Introduction

In the Philippine legal system, the distribution of taxing powers between the national government and local government units (LGUs) is governed primarily by the 1987 Constitution and the Local Government Code of 1991 (Republic Act No. 7160, or LGC). The Constitution, under Article X, Section 5, grants LGUs the power to create their own sources of revenue and to levy taxes, fees, and charges, subject to limitations provided by Congress. However, this authority is not absolute, particularly when it comes to taxing entities that operate across multiple jurisdictions or are subject to national regulatory frameworks, such as common carriers.

Common carriers, defined under Article 1732 of the Civil Code as persons, corporations, firms, or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public, include buses, taxis, shipping lines, airlines, and trucking services. The taxation of these entities by LGUs raises questions of double taxation, interference with national commerce, and adherence to statutory prohibitions. This article examines the scope and limitations of LGUs' authority to impose taxes on common carriers, drawing from statutory provisions, jurisprudence, and administrative interpretations.

Statutory Framework Under the Local Government Code

The LGC delineates the taxing powers of provinces, cities, municipalities, and barangays while imposing common limitations to prevent overreach. Section 133 of the LGC outlines these limitations, which apply uniformly to all LGUs unless otherwise specified.

Key Prohibition: Section 133(j)

Central to the discussion is Section 133(j), which explicitly prohibits LGUs from imposing:

"Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code."

This provision aims to shield common carriers from local taxes that could duplicate national impositions, such as the value-added tax (VAT) under Section 108 of the National Internal Revenue Code (NIRC, Republic Act No. 8424, as amended), the percentage tax on common carriers under Section 117 of the NIRC (3% on gross quarterly sales or receipts for non-VAT registered carriers), or excise taxes. The rationale is to maintain uniformity in taxation for businesses that inherently cross local boundaries, thereby avoiding burdensome multiple taxation that could hinder interstate or inter-municipal commerce.

The phrase "except as provided in this Code" indicates that the prohibition is not absolute but subject to specific authorizations elsewhere in the LGC. However, these exceptions are narrow and do not generally extend to broad-based taxes on gross receipts.

Taxing Powers of Specific LGUs

Provinces: Under Sections 134 to 142 of the LGC, provinces may impose taxes on the transfer of real property (Section 135), printing and publication (Section 136), franchises (Section 137), sand, gravel, and other quarry resources (Section 138), amusement places (Section 140), and professionals (Section 139). The franchise tax under Section 137 is levied at not more than 50% of 1% of gross annual receipts on businesses enjoying a franchise. While some common carriers operate under franchises (e.g., public utility buses under certificates of public convenience from the Land Transportation Franchising and Regulatory Board), jurisprudence has clarified that this does not authorize provinces to tax common carriers' gross receipts, as it would contravene Section 133(j).
Municipalities: Section 143 grants municipalities broader authority to impose business taxes on manufacturers, wholesalers, retailers, contractors, banks, and other businesses. Notably, Section 143(h) allows a tax on businesses subject to excise, VAT, or percentage taxes under the NIRC, but capped at 2% of gross sales or receipts. However, this is still subject to Section 133(j), meaning municipalities cannot apply it to common carriers' transportation revenues. Specific provisions include taxes on peddlers (Section 143(g)) and rates for tricycles (Section 143(c)(3)), which are considered common carriers but are treated as exceptions due to their localized operation.
Cities: Per Section 151, cities may impose all taxes that provinces and municipalities can levy, subject to the same limitations. Highly urbanized cities have attempted to impose local business taxes on common carriers, but these efforts have often been struck down.
Barangays: Under Section 152, barangays have limited taxing powers, primarily on stores or retailers with fixed business establishments (not exceeding 1% of gross sales) and service fees for various local services. These rarely intersect with common carriers, except perhaps for minor regulatory fees.

