Case Digest (G.R. No. 225226)
Facts:
The City of Makati v. The Municipality of Bakun and Luzon Hydro Corporation, G.R. No. 225226, July 07, 2020, the Supreme Court First Division, Reyes, J. Jr., writing for the Court.
On January 16, 2007, Luzon Hydro Corporation (LHC) filed a special civil action for interpleader with a prayer for preliminary injunction/TRO before the Regional Trial Court (RTC) of Makati City, Branch 134, seeking resolution of competing claims by local government units over liability for local business tax under R.A. No. 7160 (the Local Government Code of 1991). The parties disputing LHC’s tax allocation were the City of Makati, the Municipality of Alilem, and the Municipality of Bakun.
LHC operates a hydroelectric facility whose major plant components (power station and switch yard) are in Alilem, Ilocos Sur; other structures (conveyance tunnel, penstock, weir, intakes, desander) are in Bakun, Benguet; and LHC maintained an office in Makati City. After a pioneer tax holiday ended in 2003, LHC began paying local business taxes in 2004. Under Section 150 of R.A. No. 7160, 30% of sales recorded in the principal office is taxable by the principal office locality (here Alilem was listed as principal office in LHC’s articles) and 70% is taxable by the locality where the factory/project office/plant is located. From 2004 LHC paid the 30% to Alilem and initially apportioned the 70% equally among Alilem, Bakun and Makati (about 23.33% each).
Bakun protested the sharing scheme (Resolution No. 168-2004) and submitted the conflict to the Bureau of Local Government Finance (BLGF). On February 8, 2006 the BLGF opined that only Bakun and Alilem should share the 70% because the Makati office was an administrative, not a project, office; Makati could only collect regulatory fees. Bakun and Alilem thereafter passed resolutions requiring LHC’s compliance with the BLGF opinion and assessed deficiency taxes; Makati maintained it would continue to assess LHC’s business tax. To avoid multiple liabilities, LHC sought interpleader relief.
The RTC (Presiding Judge Perpetua Atal‑Pano) conducted trial and, in a Decision dated April 20, 2012, declared all three LGUs entitled to share the 70% allocation but reduced Makati’s share to 20% (Alilem 25%, Bakun 25%, Makati 20%) given Makati’s representation it would accept a reduced share. Bakun moved for reconsideration; after denial it elevated the matter to the Court of Tax Appeals (CTA).
The CTA Special First Division, on November 8, 2013, reversed the RTC and held that LHC’s Makati office was a mere administrative office and therefore only Bakun and Alilem were entitled to equally share the 70% portion. Makati sought reconsideration before the Special Division and then appealed to the CTA En Banc after denial; the CTA En Banc, on January 14, 2016, affirmed the Special Division’s decision, and denied reconsideration on June 8, 2016.
The City of Makati filed a Petition for Review on Certiorari under Rule 45 to the Supreme Court raising five principal questions: (1) whether the CTA ignored the RTC’s findings of fact that Makati’s office was a project office; (2) whether the CTA erred by applying Local Finance Circular No. 3‑95 in finding the Makati office administrative; (3) whether the BLGF opinion is binding; (4) whether Alilem may benefit although it did not appeal the RTC decision; and...(Pro-only)
Issues:
- Did the Court of Tax Appeals have appellate jurisdiction to review the RTC decision in this special civil action for interpleader involving local business tax allocations?
- Did the CTA gravely err in disregarding the RTC’s factual finding that LHC’s Makati office was a project (producer/power generation) office rather than an administrative office?
- Was it erroneous for the CTA to rely on Local Finance Circular No. 3‑95 in determining what constitutes a project office for purposes of tax situs?
- Does the BLGF opinion bind the courts and preclude independent judicial determination of whether the Makati office is a project office?
- May Municipality of Alilem benefit from the CTA’s judgment that only Alilem and Bakun...(Pro-only)
Ruling:
- (Pro-only)
Ratio:
- (Pro-only)
Doctrine:
- (Pro-only)