G.R. No. L-29159 November 24, 1972
CELESTINO TATEL, ET AL., plaintiffs-appellees, vs. THE MUNICIPALITY OF VIRAC, ET AL., defendants-appellants. GULF FIBERS CORPORATION, ET AL., plaintiffs-appellees, vs. THE MUNICIPALITY OF VIRAC, ET AL., defendants-appellants.

FACTS

These consolidated cases involve the validity of municipal ordinances enacted by the Municipality of Virac, Catanduanes. In the first case, plaintiffs-appellees, including Celestino Tatel, challenged Ordinance No. 6, series of 1965, which imposed a municipal license tax on various businesses. The ordinance based the tax on either the taxpayer’s “capital investment or purchases for the previous year, whichever is higher.” It also required merchants to submit sworn monthly statements of their purchases to the municipal treasurer. In the second case, Gulf Fibers Corporation and others assailed Ordinance No. 5, series of 1966, which imposed a similar tax on manufacturers, again based on “capital investment or purchases for the previous year, whichever is higher.” The plaintiffs argued these ordinances were invalid for imposing a tax based on sales, which is prohibited by Section 2 of Republic Act No. 2264 (the Local Autonomy Act).

ISSUE

The core issue is whether the municipal ordinances, by using “purchases for the previous year” as a tax base, violate the statutory prohibition against municipalities imposing “any percentage tax on sales or other taxes in any form based thereon.”

RULING

The Supreme Court declared the challenged ordinances null and void. The legal logic hinges on the interpretation of the prohibition in R.A. No. 2264 . While the ordinances did not explicitly use the term “sales,” the Court found that using “purchases” as the tax base was a transparent device to circumvent the law. The Court reasoned that for merchants and manufacturers, purchases are intrinsically and directly linked to sales, as goods are bought for the purpose of resale or for use in production for eventual sale. Therefore, a tax computed on the value of purchases is, in substance and effect, a tax based on sales. This interpretation aligns with the Court’s prior ruling in Marinduque Iron Mines Agents, Inc. v. Municipality of Hinabangan, which held that a graduated tax, even if not a percentage tax, is prohibited if it is ultimately determined by the taxpayer’s sales. The requirement for merchants to submit monthly purchase reports further cemented the connection to sales activity. Consequently, the ordinances imposed a tax “in any form based on sales,” which is expressly forbidden by statute, rendering them ultra vires and invalid.