City of Iriga Vs CASURECO

City of Iriga vs Camarines Sur III Electric Cooperative, Inc.
G. R. No. 192945; September 5, 2012

Perlas-Bernabe, J.:
Facts:
CASURECO III is an electric cooperative duly organized and existing by virtue of
Presidential Decree (PD) 269, as amended, and registered with the National Electrification
Administration (NEA). It is engaged in the business of electric power distribution to various
end-users and consumers within the City of Iriga and the Rinconada area.
Petitioner City of Iriga required CASURECO III to submit a report of its gross receipts
for the period 1997-2002 to serve as the basis for the computation of franchise taxes, fees
and other charges. The latter complied and was subsequently assessed taxes. Petitioner
made a final demand on CASURECO III to pay the franchise taxes due for the period
1998-2003 and real property taxes due for the period 1995-2003. CASURECO III, however,
refused to pay said taxes on the ground that it is an electric cooperative provisionally
registered with the Cooperative Development Authority (CDA), and therefore exempt from
the payment of local taxes.
Petitioner filed a complaint for collection of local taxes against CASURECO III before
the RTC, citing its power to tax under the Local Government Code (LGC) and the Revenue
Code of Iriga City. It was alleged in the complaint that as of December 31, 2003,
CASURECO III‟s franchise and real property taxes liability, inclusive of penalties,
surcharges and interest, amounted to Seventeen Million Thirty-Seven Thousand Nine
Hundred Thirty-Six Pesos and Eighty-Nine Centavos (₱ 17,037,936.89) and Nine Hundred
Sixteen Thousand Five Hundred Thirty-Six Pesos and Fifty Centavos (₱ 916,536.50),
respectively.CASURECO III denied liability for the assessed taxes, asserting that the
computation of the petitioner was erroneous because it included 1) gross receipts from
service areas beyond the latter‟s territorial jurisdiction; 2) taxes that had already prescribed;
and 3) taxes during the period when it was still exempt from local government tax by virtue
of its then subsisting registration with the CDA.
The RTC rendered a decision holding CASURECO III liable for franchise taxes for the
years 2000-2003 based on its gross receipts from Iriga City and the Rinconada area on the
ground that the "situs of taxation is the place where the privilege is exercised.” However,
the Court of Appeals, relieved CASURECO III from its liability on the ground that it does
not fall within the purview “businesses enjoying a franchise” pursuant to Section 137 of the
LGC. Hence, the instant petition.
Issue/s:
1. Whether or not an electric cooperative registered under PD 269 but not under RA
6938 is liable for the payment of local franchise taxes.
Ruling:
Yes. An electric cooperative registered under PD 269 but not under RA 6938 is liable
for the payment of local franchise taxes. Under PD 269, electric cooperatives were granted
tax privileges, one of which is exemption from the payment of "all national government,
local government and municipal taxes and fees, including franchise, filing, recording,
license or permit fees or taxes." While under RA 6938, electric cooperatives registered
under NEA which opted not to register with the CDA shall not be entitled to the benefits
and privileges provided for by the law.
When the Local Government Code was enacted, the tax exemptions or incentives
previously enjoyed by "all persons, whether natural or juridical, including
government-owned or controlled corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions" were withdrawn. The Court held in PHILRECA vs The Secretary, Department
of Interior and Local Government that the tax privileges granted to electric cooperatives
registered with NEA under PD 269 were validly withdrawn and only those registered with
the CDA under RA 6938 may continue to enjoy the tax privileges under the Cooperative
Code. Hence, respondent can no longer invoke PD 269 to evade payment of local taxes.
Moreover, its provisional registration with the CDA which granted it exemption for the
payment of local taxes was extended only until May 4, 1992. Thereafter, it can no longer
claim any exemption from the payment of local taxes, including the subject franchise tax.
The Court declared in National Power Corporation v. City of Cabanatuan that "a
franchise tax is a tax on the privilege of transacting business in the state and exercising
corporate franchises granted by the state." It is 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. "It is within this context that the phrase “tax on
businesses enjoying a franchise‟ in Section 137 of the LGC should be interpreted and
understood." Thus, to be liable for local franchise tax, the following requisites should
concur: (1) that one has a "franchise" in the sense of a secondary or special franchise; and (2)
that it is exercising its rights or privileges under this franchise within the territory of the
pertinent local government unit.

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City of Iriga vs Camarines Sur III Electric Cooperative, Inc.

G. R. No. 192945; September 5, 2012

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