitted no moneywithin the month's grace, the insurer then treated thepremium overdue as paid from the cash surrender value.the amount being a loan to the policy holder who coulddischarge it at any time with interest at 6 per cent. Theinsurance contract therefor continued in force for the 11thyear. In such a case, taxing this P250 anew as premiumcollected will not amount to double taxation although taxeshad already been collected on the cash value of P1,000 aspart of the P2,500 collected as premiums for the first 10years. The reason is that the premium paid and on whichtaxes had already been collected were those for the 10years. The tax demanded is on the premium for the 11thyear (Manufacturers Life Ins. Co. v. Meer, [1951] 89 Phil.351).

(7) Where a stockholder receives a gain from thedistribution of the assets in liquidation of the corporationin exchange for his stocks. The fact that the same moneywhile in the hands of the corporation as part of its incomewas already taxed to it under the law does not constitutedouble taxation when the same money taxed as income onthe stockholder when paid to him in exchange of the stock."When the corporation was dissolved and in the process ofcomplete liquidation and its stockholders surrendered theirstock to it and it paid the same in question to them inexchange, a transaction took place, which was no differentin its essence from a sale of the same stock to a third partywho paid therefor. In either case the shareholder whoreceived the consideration for or the stock earned thatmuch money as income of his own, which again

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was properly taxable to him under the same Income TaxLaw. In the case of the sale to a third person, it is not

perceived how the objection of double taxation could havebeen successfully raised. Neither can we conceive how itcould be available where, as in this case, the stock wastransferred back to the dissolved corporation" (Wise & Co.v. Meer, [1947] 78 Phil. 655, 672­673).

III No Prohibition Against Double Taxation

There is no prohibition in the Constitution against doubleor multiple taxation in the Philippines (Commissioner ofInternal Revenue v. Hawaiian­Philippine Co., supra; City ofManila v. Inter­Island Gas Service, Inc., supra;Manufacturers Life Ins. Co. v. Meer, supra).

We have not adopted as part of our fundamentalfundamental law the injunction against double taxation.found in the Constitution of the United States and of someStates of the Union (Pepsi­Cola Bottling Co. of thePhilippines, Inc. v. City of Butuan, L­22814, Aug. 28, 1968,24 SCRA 789, 793, citing De Villata v. Stanley, 32 Phil.541; City of Manila v. InterIsland Gas Service, Inc. supra;Syjuco v. Municipality of Parañaque, L­11265, Nov.27,1959,106 Phil. 1167 [unrep.] ; City of Bacolod v. Gruet,L­18290, Jan. 31, 1963).

Where Congress has clearly expressed its intention totax by passing a law for that purpose, the statute must besustained even though double taxation results. (Wise & Co.11. Meer, supra at 692 citing Hellmich v. Hellman, 276 U.S.233, 72 L. ed. 544).—Atty. AMBROSIO R. BLANCO

Notes.—There is no prohibition against double ormultiple taxation in this jurisdiction. (Commissioner ofInternal Revenue vs. Hawaiian­Philippine Company, L­16315, May SO, 1964, citing the cases of Manufacturer'sLife Insurance Co. vs. Meer, L­2910, June 29, 1951 and Cityof Manila vs. Inter­Island Gas Service, L­8799, Aug.31,1956.)

The government is not bound by the errors or mistakescommitted by its agents. (See Collector of Internal Revenuevs. McGrath, L­12710, and L­12721, Feb. 28, 1961, 1 SCRA638, and the notes thereunder; Luzon Stevedoring Corp. vs.Court of Tax Appeals, L­21005, Oct. 22, 1966, 18

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Constantino vs. Reyes

SCRA 436; Central Azucarera de Tarlac vs. Collector ofInternal Revenue, L­11092, Sept. 30, 1958; Pineda vs. CFIof Tayabas, 52 Phil. 803; Bachrach Motor Co. vs. Uson, 50Phil. 981; Commissioner of Internal Revenue vs. Abad,L19627, June 27, 1968, 23 SCRA 1132; Tan Guan vs. Courtof Tax Appeals, L­23676, April 27, 1967, 19 SCRA 903;Philippine American Drug Co. vs. Collector of InternalRevenue, L­13032, Aug. 31, 1966, 17 SCRA 1053; PacificOxygen & Acetylene Co. vs, Commissioner of InternalRevenue, L­1708, April 30, 1965.)

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