1. Reyes vs.

Almanzor 196 SCRA 322

Doctrine:

1. Taxes must consider the economic capacity of taxpayers. The government cannot impose
taxes that effectively confiscate property.
2. When properties are subject to legal restrictions (e.g., rent control laws), their real market
value is affected, and assessors must take this into account.

Facts:

The Reyeses, property owners in Manila, filed a petition for review on certiorari after the Central
Board of Assessment Appeals affirmed the City Assessor’s reclassification and reassessment of
their properties. Their lands, leased to tenants under rental-freezing laws (R.A. No. 6359 and
P.D. 20), had their assessed values increased despite restrictions on rental income and eviction
rights. The City Assessor applied the comparable sales approach, leading to significantly higher
taxes. The Reyeses argued that this method was excessive, confiscatory, and unconstitutional, as
it failed to consider the limited income their properties generated due to the government-imposed
rental caps. They contended that the income approach, which considers the property’s earning
capacity, should have been used instead.

Despite their objections, the Board of Tax Assessment Appeals upheld the reassessment, citing a
lack of concrete evidence to overturn the presumption of regularity in the assessor’s findings. On
appeal, the Central Board of Assessment Appeals affirmed the valuations but granted a 20%
reduction for certain lots due to their physical conditions, such as being below street level and
affected by tides. The Reyeses’ motion for reconsideration was denied, prompting them to
elevate the case to the Supreme Court, arguing that the comparable sales approach was
inapplicable given the unique constraints on their properties.

Issue:
Whether or not the City Assessor’s use of the Comparable Sales Approach in assessing the
properties was proper, given that rent control laws (P.D. 20) significantly affected the properties’
market value.

Ruling:

NO. The Supreme Court ruled in favor of the petitioners and ordered a reassessment using
the Income Approach. The Court held that since the properties were under rent control, their
market value was artificially reduced, making it unfair to compare them with unrestricted
properties.

The Constitution requires that taxation be uniform, equitable, and progressive. Under Art.
VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive. Uniformity has been defined as that
principle by which all taxable articles or kinds of property of the same class shall be taxed at the
same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).

It was emphasized by the Court that taxes are the lifeblood of the government and must be
collected lawfully to avoid arbitrariness that undermines governance. Balancing the interests of
both the government and taxpayers ensures taxation serves the common good (CIR v. Algue, 158
SCRA 9 [1988]). Thus, petitioners burdened by Rental Freezing Laws (R.A. No. 6359 and P.D.
20) under social justice should not be further penalized with excessive taxes leading to property
forfeiture.

Hence, the petition was granted. The City Assessor of Manila was ordered to reassess the
properties using the Income Approach for a more realistic tax computation.
 2. Estanislao vs. Costales 196 SCRA 853

DOCTRINE:

A local tax ordinance that exceeds the taxing powers granted by law is ultra vires and void,
regardless of procedural lapses by the reviewing authority.

FACTS:

The Sangguniang Panglungsod of Zamboanga City passed Ordinance No. 44, which imposed a
tax of P0.01 per liter of soft drinks produced, manufactured, and/or bottled within
Zamboanga City. The ordinance was submitted to the Minister of Finance for review as required
under P.D. No. 231 (Local Tax Code). On December 3, 1982, the Minister of Finance, through
Deputy Minister Antonino P. Roman Jr., suspended the effectivity of the ordinance, ruling that
it contravened Section 19(a) of the Local Tax Code because the tax was based on
production/output rather than gross sales. The City of Zamboanga appealed to the Regional
Trial Court (RTC) of Zamboanga City, Branch 14, which ruled that although the tax was not
authorized under the Local Tax Code, the failure of the Minister of Finance to act within 120
days rendered the ordinance valid. The Secretary of Finance (petitioner) elevated the case to
the Supreme Court, arguing that the RTC erred in its ruling.

ISSUE:

Whether or not Ordinance No. 44 is valid despite being ultra vires, given that the Minister of
Finance failed to act within 120 days.

