G.R. No. L-36081 - Progressive Development Corp. vs. Quezon City

Case Summary (G.R. No. L-36081)

Ordinances and Statutory Provisions at Issue

Ordinance No. 7997 (Market Code of Quezon City) imposed a 10% “supervision fee” on gross receipts from stall rentals in privately owned public markets and required monthly certified lists of stallholders, with penalties including revocation for failure to comply. Ordinance No. 9236 (1972 amendment) imposed a 5% tax on gross receipts from rentals or leases of space in privately owned public markets, required monthly certified lists showing names, amounts of rental and lease periods, and provided for revocation of permits after consistent failure to pay for three consecutive months. Relevant statutes cited: Section 12, Article III of Republic Act No. 537 (Revised Charter of Quezon City) granting the City Council power to levy taxes, fix license fees and regulate certain businesses; and Section 2 of Republic Act No. 2264, as amended (Local Autonomy Act), granting chartered cities authority to impose license taxes or fees, collect fees and charges, and levying municipal taxes for public purposes while expressly prohibiting cities from levying taxes on income.

Procedural History

Petitioner sought prohibition with preliminary injunction in the Court of First Instance of Rizal, alleging the supervision fee/license tax was in substance an income tax prohibited by RA 2264. Respondent and the Solicitor General defended the ordinances as valid exercises of municipal power and characterized the levy as a regulatory license fee rather than an income tax. The lower court dismissed the petition, holding the imposition to be a permissible privilege tax or license fee. Petitioner appealed to the Supreme Court.

Central Legal Question

Whether the gross receipts charge imposed by Quezon City on stall rentals in a privately owned public market is a prohibited tax on income (thereby beyond the city’s power) or a valid license tax/fee imposed in the exercise of the city’s police (regulatory) power.

Legal Distinction Between Tax and License Fee

The Court reiterated the established distinction: a tax is primarily an exercise of the taxing power for raising revenue, whereas a license fee is primarily an exercise of the police power for regulation, even if it produces revenue incidentally. To qualify as a regulatory license fee, the imposition must relate to an occupation or activity that affects public health, morals, safety or general welfare such that public inspection or supervision is reasonably necessary; the fee must also bear a reasonable relation to the probable expenses of regulation (direct and incidental). A charge fixed without relation to regulatory costs may be characterized as a tax rather than a regulatory fee.

Scope of Quezon City’s Legislative Authority

The Court observed that RA 537 and RA 2264 confer broad authority upon Quezon City: the city council is empowered to tax, fix license fees and regulate relevant businesses. RA 2264, while broadly authorizing local taxing power, explicitly bars municipalities from imposing taxes on income. Thus the city’s competence to impose a license fee or privilege tax on market operators must be examined against the statutory prohibition on income taxation.

Relevant Facts Regarding the Market and Operating Permit

The petitioner constructed and operated the Farmers Market & Shopping Center pursuant to a city resolution (Resolution No. 7350, 30 January 1967) that authorized establishment and operation and conditioned continuous operation on compliance with city ordinances, rules and regulations governing markets. The market, though privately owned, was open to and served the general public, and the operation required a municipal license.

Application of Legal Principles to the Facts

The Court concluded that operation of a privately owned public market implicates public health, safety and protection against fraud (e.g., sanitary conditions, food and drug compliance), thereby justifying regulation under the police power. The supervision and inspection of such a market are reasonably necessary public functions. The gross receipts from stall rentals were used only as the basis to compute the fee or tax intended to cover the city’s administrative expenses for regulation and supervision. The Court found a logical relationship between the chosen basis (gross stall rentals) and the regulatory burdens: higher rentals normally correlate with greater volume of goods sold and increased need for inspection and supervision.