Exceptions to the Prohibition

The LGC provides limited exceptions where LGUs may impose taxes or fees on common carriers:

Tricycles and Similar Vehicles: Municipalities may impose reasonable rates on tricycle operations under Section 143(c)(3) and Section 447(a)(3)(iii). This is justified by the localized nature of tricycle services, which are regulated by LGUs under the LGC's devolution provisions. However, these are more akin to regulatory fees than taxes on gross receipts.
Franchise Taxes on Certain Holders: If a common carrier holds a legislative franchise (e.g., for telecommunications aspects if bundled with transport), Section 137 might apply, but only to the franchised portion, not the transportation gross receipts.
Real Property Taxes: Under Sections 232-234, LGUs may impose real property taxes on lands, buildings, and machinery owned by common carriers, such as terminals, garages, or depots. This is not a tax on the business operations but on property ownership.
Community Tax: Section 156 allows LGUs to impose a community tax on corporations (up to P10,000) and individuals, which applies to common carriers as juridical persons but is nominal and not based on gross receipts.
Regulatory Fees: LGUs can charge fees for permits, inspections, and regulations under their police powers (Sections 444, 458, 468 for municipalities, cities, and provinces, respectively). For instance, mayor's permits for business operations or sanitary fees for vehicles are permissible, as these are not taxes but reimbursements for regulatory costs (distinguished in Progressive Development Corp. v. Quezon City, G.R. No. 36081, April 24, 1989).

Any attempt to disguise a tax as a fee is invalid if it exceeds the cost of regulation, as per the doctrine in Republic v. Philippine Rabbit Bus Lines (G.R. No. L-26862, July 30, 1975).

Jurisprudence Interpreting LGU Authority

The Supreme Court has consistently upheld the prohibition in Section 133(j), emphasizing the need to prevent double taxation and protect national commerce.

Province of Bulacan v. Court of Appeals (G.R. No. 126232, November 27, 1998): The Court invalidated a provincial ordinance imposing a 5% tax on gross receipts of public utilities, including bus companies, ruling it violated Section 133(j). The decision underscored that common carriers are exempt from local gross receipts taxes to avoid multiplicity of burdens.
City of Manila v. Inter-Island Gas Service, Inc. (G.R. No. L-27593, September 30, 1970): Pre-LGC but influential, the Court struck down a municipal tax on gas sales by a ferry operator, deeming it an unauthorized excise tax on a common carrier.
Batangas Transportation Co. v. Provincial Treasurer of Batangas (G.R. No. 24193, February 27, 1925): An early case invalidating local taxes on motor vehicles used by common carriers, reinforcing that such impositions must align with national laws.
Palma v. City of Malabon (G.R. No. 206921, October 14, 2015): The Court clarified that while LGUs can regulate tricycles, any "tax" must be reasonable and not tantamount to a prohibition on operations.
LTO v. City of Butuan (G.R. No. 131512, January 20, 2000): Although focused on registration, the Court affirmed that LGUs cannot impose fees that duplicate national motor vehicle taxes, extending the principle to common carriers.

In cases involving airlines, such as Philippine Airlines, Inc. v. Province of Misamis Oriental (G.R. No. L-27657, September 29, 1969), local sales taxes on aviation fuel were invalidated as indirect taxes on common carriers' operations.

Administrative rulings from the Bureau of Local Government Finance (BLGF) and the Department of Finance (DOF) echo this, advising LGUs against ordinances taxing common carriers' gross receipts. For instance, BLGF opinions have stated that bus terminals may be taxed as real property, but not the buses' operational revenues.

Implications and Challenges

The prohibition under Section 133(j) reflects a balance between fiscal autonomy for LGUs and the need for a cohesive national tax system. Challenges arise when common carriers have ancillary businesses (e.g., cargo handling separate from transport), where LGUs may tax the non-transport components under general business tax provisions.

Double taxation concerns are mitigated by the Constitution's prohibition on non-uniform or unjust taxes (Article VI, Section 28), but common carriers must still comply with national taxes, including the Motor Vehicle User's Charge under Republic Act No. 8794 for land carriers.

Recent developments, such as the Mandanas-Garcia ruling (G.R. No. 199802, July 3, 2018, and April 10, 2019), which expanded LGUs' share in national taxes, have not directly altered the prohibition on taxing common carriers but may encourage LGUs to explore alternative revenue sources.

Conclusion

The authority of LGUs to impose taxes on common carriers is severely curtailed by the LGC, particularly Section 133(j), to prevent undue burdens on essential transport services. While exceptions exist for localized vehicles like tricycles, regulatory fees, and property taxes, broad-based taxes on gross receipts are prohibited. Jurisprudence reinforces this framework, ensuring that taxation remains equitable and supportive of national economic integration. LGUs must craft ordinances carefully to avoid invalidation, focusing instead on permissible levies that align with their devolved powers.