7/27/2019 City of Iriga Vs

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City of Iriga vs. Camarines Sur III Electric Cooperative, Inc.

Supreme Court (Second Division) G.R. No. 192945 promulgated September 5, 2012

The CTA has exclusive jurisdiction to review decisions, orders or resolutions of RTCs in local tax cases originally decided or resolved by RTCs in the

exercise of their original or appellate jurisdiction.

A franchise tax is a tax levied on the exercise by an entity of the rights or privileges granted to it by Government. In the absence of a clear and

subsisting legal provision granting a tax exemption, an LGU may validly assess a franchise holder, although non-profit, a franchise tax. 24 Tax

Bulletin

Facts:

Respondent Camarines Sur III Electric Cooperative, Inc. (CASURECO), an electric cooperative organized under Presidential Decree (PD) No. 269

and registered with the National Electrification Administration (NEA), is engaged in the business of electric power distribution to various end-

users and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of Camarines

Sur (or the Rinconada area).

Petitioner City of Iriga assessed CASURECO deficiency franchise tax and RPT covering the periods 1998 to 2003 and 1995 to 2003, respectively.

CASURECO refused to pay and argued that as an electric cooperative provisionally registered with the Cooperative Development Authority

(CDA), it is exempt from the payment of local taxes.

Petitioner filed a collection complaint against CASURECO with the RTC, which ruled that the citys right to assess RPT for 1995 - 1999 had

already prescribed. The RTC also ruled that CASURECO is liable for franchise taxes for 2000 2003 based on its gross receipts from Iriga City and

the Rinconada area, on the ground that the situs of taxation is the place where the privilege is exercised.

On appeal, the Court of Appeals (CA) reversed the RTC on the ground that CASURECO is a non-profit entity which does not fall within thepurview of businesses enjoying a franchise.

Issues:

1. Did CASURECO correctly appeal the RTC decision to the CA?

2. Is CASURECO liable for franchise tax?

Ruling:

1. No. CASURECO should have filed its appeal with the CTA, which has exclusive jurisdiction to review decisions, orders or resolutions of the

RTCs in local tax cases originally decided or resolved by the RTCs in the exercise of their original or appellate jurisdiction.

2. Yes. CASURECO is liable for franchise tax.

PD No. 269, which took effect on August 6, 1973, granted exemption from the payment of all national and local taxes and fees to electric

cooperatives registered with NEA.

RA No. 6939, enacted on March 10, 1990, created and authorized the CDA to register cooperatives, while RA No. 6938, enacted on the same

day, provides that electric cooperatives registered with NEA under PD No. 269 which opt not to register with the CDA shall not be entitled to

the benefits and privileges under the law.

On January 1, 1992, the LGC took effect and withdrew tax exemptions or incentives previously enjoyed by all persons, natural and judicial,

including GOCCs, except for certain entities, such as cooperatives duly registered under RA No. 6938.

The provisional registration of CASURECO with the CDA, which granted it exemption from payment of local taxes, was only until May 4, 1992.

Thereafter, CASURECO was no longer exempt from the payment of local taxes, including the franchise tax.

A franchise tax is a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state. It is not

levied simply for existing as a corporation upon its property or on its income, but on its exercise of the rights or privileges granted to it by the

government.

To be liable for local franchise tax: 1) one must have a franchise in the sense of a secondary or special franchise; and 2) it must exercise its

rights or privileges under this franchise within the territory of the pertinent LGU.

Both requisites being present, CASURECO is liable to pay franchise tax. Being in the nature of an excise tax, the situs of taxation is the place

where the privilege is exercised. Hence, CASURECO is liable for franchise tax on all its gross receipts from Iriga City and the Rinconada area

where it operates, regardless of the place where its services or products are delivered.