CASE DIGEST: CEPALCO v. City of Cagayan de Oro (G.R. No. 191761, November 14, 2012)

CASE DIGEST: CAGAYAN ELECTRIC POWER AND LIGHT CO., INC., Petitioner, vs. CITY OF CAGAYAN DE ORO, Respondent. (G.R. No. 191761, November 14, 2012)

FACTS: CDO passed a tax ordinance (TO) on the lease or rental of electric and/or telecommunication posts, poles or towers by pole owners to other pole users at ten percent (10%) of the annual rental income derived from such lease or rental.

CEPALCO filed a petition for declaratory relief against said TO, arguing it is in reality a tax on income which CDO cannot impose. Assuming that CDO has power to imposed said tax, CEPALCO argued that RA 9284 exempts it.

ISSUE: Did CEPALCO use proper procedure in questioning the assailed TO?

No, CEPALCO failed to use proper procedure.

According to the LGC, any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice.

In this case, CEPALCO did not file an appeal to the SOJ. It also filed its "petition for declaratory relief" after seven (7) months from the TO's effectivity. The failure to appeal to the SOJ within 30 days as required by Sec. 187 of R.A. 7160 is fatal.

Despite this, the Supreme Court relaxed the application of the rules in view of the more substantive matters.

ISSUE: Does the TO impose tax on income which the CDO cannot do?

No, the TO does not imposed a tax on income. Rather, it imposes tax on business.

Business is defined by Section 131(d) of the Local Government Code as "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit."Cities may impose taxes, fees, and charges on any business which is not specified in Section 143(a) to (g).

ISSUE: Does RA 9284 exempt CEPALCO from the TO?

No, CEPALCO is not exempt from tax.

The LGC has already withdrawn tax exemption privileges previously given to natural or juridical persons, and granted local government units the power to impose franchise tax.

CEPALCO’s claim of exemption under the "in lieu of all taxes" clause must fail in light of Section 193 of the Local Government Code as well as Section 9 of its own franchise.
ISSUE: Is it true a city can impose a tax up to only one-half of what the province or city may impose?

No, it is not true.

A more circumspect reading of the Local Government Code could have prevented this error. Section 151 of the Local Government Code states that, subject to certain exceptions, a city may exceed by "not more than 50%" the tax rates allowed to provinces and municipalities. A province may impose a franchise tax at a rate "not exceeding 50% of 1% of the gross annual receipts." Following Section 151, a city may impose a franchise tax of up to 0.0075 (or 0.75%) of a business’ gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction. A municipality may impose a business tax at a rate not exceeding "two percent of gross sales or receipts." Following Section 151, a city may impose a business tax of up to 0.03 (or 3%) of a business’ gross sales or receipts of the preceding calendar year.