LGC Provisions: Sections 137, 151, 193 of the LGC

Title: City of Iriga v Camarines Sur III Electric Cooperative Inc. (CASURECO III)
GR No. 192945
Date: September 5, 2012
Ponente: Perlas-Bernabe, J.
FACTS:
On January 7, 2004 petitioner City required CASURECO III, an electric cooperative duly registered with the
National Electrification Administration (NEA) which distributes electricity within the City of Iriga and the Rinconada
Area of Camarines Sur, to pay its franchise and real property taxes for the period of 1995-2003. However,
CASURECO III refused because it is provisionally registered with the Cooperative Development Authority
(CDA). Thus, it alleged that it is exempt from the payment of local taxes. The City then filed a collection suit with
the RTC citing its power to tax under the Local Government Code (LGC) and the Revenue Code of Iriga City. The
defense of the Respondent included reasons that the taxes had already prescribed and that it was exempt from
payment of the local tax because it was then registered with the CDA.

The RTC held that the 1995-1999 taxes CASURECO III had already prescribed in accordance with Section 194
of the LGC. But, Respondent still has to pay the franchise tax for 2000-2003 because the "situs of taxation is the
place where the privilege is exercised." The CA, however, ruled in favor of CASURECO III. It held that
Respondent is a non-profit entity, not falling within the purview of "businesses enjoying a franchise" pursuant to
Section 137 of the LGC. Instead, it falls under Section 131 of the LGC, which provides for a "trade or
commercial activity regularly engaged in as a means of livelihood or with a view to profit." Thus, the respondent
was relieved from paying taxes.
ISSUE: WON CASURECO III is liable to pay the local franchise tax-YES.
RATIO:
Looking back on legislative history, on March 10, 1990 when RA 6938 or the Cooperative Code of the
Philippines and RA 6939 creating the CDA was enacted, it made possible for cooperatives to solely register
under the CDA and thus reap the benefits under it. Those who choose to remain under PD 269 or the NEA shall
not be entitled to the newer laws privileges.

Further developments were brought about upon the effectivity of the LGC. Section 193 thereof withdrew tax
exemptions or incentives previously enjoyed by "all persons, whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions. This exemption was elaborated on
in Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior
and Local Government. The holding here states that only the tax privileges of those registered with the CDA
subsist. Those registered with NEA have already been validly withdrawn.
With this, the Court held that ASURECO III cannot use PD 269 for its alleged tax exemption. In turn, its
provisional registration with the CDA, which granted it exemption for the payment of local taxes, was extended
only until May 4, 1992. After this period, it cannot claim further tax exemption including the subject franchise tax.
LGUs derive its power of taxation from the Constitution itself. Thus, it is undeniable that Petitioner can impose
local taxes. The specific provisions of the LGC which provides for this are Sec. 137. Franchise Tax and Sec.
151. Scope of Taxing Powers.
Another defense of the Respondent is that it is exempted from the franchise tax because of its nature as a nonprofit cooperative, as contemplated in PD 269. The Court did not accept this reasoning. It used National Power
Corporation v. City of Cabanatuan, where it was held that "a franchise tax is a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state." Thus, the Court explained that a
franchise tax Sec. 137 of the LGC should be interpreted as not levied on the corporation simply for existing as a

corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the
government." Certainly, CASURECO III satisfies these requirements.
Lastly, the Court emphasized that the Respondent should pay taxes for Iriga City and the Rinconada Area even if
its operation is based only in Iriga City. This is because the services it delivers reaches the Rinconada area
following the saying that the situs of taxation is where the privilege is exercised.
WHEREFORE, the petition is GRANTED

NOTES:
SEC. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one percent
(1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction. xxx
SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city, may levy the taxes,
fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and
charges levied and collected by highly urbanized and independent component cities shall accrue to them and
distributed in accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed
the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates
of professional and amusement taxes.