Presumption of Validity and Reasonableness of the Ordinance

The Court emphasized the presumption of validity that attaches to municipal ordinances and noted that courts should defer to local authorities in setting license fee rates unless petitioner proves the rate to be so excessive, arbitrary, oppressive or confiscatory as to render it prohibitory. Petitioner did not present evidence demonstrating that the five percent gross receipts rate was unreasonably large in relation to the costs of regulation for its business. Absent such proof and given the municipal discretion and the relationship betw

Case Syllabus (G.R. No. L-36081)

Procedural History

On 24 December 1969, the Quezon City Council adopted Ordinance No. 7997, Series of 1969, known as the Market Code of Quezon City, which included Section 3 imposing a 10% supervision fee on gross receipts from stall rentals and required submission of a monthly certified list of stallholders; failure to comply subjected the operator to penalties including revocation of permit.
On 23 March 1972, Ordinance No. 9236, Series of 1972, amended the Market Code to impose a five percent (5%) tax on gross receipts from rentals or lease of space in privately-owned public markets, and added detailed monthly reporting requirements and a provision (Section 4) authorizing revocation of permits after three consecutive months' failure to pay.
On 15 July 1972, Progressive Development Corporation (petitioner), owner/operator of the "Farmers Market & Shopping Center," filed a Petition for Prohibition with Preliminary Injunction in the Court of First Instance of Rizal, alleging that the supervision fee/license tax was in substance an income tax prohibited by Republic Act No. 2264, as amended.
The City (respondent) answered asserting authority to enact the ordinances and contending the gross receipts tax was not an income tax.
The Solicitor General filed an answer arguing petitioner lacked standing for not having paid the earlier 10% supervision fee and that the levy was a privilege tax/license fee within the City's power.
On 23 September 1972, petitioner filed a Supplemental Petition alleging payment under protest of the 5% tax for June–September 1972; on 25 September 1972 petitioner moved for judgment on the pleadings alleging material facts were admitted.
On 21 October 1972 the lower court dismissed the petition, ruling the imposition to be a privilege tax/license fee authorized to be imposed and collected by local governments; petitioner sought review.
The Supreme Court, Third Division, delivered its decision on 24 April 1989, affirming the lower court and denying the petition for lack of merit.

Facts of the Case

Petitioner is Progressive Development Corporation, owner and operator of a privately owned public market called "Farmers Market & Shopping Center."
The market was built pursuant to Resolution No. 7350 of the Quezon City legislative body dated 30 January 1967, which authorized petitioner to establish and operate a market and imposed continuous operation conditions to "abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City."
Ordinance No. 7997 (1969) required privately owned public market operators to submit monthly certified lists of stallholders and to pay 10% of gross receipts from stall rentals as a supervision fee; failure to do so exposed operators to penalties including permit revocation.
Ordinance No. 9236 (1972) imposed a 5% tax on gross receipts from rentals or leases of space in privately-owned public markets, required monthly certified lists showing stallholder names, rental amounts, and period of lease, and authorized permit revocation after three consecutive months’ failure to pay the percentage tax.
Petitioner alleged the exaction amounted to a tax on income prohibited by Section 2(g) of Republic Act No. 2264 (Local Autonomy Act) which bars cities, municipalities, and municipal districts from levying taxes on income of any kind whatsoever.
Petitioner paid the 5% tax under protest for the months of June to September 1972.

Ordinances and Statutory Provisions at Issue

Ordinance No. 7997, Series of 1969 (Market Code of Quezon City): Section 3 required monthly certified lists of stallholders and imposed a 10% supervision fee on gross receipts from stall rentals; noncompliance carried penalties up to permit revocation.
Ordinance No. 9236, Series of 1972: Section 1 imposed a five percent (5%) tax on gross receipts on rentals or lease of space in privately-owned public markets; Section 3 imposed monthly reporting requirements (name of stallholder, amount of rental, period of lease); Section 4 allowed permit revocation and other remedies in case of consistent failure to pay for three consecutive months.
Section 12, Article III of Republic Act No. 537 (Revised Charter of Quezon City) authorizes the City Council "(b) To provide for the levy and collection of taxes and other city revenues... (c) To tax, fix the license fee, and regulate the business of the following: x x x preparation and sale of meat, poultry, fish, game, butter, cheese, lard, vegetables, bread and other provisions."
Section 2 of Republic Act No. 2264, as amended (Local Autonomy Act), broadly authorizes chartered cities, municipalities, and municipal districts to impose municipal license taxes or fees, collect fees and charges for services, regulate and impose reasonable fees for services in connection with businesses, and "otherwise to levy for public purposes just and uniform taxes licenses or fees," but expressly provides that cities, municipalities, or municipal districts may not levy "(g) Taxes on income of any kind whatsoever."

Petitioner’s Contentions

The supervision fee/license tax collected from stall rentals is, in substance, a tax on income or returns from capital invested in the construction of the Farmers Market.
Because a tax on income is expressly prohibited to