G.R. No. 211526 - PMI-Faculty and Employees Union vs. PMI Colleges Bohol

On February 18, 2002, Smart Communications, Inc. (“Smart”) filed a special civil action for declaratory relief under Rule 63 against the City of Davao, challenging the application of Section 1, Article 10 of the Davao City Tax Code imposing a 75% of 1% franchise tax on its gross annual receipts.
Smart contended that its legislative franchise under R.A. No. 7294, which took effect March 27, 1992, contained an “in lieu of all taxes” clause precluding local franchise taxes.

Respondents answered, invoking LGU taxing power under the Constitution and the Local Government Code (R.A. No. 7160).
Pretrial focused on legal issues; parties submitted memoranda.
On July 19, 2002, the RTC denied Smart’s petition, ruling that (a) tax exemptions are strictly construed against taxpayers; (b) the “in lieu” clause was ambiguous and did not clearly exempt Smart from local taxes; and (c) LGU taxing power derives directly from the Constitution and may be subject only to clear legislative limits.
Smart’s motion for reconsideration was denied on September 26, 2002.

That R.A. No. 7294’s “in lieu of all taxes” clause, as a subsequent special law, exempted Smart from local franchise tax.
That Section 137 and 193 of R.A. No. 7160 did not apply to franchises granted after its effectivity.
That tax exemptions and exclusions differ, and Smart enjoyed a tax exclusion.
That Section 23 of R.A. No. 7925 imported Globe’s broader tax exemption into Smart’s franchise.
That imposing local tax impaired Smart’s contract under the Constitution.

Whether Smart is liable to pay the local franchise tax imposed by the City of Davao despite the “in lieu of all taxes” clause in its franchise.