THE Court of Tax Appeals (CTA) has affirmed a tax refund to a power generator, ruling that its business, for the purpose of assessing local business taxes, is classified as a “manufacturer” and not as a “contractor,” which carries with it a higher tax base.
In the case of City of Makati v Trans-Asia Power Generation Corp., the CTA en banc affirmed the Special First Division’s ruling that Trans-Asia, being engaged in the manufacture and sale of electricity, should be classified as a “manufacturer” under the Local Government Code.
Trans-Asia, a domestic corporation with principal address in Makati City, was reclassified in 2006 by the city of Makati as being engaged in “services-other,” from its previous classification as a “producer,” and consequently was assessed higher local business taxes.
The corporation brought suit before the Regional Trial Court (RTC), asserting that its business operations should be classified as those of a “manufacturer” under the Local Government Code of 1991, instead of those of a “contractor” which carries with it a higher tax base.
The RTC and the CTA Special First Division ruled in favor of Trans-Asia, and their decision on the matter had been affirmed by the CTA en banc in this case.
The CTA en banc affirmed the factual findings of the court in division, upholding the argument of the respondent corporation that its business consists of “manufacture and sale of electricity, as it uses bunker fuel as raw material for its power generation plant and converts the same fuel by mechanical and chemical process to electricity.”
The CTA dismissed the argument of the city of Makati that since Trans-Asia is also engaged in repairing and maintaining power plants, then it could also be considered as a “contractor.” But the CTA’s factual findings indicated that Trans-Asia actually owns the power plant from which the electricity it sells is generated, and as the owner it also needs to manage, operate, maintain and repair its own power plant.
In the city of Makati’s revenue code, the local business taxes assessed on “manufacturers” is 52.5 percent of 1 percent of the total gross receipts of the business during the preceding taxable year.
As a result of the CTA’s reclassification of Trans-Asia as a “manufacturer,” the corporation is entitled to a refund of local business taxes it paid in excess of 52.5 percent of 1 percent of the total gross receipts.