INHERENT LIMITATIONS ON THE TAXING POWER: They proceed from the very nature of the taxing power itself.

1. Public Purpose of taxes;2. Non-delegability of the taxing power;3. Territoriality or situs of taxation;4. Tax exemption of the Government;5. International Comity.

A.PUBLIC PURPOSE OF TAXES: Public purpose is important because of all the powers of government, that of taxation is said to be the strongest as it can be readily employed against one class of individuals in favor of another so as to ruin one class and give unlimited wealth and property to another, if there is no implied limitation on the uses for which such taxing power may be exercised. Test for determining the public purpose in a tax:1. DUTY TEST- whether the thing to be furthered by the appropriation of public revenue is something which is duty of the State, as a government, to provide. 2. PROMOTION OF GENERAL WELFARE TEST- whether the proceeds of the tax will directly promote the welfare of the community in equal measure. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised.

In the imposition of taxes, public purpose is presumed. Under the LGC, one limitation on the taxing power of local government units is to the effect that the collection of local taxes, fees, charges and other impositions shall in no case be let to any private person. (Sec. 130 [c] , LGC). B. NON-DELEGABILITY OF THE TAXING POWER: The power of taxation is exclusively legislative. Consequently, the taxing power as a general rule may not be delegated. Exceptions:1. Flexible Tariff Clause Congress may expressly authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. (Sec. 28 [2]. Art.VI, Constitution). 2. Local Taxing Power- Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the local governments. (Sec.5, Art. X, Constitution).

Delegation of legislative taxing power to local governments is justified by the necessary implication that the power to create political corporations for purposes of local self-government carries with it the power to confer on such local government agencies the authority to tax. (Pepsi-Cola vs Municipality of Tanauan, Leyte)

If what is delegated is tax legislation delegation is INVALID

If what is delegated is only tax administration- delegation is valid. Non-delegable legislative powers:1. Selection of the property to be taxed;2. Determination of the purposes for which taxes shall be levied;3. Fixing of the rate of taxation; and4. Rules of taxation in general. Delegable powers which are not legislative:1. The power to value property taxation in pursuance of fixed rules;2. The equalization of assessments by a central body; and3. Collection of taxes.

C. TERRITORIALITY OR THE SITUS OF TAXATION: However broad the power of taxation may be as to its character and no matter how searching it is in its extent, such power is necessarily limited only to persons, property or businesses within its jurisdiction. Some Basic Considerations Affecting Situs of Taxation1) Protection a legal situs cannot be given to property for the purpose of taxation where neither the property nor the person is within the protection of the taxing state.

Citizenship and residence are factors that justify the taxing situs even assuming that the property is situated outside the taxing jurisdiction. 2) Double Taxation and Situs Limitation- Double taxation is never invalid where it is imposed by different states. In determining situs, it is of no importance that the property has already been taxed or is subject to tax in another state.

3) Maxim of Mobilia Sequuntur Personam and Situs of Taxation (Movables follow the principal) The situs of personal property is the domicile of the owner. This is merely a fiction of law intended for convenience and not to be controlling where justice does not demand it. As stated aptly, the doctrine is not allowed to stand in the way of taxation of personalty in the place where it has actual situs and the requisite legislative jurisdiction exists.

4) Legislative Power to Fix Situs- If no constitutional provisions are violated, the power of the legislature to fix situs is undoubted.

Factors that could interplay in a given legal situation where situs or territoriality is the focal question:1. Kind or classification of the tax being levied;2. Situs of the thing or property taxed;3. Domicile or residence of the person taxed;4. Citizenship or nationality of the person taxed;5. Source of the income taxed; and6. Situs of the exercise, privilege, business or occupation being taxed. Property: In considering the place at which property is taxable and the governmental unit which may rightfully levy and collect the property tax, the basic factor is the SITUS OF THE PROPERTY IN QUESTION. Applies whether such property is owned by the residents of the taxing state or by non-residents thereof. Principle applies both with respect to real property and personal property. Persons: A state may levy a personal tax upon persons subject to the jurisdiction of its sovereignty. Income Tax: In general, the crucial factors that go into the situs problem in taxation when it involves income tax are (1) Nationality or citizenship, (2) his residence or domicile, and (3) source of the income. The kind of tax imposed is sometimes a crucial factor in determining the situs of taxation. Excise or Privilege Taxes: The situs of taxation is the place in which the act is performed or where the occupation is engaged in. Sales tax imposed by a city government, it is the place where the sale is perfected and consummated that determines the situs of taxation. The legislative power to fix the situs of taxation includes the power to fix the place of taxation between different places in the same state. In local taxation, the situs of the sale or transaction (where the sale takes place) IS NOT necessarily the situs of taxation, UNLESS in the situs of the sale the taxpayer maintains a BRANCH OFFICE in which event, 100% of the sale is taxable by the city or municipality where the branch is located. (Sec. 150, LGC). If the situs of the sale is one where NO BRANCH OFFICE is maintained, then 30% of the sale goes to the local government unit where the taxpayers PRINCIPAL OFFICE is located and the remaining 70% is taxed by the local government unit where the taxpayer maintain its FACTORY. D. EXEMPTION OF THE GOVERNMENT FROM TAXES: As a matter of public policy, property of the State and of its municipal subdivisions devoted to government uses and purposes is generally deemed to be exempt from taxation although no express provision in the law is made therefor. Example: 1.) Income derived from any PUBLIC UTILITY or from the exercise of any essential government function accruing to the Government or any political subdivision is exempt from income tax. (NIRC)2.) Real property owned by the Government or any of its political subdivisions is exempt from real property tax unless the beneficial use thereof is granted for consideration or otherwise to a taxable person. (LGC)

