G.R. No. L-32366, March 27, 1930
Earnshaws Docks and Honolulu Iron Works vs. The Collector of Internal Revenue

FACTS

Earnshaws Docks and Honolulu Iron Works, a domestic corporation based in Manila, sold machinery and materials to various corporations during 19261928. The sales transactions originated from orders received and accepted at its Manila office. The goods were procured from manufacturers in the United States through the plaintiff’s agent in New York, who shipped them directly to the buyers in the Philippines. Title and shipping documents were transferred in New York upon payment by the buyers’ agents. The Collector of Internal Revenue assessed a 1½% merchant’s sales tax plus a 25% surcharge on these transactions, treating them as sales made in the Philippines. The plaintiff paid under protest and sued for a refund, arguing the sales were consummated in the United States and thus not subject to Philippine sales tax.

ISSUE

Whether the sales of machinery and materials, ordered from and accepted in Manila but with title passing in New York upon payment, are subject to the Philippine merchant’s sales tax.

RULING

Yes. The Supreme Court affirmed the lower court’s decision, holding the sales were subject to tax. The contracts were not only made in the Philippines but were consummated there as part of the plaintiff’s business operations. The Court emphasized that the sales were integral to the plaintiff’s business in the Philippines, and allowing such transactions to escape taxation would lead to easy evasion of the tax law. The location where title passed (New York) did not detract from the fact that the sales originated and were completed through the plaintiff’s Philippine-based enterprise. Thus, the tax assessment was valid.