G.R. No. 180651 July 30, 2014
NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.; H&B, INC.; SUPPLIES STATION, INC.; and HARDWARE WORKSHOP, INC., Petitioners, vs. ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE CITY OF MANILA, Respondents.

FACTS

The City of Manila assessed and collected local business taxes from the petitioners (various corporations) pursuant to Sections 15 (Tax on Wholesalers, Distributors, or Dealers) and 17 (Tax on Retailers) of the Revenue Code of Manila. Simultaneously, the City imposed an additional tax on the petitioners under Section 21 of the same Code, as a condition for renewing their business licenses for 1999. Section 21 imposed a tax of “FIFTY PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year” on businesses subject to excise, value-added, or percentage taxes under the National Internal Revenue Code (NIRC). The petitioners paid the first-quarter 1999 taxes under Section 21 under protest, totaling millions of pesos, and subsequently requested a tax credit or refund from the City Treasurer. The request was denied. The petitioners then filed consolidated petitions for certiorari in the Regional Trial Court (RTC). The RTC ruled against the petitioners, finding no double taxation. It held that the taxes under Sections 15 and 17 were taxes on the business of being a wholesaler, distributor, dealer, or retailer, while the tax under Section 21 was a tax on consumers or end-users, with the petitioners merely acting as collection agents. The petitioners appealed to the Court of Appeals (CA). The CA dismissed the appeal for lack of jurisdiction, ruling that it raised only questions of law, which are not reviewable by the CA under Rule 41 of the Rules of Court. The CA denied their motion for reconsideration.

ISSUE

1. Whether the Court of Appeals properly dismissed the appeal for raising pure questions of law.
2. Whether the petitioners are entitled to a tax credit or refund for the taxes paid under Section 21 of the Manila Revenue Code on the ground that its imposition constitutes double taxation in violation of the Local Government Code.

RULING

1. On the Dismissal by the Court of Appeals: The Supreme Court held that the CA correctly dismissed the appeal because it raised only questions of law. A question of law exists when the doubt concerns the correct application of law to a given set of facts, which is the case here. The parties did not dispute the facts surrounding the tax assessments and payments. The issue was whether, based on these established facts, the imposition of the Section 21 tax constituted illegal double taxation. However, the Supreme Court, in the interest of justice and equity, decided to treat the petition as one filed under Rule 45 to resolve the substantive issue definitively.
2. On Double Taxation and Entitlement to Refund: The Supreme Court ruled in favor of the petitioners. The imposition of the tax under Section 21 of the Manila Revenue Code, on top of the taxes under Sections 15 and 17, constituted double taxation and violated Section 143(h) of the Local Government Code (LGC). The Court defined double taxation in the strict or narrow sense as occurring when the same taxpayer is taxed twice by the same taxing authority within the same jurisdiction for the same purpose during the same taxing period, with the taxes being of the same kind or character. This was present here. The petitioners, as retailers, were already subject to the graduated tax under Section 143(b) of the LGC (implemented by Manila’s Section 17). The additional tax under Section 21, which was imposed on businesses subject to VAT under the NIRC, effectively subjected the petitioners to a second tax on the same business of retailing, based on the same gross sales or receipts, for the same period, by the same local government unit. This contravened the clear provision of Section 143(h) of the LGC, which caps the tax rate on VAT-registered businesses at two percent (2%). The City of Manila’s attempt to impose an additional 0.5% tax via Section 21 was an overreach. Consequently, the petitioners were entitled to a refund of the taxes they paid under protest pursuant to Section 21. The Court reversed the RTC decision and the CA resolutions and ordered the respondents to refund the amounts paid by the petitioners under protest.