Marinduque Iron Mines Agents, Inc. vs. The Municipal Council of the Municipality of Hinabangan

A municipal ordinance must clearly, expressly, and unambiguously impose a tax to be valid, and a municipal tax measured by the peso value of gross output as evidenced by sales receipts constitutes a tax "based on sales" prohibited by Section 2 of Republic Act No. 2264.

Marinduque Iron Mines Agents, Inc. is a corporation duly organized under Philippine law and operates the only mine within the jurisdiction of the Municipality of Hinabangan, Samar. On June 27, 1960, the Municipal Council of Hinabangan enacted Ordinance No. 7, Series of 1960, entitled "An Ordinance Imposing a Municipal License Tax On the Gross Outputs of the Mines and Other Business; Its Imposition and Penalties Thereof Within the Jurisdiction of this Municipality." The ordinance purported to derive its authority from Republic Act No. 2264 (the Local Autonomy Act), which delegated certain taxing powers to city and municipal councils but expressly limited those powers by a proviso prohibiting municipalities from imposing any percentage tax on sales or other taxes in any form based thereon.

On June 27, 1960, the Municipal Council of Hinabangan, Samar, enacted Ordinance No. 7, Series of 1960, styled as "An Ordinance Imposing a Municipal License Tax On the Gross Outputs of the Mines and Other Business." The ordinance defined "gross outputs" as the total actual market value of minerals or mineral products from each mine operated as a separate entity, without any deduction for expenses. Section 2 declared that Republic Act No. 2264 "empowers" the Municipal Council to impose graduated municipal license fees on any occupation or business, based on gross outputs, and set forth a schedule of yearly gross output or sales brackets ranging from ₱50,000 to ₱50,000,001 and above, with corresponding tax amounts from ₱100 to ₱1,000,000. Section 3 required corporations to submit certified true copies of receipts and invoices on total output per shipment to the municipal treasurer within fifteen days of the end of each calendar year, serving as the basis for collection of the tax. Section 4 authorized the municipal treasurer to examine the books and records of the corporation. Section 5 imposed penal sanctions for violation, including fines of ₱100 to ₱200 or imprisonment of one to six months, or both, with criminal responsibility resting on the president, manager, or any person charged with management of the corporation.

Marinduque Iron Mines Agents, Inc., the sole mining corporation operating within Hinabangan, filed a declaratory relief action on December 14, 1960 in the Court of First Instance of Manila, questioning the validity of the ordinance as enacted without authority and in violation of law. The respondents — the Municipal Council and other officials of Hinabangan — answered averring the ordinance's validity and interposed a counterclaim for damages. The petitioner filed an amended petition and answer to the counterclaim, to which respondents accordingly answered. The case was tried on March 15, 1961, but neither party adduced any evidence; the facts were based solely on the allegations of the amended petition and the admissions in the appellants' amended answer, and the case was submitted for decision on the pleadings. The parties filed respective memoranda, and on April 4, 1961, the Court of First Instance of Manila rendered judgment declaring the ordinance null and void. Respondents perfected their appeal to the Supreme Court in due time.

• No Tax Imposed: Petitioner-appellee maintained that Section 2 of Municipal Ordinance No. 7 does not impose a tax or levy, as there is no clear and express imposition of a charge in any provision of the ordinance.
• No Statutory Authority: Petitioner-appellee argued that the declaration of authority to impose a tax in the ordinance is false and erroneous because no such power is conferred by Section 2 of Republic Act No. 2264, the statute upon which the ordinance purportedly relies.
• No Factual Basis for Lower Court's Finding: Petitioner-appellee contended that there was no finding by the Court of First Instance that a tax was imposed, much less that it was based on gross outputs or sales, because the lower court merely assumed the tax was imposed and declared it illegal as falling within the exceptions to the tax powers of municipal governments under the last paragraph of Section 2 of the Local Autonomy Act.

• Tax Was Intended: Respondents-appellants maintained that a reading of the ordinance as a whole leads to the conclusion that a tax was intended, even though they admitted that the main section (Section 2) "seems merely declaratory of authority."
• Ordinance Imposes Tax on Sales: Respondents-appellants argued that Ordinance No. 7 was intended to impose a tax on sales.
• No Double Taxation: Respondents-appellants contended that the ordinance does not constitute double taxation.
• Ordinance Is Valid: Respondents-appellants asserted that the ordinance is valid and that the lower court erred in declaring it null and void.

• Clarity of Tax Imposition: Whether Municipal Ordinance No. 7, Series of 1960, validly and effectively imposes a tax, given the absence of clear and express language levying a charge.
• Statutory Prohibition on Sales-Based Taxes: Whether the ordinance, assuming it does impose a tax, violates the express prohibition in Section 2 of Republic Act No. 2264 against municipalities imposing any percentage tax on sales or other taxes in any form based thereon.