RULING:

NO. The ordinance is ultra vires (beyond the authority of the city government) because it
imposes a tax based on production/output instead of gross sales, which is the only tax allowed
under Section 19(a) of the Local Tax Code.
The Supreme Court ruled that the 120-day period for the Minister of Finance to act does not
automatically validate an ultra vires ordinance. Section 44 of the Local Tax Code states that
failure to act within 120 days only means that the ordinance "remains in force," but this does not
apply if the ordinance is inherently invalid under the law.

The Supreme Court held that Ordinance No. 44 is inconsistent with the Local Tax Code,
which only allows cities to impose a percentage tax (not exceeding 2%) on gross sales of non-
essential commodities like soft drinks. The Pepsi-Cola case (Tanauan, Leyte) cited by
Zamboanga City is inapplicable because it was based on the Local Autonomy Act (R.A. 2264),
which was superseded by the Local Tax Code.

In line with the constitutional principle under Section 5, Article X of the 1987 Constitution, local
government units have the power to levy taxes, fees, and charges, but only within the limitations
set by Congress. Since Ordinance No. 44 violates the Local Tax Code's restrictions, it cannot be
sustained. As a result, the Supreme Court granted the petition, declaring the ordinance null and
void, and ordered that any taxes paid under protest be refunded to affected taxpayers.

EXPOUNDED RULING:

The petition is meritorious as Ordinance No. 44 of Zamboanga City is ultra vires and beyond the
taxing authority granted to the city under the Local Tax Code. Section 19(a) of the Local Tax
Code provides that municipalities may impose a tax on businesses engaged in manufacturing,
importing, exporting, producing, wholesaling, retailing, or dealing in any article of commerce.
However, the tax should be based on gross annual sales for the preceding calendar year,
subject to the prescribed graduated rates. Section 23 further extends the city's taxing power
but limits it to the maximum rates allowed for provinces or municipalities, with the exception
that city-imposed rates may exceed those of provinces or municipalities by up to 50%.
Additionally, it allows cities to impose either a graduated fixed tax or a percentage tax on sales—
1% for essential commodities and 2% for non-essential commodities—but not both.
In this case, Zamboanga City’s Ordinance No. 44 imposed a specific tax of P0.01 per liter
of soft drinks produced, manufactured, or bottled within its territorial jurisdiction.
However, this method of taxation, being based on output or production rather than gross
sales, directly contravenes the Local Tax Code. The Local Tax Code does not grant cities the
authority to impose specific taxes based on production volume, unlike the national government
under the National Internal Revenue Code. The ruling in Pepsi-Cola Bottling Company v.
Municipality of Tanauan, Leyte (G.R. No. L-31156, February 27, 1976) was inapplicable
because that case was decided under the Local Autonomy Act (Republic Act No. 2264), which
granted broader taxing powers to municipalities. The Local Autonomy Act, however, was
superseded by the Local Tax Code, which expressly nullified all existing tax ordinances as of
June 30, 1974, including any inconsistent with its provisions.

Furthermore, Section 44 of the Local Tax Code provides that tax ordinances must be submitted
for review to the Secretary of Finance or the appropriate provincial or city treasurer, who may
suspend or revoke them if found to be unjust, excessive, oppressive, confiscatory, contrary to
national economic policy, or outside the powers of the local government. While Zamboanga City
argued that the Secretary of Finance failed to act within the 120-day review period, the law does
not provide that inaction automatically validates an otherwise invalid ordinance. The period for
review is merely directory, and the Secretary retains the authority to suspend or revoke an
ordinance within a reasonable time if it is found to be legally infirm.

In line with the constitutional principle under Section 5, Article X of the 1987 Constitution, local
government units have the power to levy taxes, fees, and charges, but only within the limitations
set by Congress. Since Ordinance No. 44 violates the Local Tax Code's restrictions, it cannot be
sustained. As a result, the Supreme Court granted the petition, declaring the ordinance null and
void, and ordered that any taxes paid under protest be refunded to affected taxpayers.
 3. Iloilo Bottlers Inc. vs. City of Iloilo 164 SCRA 607

DOCTRINE:
A local government unit (LGU) may validly impose a municipal license tax on business
activities conducted within its territorial jurisdiction, even if the entity’s principal place
of business is located elsewhere.