Notwithstanding the immunity of the Government from taxes, the principle is also well recognized that the Government may tax itself. E. INTERNATIONAL COMITY States find it mutually advantageous for themselves to create self-imposed restraints on the taxing powers especially with reference to the properties of foreign governments within their territorial domain. International obligations concomitant with our acceptance of the principles of international law as part of our law demand that certain representatives of foreign states stationed and property of such foreign states found within our territory be exempted from taxation.

CONSTITUTIONAL LIMITATIONS ON THE TAXING POWER:1. Due process clause, whether it be substantive or procedural (Sec.1, Art. III);2. Equal Protection of the laws (Sec. 1, Art III);3. Freedom of Speech and of the Press (Sec. 4, Art III);4. Non-infringement of Religious Freedom and Worship (Sec. 5, Art. III);5. Non-impairment of Contracts (Sec. 10, Art. III);6. Non-imprisonment for non-payment of poll tax (Sec. 20, Art III);7. Rule requiring that appropriations, revenue and tariff bills shall originate exclusively from the House of Representatives (Sec. 24, Art. VI);8. Uniformity, equitability and progressivity of taxation (Sec. 28[1], Art. VI);9. Limitations on the congressional power to delegate to the President the authority to fix tariff rates, import and export quotas etc. (Sec. 28[2], Art. VI);10. Tax exemption of properties actually, directly and exclusively used for religious, charitable and educational purposes. (Sec. 28[3], Art. VI);11. Voting requirement in connection with the legislative grant of tax exemption (Sec. 18[4], Art.VI);12. Non-impairment of the jurisdiction of Supreme Court in tax cases. (Secs. 2 and 5, Art. VIII); and13. Exemption from taxes of the revenues and assets of educational institutions, including grants, endowments, donations and contributions (Sec. 4 [3], and [4], Art. XIV).

A. Due Process of Law

Sec. 1, Art. III of the Constitution provides in part that no person shall be deprived of life, liberty, or property without due process of law. When the constitutionality of a legislative taxing act is questioned on the ground that there is a denial of due process, an actual case or controversy must first exist before the courts can be called upon to rule on said issue. When a tax turns out to be of a confiscatory nature, such an imposition could very well be considered as being violative of the due process principle.

B. Equal Protection of the Law

Sec. 1, Art. III of the Constitution, nor shall any person be denied the equal protection of the laws. The power of the State to make reasonable and natural classifications for the purpose of taxation is unquestioned and such classifications may relate to the subject of taxation, the kind of property, the rates to be levied or the amount to be raised, and the methods of assessment, valuation and collection. The classification must be based upon real and substantial differences between the persons, property or privileges and those not taxed must bear some reasonable relation to the object or purpose of legislation or to some permissible governmental policy or legitimate end of governmental action.

C. Freedom of Speech and of the Press

Sec.4, Art. III provides: No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress of grievances. There is curtailment of press freedom and freedom of thought and expression if a tax is levied in order to suppress this basic right of the people.

D. Non-Infringement of Religious Freedom

Section 5. Art.III: No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religious test shall be required for the exercise of civil or political rights. The Free Exercise of Religion Clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organization. The NIRC exempts from the income on non-stock corporation organized and operated exclusively for religious, charitable, scientific, athletic or cultural and social welfare purposes, no part of the income of which inures to the benefit of any member, organizer or any specific person. However, notwithstanding said exemption, the income of such organizations from any activity conducted for profit or from any of their property, real or personal, regardless of the disposition made of such income, is subject to tax under the Tax Code. The statute as now amended has restricted the tax exemption of religious and other organizations therein specified only to the extent of withdrawing the exemption with respect to the income realized from (a) the productive use of their properties, real or personal, e.g. rents, dividends or interests; and (b) from profitable business pursuits which properties or businesses are not essential to or necessarily connected with their religious, charitable or educational purposes, as the case may be. The BIR has consistently ruled that passive investment income such as interest income from any currency bank deposit and yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements of religious corporations and other organizations enumerated in Sec. 30 of NIRC, are subject to 20% final withholding tax imposed. E. Non-Impairment of Contracts

Section 10. Art. III: No law impairing the obligation of contracts shall be passed. To impair is to weaken- to deprive of strength. Hence, to impair the obligation of a contract is to alter or change the terms or effect of the contract, and thus in contemplation of law, to weaken the position or rights of one or all of the parties to it. A law, which changes the terms of the contract by making new conditions, or changing those in the contract, or dispenses with those expressed impairs its obligations. It is not important that the impairment is but slight, if it exists at all, if there is any impairment, the provision of the Constitution is violated and the courts will interfere. The non-impairment may not be invoked in the case of a public utility franchise grantee. This is so because under Sec. 11, Art. XII of the Constitution, the legislature can impair a grantees franchise since a franchise is subject to amendment, alteration or repeal by the Congress when the public interest so requires. (Cagayan Electric Power vs CIR).