• Clarity of Tax Imposition: No. The ordinance fails to levy any tax because it does not contain clear, express, and unambiguous language imposing a tax, as required by well-established rules of statutory construction applicable to tax ordinances.
• Statutory Prohibition on Sales-Based Taxes: Yes, the ordinance violates the prohibition. Even if it imposed a tax, the amount payable is determined by the gross sales of the taxpayer, directly or indirectly, contrary to the explicit proviso in Section 2 of Republic Act No. 2264 barring municipalities from imposing "taxes in any form based on sales."

• Clarity of Tax Imposition: A statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. It is an ancient principle that a tax cannot be imposed without clear and express words for that purpose, and the general rule of adherence to the letter in construing statutes applies with peculiar strictness to tax laws; provisions of a taxing act are not to be extended by implication. A mere reading of the ordinance discloses that there are no words imposing a tax; the peruser is left in doubt as to whether the intention is to levy a tax for revenue or charge a fee for permitting the business to be carried on. Section 2 merely declares that the law "empowers" the Municipal Council to impose graduated municipal license fees, without actually imposing the charge. Since the validity of taxes and license fees are governed by different principles, the taxpayer is left in doubt as to the true nature of the charge. Taxes may not be imposed by implication, and a tax statute is to be construed strictly against subjection to tax liability. This is particularly true where, as here, the ordinance carries penal provisions, making clarity all the more essential.

• Statutory Prohibition on Sales-Based Taxes: Section 2, paragraph 1, of Republic Act No. 2264, after conferring upon cities, municipalities, and municipal districts the power to impose license taxes and service fees or charges on business and occupations, expressly limited those powers with the proviso that municipalities and municipal districts shall in no case impose any percentage tax on sales or other taxes in any form based thereon. Even granting that the ordinance does impose a tax, while it does not provide for a percentage tax but a graduated tax — the progressive tax not being calculated on a percentage of sales — it nevertheless prescribes a tax based on sales, contrary to the statute. The ordinance purports to base the tax on either "gross output or sales," but the only standard provided for measuring gross output is its peso value, as determined from "true copies of receipts and/or invoices," which are precisely the evidence of sales, without any deduction for freight, insurance, or incidental costs. Directly or indirectly, the amount of tax payable under the ordinance is determined by the gross sales of the taxpayer, violating the explicit prohibition against levying "taxes in any form based on sales." The plea that the members of the Municipal Council are not attorneys and of low scholastic ability affords no excuse for not observing well-established legal principles, as the tax-imposing authority is held to know and understand that levying taxes is a subject of grave responsibility and serious consequences to the taxpayer.

• Strict Construction of Tax Statutes — A statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. The general rule of adherence to the letter in construing statutes applies with peculiar strictness to tax laws, and the provisions of a taxing act are not to be extended by implication. A tax cannot be imposed without clear and express words for that purpose. The Court applied this doctrine to hold that the ordinance, which merely declared that the law "empowers" the Municipal Council to impose graduated license fees without actually imposing a charge, failed to levy any tax.

• Prohibition Against Sales-Based Municipal Taxes — Under Section 2 of Republic Act No. 2264, municipalities are prohibited from imposing any percentage tax on sales or other taxes in any form based thereon. The Court held that a graduated tax measured by the peso value of gross output, as determined from receipts and invoices evidencing sales, constitutes a tax "based on sales" within the meaning of the prohibition, even if not calculated as a percentage of sales.

• "A statute will not be construed as imposing a tax unless does so clearly, expressly and it unambiguously." — This is the controlling rule of construction applied to invalidate the ordinance for its failure to contain clear and express language imposing a tax, a principle particularly strict in its application to tax laws.

• "It is an ancient principle that a tax can not be imposed without clear and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication." — This passage articulates the foundational doctrine of strict construction of tax statutes, relied upon to hold that the ordinance's merely declaratory language did not suffice to impose a valid tax.

• "Directly or indirectly, the amount of payable tax under this ordinance is determined by the gross sales of the taxpayer, and violates the explicit prohibition that the municipality must not levy, or impose, 'taxes in any form based on sales.'" — This statement establishes that the prohibition in R.A. No. 2264 covers not only percentage taxes on sales but any tax whose amount is determined, directly or indirectly, by gross sales, including a graduated tax based on the peso value of gross output evidenced by sales receipts.

• Howell vs. Dept. of Labor, 222 SW 2d 953 — Cited in a footnote as supporting authority for the proposition that taxes may not be imposed by implication.
• Olson vs. Oklahoma Tax Commission, 180 Pac. 2d 622 — Cited in a footnote in support of the rule that taxes may not be imposed by implication.
• Harrington vs. Cobb, 172 ALR 837 — Cited in a footnote in support of the rule that taxes may not be imposed by implication.

• Section 2, Republic Act No. 2264 (Local Autonomy Act) — Conferred upon cities, municipalities, and municipal districts the power to impose license taxes and service fees or charges on business and occupations, but expressly limited those powers with a proviso that municipalities and municipal districts shall in no case impose any percentage tax on sales or other taxes in any form based thereon. The Court held that the ordinance violated this proviso because the tax payable was determined, directly or indirectly, by the gross sales of the taxpayer.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Regala, Makalintal, Barrera, and Dizon, JJ., concurred.