Facts:

Iloilo Bottlers, Inc. operated a bottling plant in Pavia, Iloilo, outside Iloilo City's jurisdiction.
However, it sold and distributed soft drinks within Iloilo City through a fleet of delivery trucks.
Iloilo City Ordinance No. 5, series of 1960, imposed a municipal license tax on distributors,
manufacturers, and bottlers of soft drinks within the city.

After relocating its plant, Iloilo Bottlers, Inc. stopped paying the tax, arguing that it was no
longer bottling within Iloilo City and that it was not an independent distributor. Despite its
protest, the city demanded payment of back taxes, which the company paid under protest before
filing a case to recover the amount. The trial court ruled in favor of Iloilo Bottlers, Inc., ordering
the City of Iloilo to refund the payments. The city appealed the decision.

Issue:

Whether or not the Iloilo Bottlers, Inc. is liable to pay the municipal license tax under Iloilo City
Ordinance No. 5 despite having transferred its bottling plant to Pavia, Iloilo.

Ruling:

YES. Iloilo Bottlers, Inc. is liable under the ordinance. While the company no longer
manufactured or bottled soft drinks within Iloilo City, it was still engaged in the distribution of
soft drinks within the city's jurisdiction. The tax imposed was an excise tax, which is levied on
the privilege of engaging in business within a local government unit. The Supreme Court, citing
Commissioner of Internal Revenue v. BOAC (G.R. Nos. 65773-74, April 30, 1987, 149 SCRA
395), held that an excise tax is imposed not on property but on business activity, which in this
case was the sale and distribution of soft drinks within Iloilo City.
The Court found that Iloilo Bottlers, Inc. used a fleet of delivery trucks as “rolling stores,” which
consummated sales directly with customers in Iloilo City. This constituted an independent
business of selling/distributing soft drinks, making the company subject to Iloilo City’s tax
ordinance. The Supreme Court relied on Central Azucarera de Don Pedro v. City of Manila (97
Phil. 627), which held that a manufacturer may also be engaged in a separate selling business if
sales are independently conducted outside the manufacturing site.

Moreover, under Sec. 5, Art. X of the 1987 Constitution, local government units have the
authority to impose taxes and fees within their jurisdiction. Since the company’s sales and
distribution activities occurred within Iloilo City, it fell within the city’s taxing power.

Thus, the Supreme Court reversed the trial court’s ruling and dismissed the complaint of Iloilo
Bottlers, Inc.

4. Hagonoy Market Vendors Assoc vs. Municipality of Hagonoy 376 SCRA 376

DOCTRINE:
A municipal ordinance imposing market stall rentals is a valid exercise of the local
government's regulatory powers (regulatory fees), not a tax measure, and is not subject to
the limitations on local taxation under the Local Government Code (LGC).

The Supreme Court held that regulatory fees, such as market stall rentals, are distinct from taxes
and are not governed by the limitations on tax increases in the LGC. As long as due process is
observed (e.g., conduct of public hearings, proper posting/publication), the enactment of
such ordinances is presumed valid.

Facts:

The Sangguniang Bayan of Hagonoy, Bulacan, enacted Kautusan Blg. 28 on October 1, 1996,
increasing stall rentals in the public market. The ordinance was posted from November 4 to 25,
1996. In November 1997, market vendors were personally given copies of the ordinance and
informed that it would be enforced in January 1998. On December 8, 1997, the Hagonoy Market
Vendor Association (petitioner) appealed the constitutionality of the ordinance to the Secretary
of Justice, claiming ignorance of its posting. The Municipality of Hagonoy (respondent)
opposed, arguing that the appeal was filed beyond the 30-day period prescribed under Section
187 of the Local Government Code (LGC). The Secretary of Justice dismissed the appeal for
being time-barred. The petitioner appealed to the Court of Appeals (CA), but the appeal was
dismissed for failure to attach certified true copies of the Secretary of Justice's resolutions.
Petitioner moved for reconsideration, citing a fortuitous event (Typhoon Loleng), but was
denied. The petitioner elevated the case to the Supreme Court (SC), contending that procedural
rules should be relaxed to decide the case on the merits.