F. Non-Impairment for Debt or Non-Payment of Poll Tax

Section 20. Art.III: No person shall be imprisoned for debt or non-payment of a poll tax. The prohibition against imprisonment for debt was brought about by force of public opinion which looked with abhorrence on statutes permitting the cruel imprisonment of debtors. The Constitution seeks to prevent the use of the power of the State to coerce the payment of debts. One should not be punished on account of his poverty. Moreover, the Government is not a proper party to private disputes. (Ganaway vs Quintin) The prohibition against imprisonment for non-payment of poll tax is dictated by a sense of humanity and sympathy for the plight of the poorer elements of the population who cannot even afford to pay their cedula or poll tax.

G. Origin of Appropriation, Revenue and Tariff Bills

Section 24. Art, VI: All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills, shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments.

H. Uniformity, Equitability and Progressivity of Taxation

Section 28. Art. VI: The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

UNIFORMITY IN TAXATION means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. It does not mean that lands, chattels, securities, income, occupations, franchises, privileges, necessities and luxuries shall be assessed at the same rate. Different rates may be taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times.

A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Uniformity in taxation means that all property belonging to the same class shall be taxed alike. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated are to be treated alike both in privileges and liabilities. Uniformity in taxation, which means geographical uniformity only, is also underscored in the realm of local taxation. The uniformity required (in local taxation) is only within the territorial jurisdiction of a province, city, municipality or barangay. Taxation is said to be equitable when its burden falls on those better able to pay. PROGRESSIVITY OF TAXATION is also mandated in the Constitution, it is built on the principle of the taxpayers ability to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected. Regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to evolve a progressive system of taxation. This is a directive to Congress. Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers ability to pay.

I. Delegation of Legislative Authority to Fix Tariff Rates, Import and Export Quotas, etc.

Sec. 28(2), Art. VI : The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government.

J. Tax Exemption of Properties Actually, Directly and Exclusively Used for Religious, Charitable and Educational Purposes.

Sec. 28(3), Art. VI: Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. Tax exemption applies only to property or realty taxes assessed on such properties used directly, actually and exclusively for religious, charitable and educational purposes. Gifts made in favor of religious, charitable or educational organizations would nevertheless qualify for donors gift tax exemption in light of the 1997 Tax Code:SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the tax provided for in this Chapter:(A) In the Case of Gifts Made by a Resident.-(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes.For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. For purposes of tax exemption, use overrides ownership such that if property, although actually owned by a religious, charitable for a non-exempt purpose, the exemption from tax of said property vanishes. The term exclusively used is not limited to total or absolute use for religious, charitable or educational purposes. If a property is INCIDENTALLY used for the aforementioned purposes, it is clear from decided cases that exemption may still subsist.

K. Voting Requirement in Connection with the Legislative Grant of Tax Exemptions

Sec. 28(4), Art. VI: No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.

L. Non-Impairment of the Supreme Courts Jurisdiction in Tax Cases

Section 2. , Art. VIII: The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction over cases enumerated in Section 5 hereof. Section 5. The Supreme Court shall have the following powers:

(2). Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower courts in:

(b) All cases involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto.

M. Tax Exemption of Revenues and Assets, Including Grants, Endowments, Donations or Contributions to Educational Institutions Sec. 4(3), Art. XIV: All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment.

Sec. 4(4), Art. XIV: Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax. Non-stock and non-profit educational institutions and government educational institutions are exempt from income tax under the Tax Code. Notwithstanding the exemption, the law provides that income of whatever kind of character of said organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax imposed under the Tax Code. Proprietary educational institutions cannot be categorized as tax exempt under the Tax Code, and their tax-exempt status will have to be based only on the Constitution. Tax exemptions of proprietary educational institutions require prior legislative implementation since the use of the permissive term may in the provision gives Congress discretion to determine whether or not assets and revenues of proprietary educational institutions should likewise enjoy exemptions from taxes. The exemption is not only limited to revenues and assets derived from strictly school operations but it also extends to incidental income. Income which is unrelated to school operations, like income from bank deposits, trust funds and similar arrangements, royalties, dividends and rental income are taxable. Supposing income from tuition is invested for an unrelated purpose like placements in the money market, is the invested income taxable? The INVESTED INCOME is NOT TAXABLE, but the EARNING realized therefrom is the one that is TAXABLE.