Misamis Oriental vs Cagayan Electric (1990)

February 15, 2013 markerwins Tax Law

Facts: Cagayan Electric Power and light Co, Inc. (CEPALCO) was granted a franchise in 1961
under RA 3247 to install, operate and maintain an electric light, heat and power system in
Cagayan de Oro and its suburbs. In 1973, the Local Tax Code (PD 231) was promulgated, where
Section 9 thereof providing for a franchise tax. Pursuant thereto, the province of Misamis
Oriental enacted Provincial Revenue Ordinance 19, whose Section 12 also provides for a
franchise tax. The Provincial Treasurer demanded payment of the provincial franchise tax from
CEPALCO. CEPALCO paid under protest.

Issue: Whether CEPALCO is exempt from the provincial franchise tax.

Held: Local Tax Regulation 3-75 issued by the Secretary of Finance in 1976 made it clear that
the franchise tax provided in the Local Tax Code may only be imposed on companies with
franchise that do not contain the exempting clause, i.e. in-lieu-of-all-taxes-proviso.
CEPALCOs franchise i.e. RA 3247, 3571 and 6020 (Section 3 thereof), uniformly provides that
in consideration of the franchise and rights hereby granted, the grantee shall pay a franchise tax
equal to 3% of the gross earnings for electric current sold under the franchise, of which 2% goes
to the national Treasury and 1% goes into the treasury of the municipalities of Tagoloan, Opol,
Villanueva, Jasaan, and Cagayan de Oro, as the case may be: Provided, that the said franchise tax
of 3% of the gross earnings shall be in lieu of all taxes and assessments of whatever authority
upon privileges, earnings, income, franchise and poles, wires, transformers, and insulators of the
grantee from which taxes and assessments the grantee is hereby expressly exempted.