ISSUE:
Whether or not Kautusan Blg. 28 is unconstitutional, illegally enacted, or amounts to an
illegal exaction

Ruling:

NO. The Supreme Court found that the ordinance was validly enacted and did not constitute an
illegal exaction. The petitioner argued that no public hearing was conducted and that the
ordinance was not properly posted, thus violating procedural requirements under the Local
Government Code.

However, the Court found that public hearings were, in fact, conducted before the ordinance’s
passage. Petitioner’s own communications with the DOJ acknowledged that its members
participated in discussions and raised objections to the measure. The municipality also submitted
records showing that public hearings were held on February 6, July 15, and August 19, 1996.
The mere fact that the petitioner’s objections were not adopted does not mean that hearings were
not conducted.

Regarding the requirement of publication or posting, the Court noted that Section 188 of the
LGC allows posting in at least two conspicuous places if there is no local newspaper. The
municipality presented evidence that the ordinance was posted in front of the municipal
building, at the Sta. Ana Parish Church bulletin board, and on the public market’s office door
between November 4 and 25, 1996. Petitioner failed to present any proof to refute this.
The Court further ruled that the ordinance was not an illegal exaction. The petitioner argued
that the imposed stall rentals violated Section 6c.04 of the 1993 Municipal Revenue Code and
Section 191 of the LGC, which limit increases in tax rates. However, the Court clarified that
these provisions apply only to taxes, whereas the ordinance imposed market stall rentals,
which are not considered taxes but regulatory fees.

Additionally, the classification of markets for rental purposes was reasonable. The ordinance
covered three concrete markets but excluded a makeshift, dilapidated area used by transient
vendors. The differentiation was based on valid considerations such as security and
infrastructure.

The petition was dismissed. The ordinance was declared valid, as it constituted a legitimate
exercise of municipal regulatory power and not an improper taxation measure.

5. Coca cola bottlers Philippines inc vs. City of Manila GR No. 156252 June 26, 2006

Doctrine:
A tax ordinance that fails to comply with the mandatory publication requirement under Section
188 of the Local Government Code is null and void, and any attempt to amend it without first
validly re-enacting it is likewise void.

Facts:

The City of Manila enacted Tax Ordinance No. 7988, amending its Revenue Code and increasing
tax rates applicable to certain businesses, including Coca-Cola Bottlers Philippines, Inc. (Coca-
Cola). Coca-Cola challenged the ordinance before the Department of Justice (DOJ) under
Section 187 of the Local Government Code (LGC), arguing that it was unconstitutional and
illegal due to its failure to comply with the mandatory publication requirements.

The DOJ declared Tax Ordinance No. 7988 null and void for non-compliance with the
publication requirement under Section 188 of the LGC. The City of Manila did not appeal this
ruling. Despite this, Manila continued enforcing the ordinance, prompting Coca-Cola to seek an
injunction from the Regional Trial Court (RTC), which ruled in Coca-Cola’s favor.

Subsequently, Manila enacted Tax Ordinance No. 8011 to amend the void ordinance, but this too
was declared invalid by the DOJ. Manila sought reconsideration from the RTC, which then
dismissed Coca-Cola’s case on the ground that the ordinance had already been amended. Coca-
Cola appealed the dismissal to the Supreme Court.

Issue:

Whether or not the City of Manila can enforce Tax Ordinance No. 7988 and its amendatory
ordinance (No. 8011) despite their invalidation by the DOJ for failure to comply with the Local
Government Code’s publication requirements.

Ruling:

NO. The Supreme Court ruled in favor of Coca-Cola Bottlers Philippines, Inc., emphasizing
that Tax Ordinance No. 7988 is null and void for failure to comply with the mandatory
publication requirement under Section 188 of the Local Government Code of 1991
(Republic Act No. 7160). This provision requires that tax ordinances and revenue measures
must be published in full for three (3) consecutive days in a newspaper of local circulation before
they can be enforced. The City of Manila only published the ordinance once, which was
deemed insufficient.

