LGC Provisions: Sections 137, 151, 193 of the LGCTitle: City of Iriga v Camarines Sur III Electric Cooperative Inc. (CASURECO III)GR No. 192945Date: September 5, 2012Ponente: Perlas-Bernabe, J.FACTS:On January 7, 2004 petitioner City required CASURECO III, an electric cooperative duly registered with the National Electrification Administration (NEA) which distributes electricity within the City of Iriga and the Rinconada Area of Camarines Sur, to pay its franchise and real property taxes for the period of 1995-2003. However, CASURECO III refused because it is provisionally registered with the Cooperative Development Authority (CDA). Thus, it alleged that it is exempt from the payment of local taxes. The City then filed a collection suit with the RTC citing its power to tax under the Local Government Code (LGC) and the Revenue Code of Iriga City. The defense of the Respondent included reasons that the taxes had already prescribed and that it was exempt from payment of the local tax because it was then registered with the CDA.

The RTC held that the 1995-1999 taxes CASURECO III had already prescribed in accordance with Section 194 of the LGC. But, Respondent still has to pay the franchise tax for 2000-2003 because the "situs of taxation is the place where the privilege is exercised." The CA, however, ruled in favor of CASURECO III. It held that Respondent is a non-profit entity, not falling within the purview of "businesses enjoying a franchise" pursuant to Section 137 of the LGC. Instead, it falls under Section 131 of the LGC, which provides for a "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." Thus, the respondent was relieved from paying taxes. ISSUE: WON CASURECO III is liable to pay the local franchise tax-YES.RATIO:Looking back on legislative history, on March 10, 1990 when RA 6938 or the Cooperative Code of the Philippines and RA 6939 creating the CDA was enacted, it made possible for cooperatives to solely register under the CDA and thus reap the benefits under it. Those who choose to remain under PD 269 or the NEA shall not be entitled to the newer laws privileges.

Further developments were brought about upon the effectivity of the LGC. Section 193 thereof withdrew tax exemptions or incentives previously enjoyed by "all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions. This exemption was elaborated on inPhilippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local Government. The holding here states that only the tax privileges of those registered with the CDA subsist. Those registered with NEA have already been validly withdrawn. With this, the Court held that ASURECO III cannot use PD 269 for its alleged tax exemption. In turn, its provisional registration with the CDA, which granted it exemption for the payment of local taxes, was extended only until May 4, 1992. After this period, it cannot claim further tax exemption including the subject franchise tax. LGUs derive its power of taxation from the Constitution itself. Thus, it is undeniable that Petitioner can impose local taxes. The specific provisions of the LGC which provides for this are Sec. 137. Franchise Tax and Sec. 151. Scope of Taxing Powers.Another defense of the Respondent is that it is exempted from the franchise tax because of its nature as a non-profit cooperative, as contemplated in PD 269. The Court did not accept this reasoning. It used National Power Corporation v. City of Cabanatuan, where it was held that "a franchise tax is a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." Thus, the Court explained that a franchise tax Sec. 137 of the LGC should be interpreted as not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government." Certainly, CASURECO III satisfies these requirements. Lastly, the Court emphasized that the Respondent should pay taxes for Iriga City and the Rinconada Area even if its operation is based only in Iriga City. This is because the services it delivers reaches the Rinconada area following the saying that the situs of taxation is where the privilege is exercised. WHEREFORE, the petition isGRANTED

NOTES: SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. xxxSEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes.