G.R. No. L-21058 November 23, 1966
ILOCOS NORTE ELECTRIC COMPANY, INC., plaintiff-appellee, vs. MUNICIPALITY OF LAOAG and MUNICIPAL TREASURER OF LAOAG, defendants-appellants.

FACTS

The Ilocos Norte Electric Co., Inc. was granted a municipal franchise to operate an electric plant within the Municipality of Laoag. Under Act No. 3636, which governed its franchise, the company paid a tax equal to 2% of its gross earnings, and Section 10 of the law stated this payment was “in lieu of any and all taxes” of any kind levied by any authority. On September 29, 1960, the municipality enacted Ordinance No. 20, series of 1960, imposing an annual rate tax of P800 on persons engaged in the business of supplying electricity. By January 1962, the electric company had paid the amount of P1,200 under protest to the municipality under this ordinance. The company filed suit, contending the ordinance impaired the obligations of its contract as it was exempted from other taxes under its franchise. The municipality defended its power to tax based on the Local Autonomy Act of 1959 (Republic Act No. 2264). The Court of First Instance of Ilocos Norte ruled in favor of the electric company, declaring the ordinance null and void and ordering a refund. The municipality appealed.

ISSUE

Whether the Municipality of Laoag has the power, under the Local Autonomy Act of 1959, to impose a municipal license tax on the Ilocos Norte Electric Company, Inc., which is already paying a franchise tax under its legislative franchise.

RULING

The Supreme Court affirmed the decision of the lower court, holding the municipal ordinance null and void. The Court ruled that local governments are without power to tax electric power companies already subject to a franchise tax, unless the franchise itself authorizes such additional taxation. The Court, citing its recent decision in Butuan Sawmill, Inc. v. City of Butuan, interpreted the provisions of the Local Autonomy Act. While Section 2(d) of Republic Act No. 2264 allows municipalities to tax electric light, heat and power (as an exception to prohibited taxes on other public utilities), Section 2(j) specifically withholds the imposition of taxes on persons paying a franchise tax. To avoid nullifying Section 2(j) and to prevent double taxation, the logical construction is that a local government may only tax electric utilities that are not subject to franchise taxes, unless the franchise itself authorizes additional local taxation. Since the plaintiff’s franchise under Act No. 3636 imposed a tax “in lieu of any and all taxes,” the municipality’s ordinance was invalid. The decision ordering the refund was affirmed.