Furthermore, the DOJ Secretary had previously ruled that Tax Ordinance No. 7988 was
void, and this ruling had attained finality since the City of Manila did not appeal. Any
subsequent amendments to an already void ordinance—such as Tax Ordinance No. 8011—are
likewise invalid and legally non-existent, as an invalid ordinance cannot be amended; it must
be re-enacted properly.
The Court also affirmed that the City of Manila's continued enforcement of the void tax
ordinance was unlawful, despite multiple directives from the DOJ and the Bureau of Local
Government Finance (BLGF) to cease collection under the said ordinance.

WHEREFORE, the instant Petition is hereby GRANTED. The Orders of the RTC of Manila, are
hereby REVERSED and SET ASIDE.

6. National Development Corporation vs. CIR 152 SCRA 472

DOCTRINE:

Interest payments made by a Philippine resident corporation to foreign creditors are

 Source of interest income is determined by the residence of the debtor, not by the place
where the contract is signed or payments are made.
 A withholding agent is personally liable for failure to withhold taxes on payments made
to foreign entities.
 Tax exemptions must be expressly stated in law and cannot be implied.

FACTS:

The National Development Company (NDC) entered into contracts in Tokyo, Japan, with several
Japanese shipbuilders for the construction of twelve (12) ocean-going vessels. The purchase
price was financed through bonds issued by the Central Bank of the Philippines, with initial
payments made via cash and irrevocable letters of credit. The remaining balance was covered
by fourteen (14) promissory notes, which were guaranteed by the Republic of the
Philippines. NDC subsequently remitted US$4,066,580.70 in interest payments to the Japanese
shipbuilders.

The Commissioner of Internal Revenue (CIR) assessed the NDC a tax liability of
₱5,115,234.74 for failing to withhold tax on the interest payments made to the foreign
entities. Despite negotiations, no settlement was reached, leading the BIR to issue a warrant of
distraint and levy to enforce collection. NDC contested the assessment before the Court of Tax
Appeals (CTA). The CTA ruled in favor of the CIR, affirming the tax deficiency, except for a
reduction of ₱900.00 in penalties. NDC then elevated the case to the Supreme Court via a
petition for certiorari.

ISSUE:

Whether or not the interest payments remitted by NDC to the Japanese shipbuilders are taxable
under Philippine tax laws, thereby making NDC liable for withholding tax.

RULING:

YES. The Supreme Court ruled in favor of the Commissioner of Internal Revenue (CIR) and
affirmed the decision of the Court of Tax Appeals (CTA), holding that the interest payments
were subject to withholding tax under the National Internal Revenue Code (NIRC). Under
Section 37(a)(1) of the Tax Code, interest is considered derived from sources within the
Philippines if the obligor (debtor) is a resident of the Philippines, regardless of where the
transaction was executed. Since the National Development Company (NDC) is a domestic
corporation with its principal office in Manila, the interest payments originated from a
Philippine entity and were therefore taxable under Philippine law.

NDC argued that its promissory notes were government securities exempt from tax under
Section 29(b)(4) of the Tax Code. However, the Court held that the law granting NDC the
authority to issue such notes (Republic Act No. 1407 and Commonwealth Act No. 182) did not
provide for tax exemptions. Moreover, the mere guarantee by the Republic of the Philippines did
not convert NDC’s promissory notes into obligations of the government for tax exemption
purposes.

As a withholding agent, NDC had the duty to deduct and withhold the correct taxes on payments
made to non-residents. Its failure to withhold taxes on the US$4,066,580.70 interest payments
resulted in a deficiency tax assessment. Under Section 53(c) of the Tax Code, NDC became
personally liable for the unpaid taxes since it failed to withhold the correct amount from the
Japanese shipbuilders.

Lastly, NDC claimed that the Secretary of Finance’s guarantee of the promissory notes implied
an exemption from taxation. However, the Court ruled that there was no express waiver of the
government’s power to tax in the guarantee agreement. It emphasized that tax exemptions must
be explicitly stated by law, not merely implied. Consequently, the Court upheld the CIR’s tax
assessment and held NDC liable for the deficiency withholding tax.