Doctrine of Pre-Emption or Exclusionary Rule

9.)
Victorias Milling Co., Inc. vs. Municipality of Victorias
l-21183, September 27, 1968

Ruling: Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated not in the
exercise of the municipality's regulatory power but as a revenue measure—tax on occupation or business.

The national government has preempted the field of percentage taxation. Section 1 of C. A. 472, while
granting municipalities power to levy taxes, expressly removes from them the power to exact "percentage
taxes".

     It is correct to say that preemption in the matter of taxation simply refers to an instance where the
national government elects to tax a particular area, impliedly withholding from the local government
the delegated power to tax the same field. This doctrine primarily rests upon the intention of Congress.
Conversely, should Congress allow municipal corporations to cover fields of taxation it already occupies,
then the doctrine of preemption will not apply.

     In the case at bar, Section 4 (1) of C. A. 472 clearly and specifically allows municipal councils to tax
persons engaged in "the same businesses or occupation" on which "fixed internal revenue privilege taxes"
are "regularly imposed by the Government".

Ordinance No. 1 was approved by the municipality of Victorias on September 22, 1956 by way of an
amendment to two municipal ordinances separately imposing license taxes on operators of sugar centrals
and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license
taxes; and so to sugar refineries, by increasing the rates of license taxes as well as the range of graduated
schedule of annual output capacity.

     In the absence of sufficient proof that license taxes are unreasonable, the presumption of validity
subsists. A cash surplus alone cannot stop a municipality from enacting a revenue ordinance increasing
license taxes in anticipation of municipal needs. Discretion to determine the amount of revenue required
for the needs of the municipality is lodged with the municipal authorities. Judicial intervention steps in
only when there is a flagrant, oppressive and excessive abuse of power by said municipal authorities.

     Said Ordinance No. 1, series of 1956, is not discriminatory. The ordinance does not single out
Victorias as the only object of the ordinance. Said ordinance is made to apply to any sugar central or
sugar refinery which may happen to operate in the municipality. So it is, that the fact that plaintiff is
actually the sole operator of a sugar central and a sugar refinery does not make the ordinance
discriminatory (Cf. also Shell Co. of P.I. v. Vaño, 94 Phil. 389 and Ormoc Sugar Co., Inc. v. Mun. Board
of Ormoc City, L-24322, July 21, 1967)
 Common Limitations on the Taxing Powers of Local Government Units.

Sec. 133 of the Local Government Code

e. Taxes, Fees and Charges (TFC) on Goods Passing Through the Territorial Jurisdiction of LGUs -
Correlate with Sec. 155

10.)

Panaligan vs. City of Tacloban

GR No. L-9319, September 27, 1957

Ruling: The Supreme Court affirmed the decision appealed from declaring the said ordinance illegal.

Section 2287 of the Revised Administrative Code aforequoted, which takes away from the municipal
council (or board)  the power to impose export taxes,  remains to be the rule on the matter.    While it is
true  that Section 14 (e)  of Republic Act No. 760 confers  on the Municipal Board the power

(e) To fix the tariff of fees and charges for all services rendered by the city, or any of its department,
branches or officials, 

A close scrutiny of the ordinances complained of reveals that the fees therein imposed are not by reason
of the  services performed by the Mayor or the Veterinary Officer, but as an imposition on every head of
the specified animals to be transported.    The fact that the ordinances  in question make no reference to
the purpose for which they were enacted,  and  that such purpose was  to preserve  the public health or
welfare  of the residents and people of the City of Tacloban is a  clear indication that leads Us  to believe 
that the fees exacted were not as "a regulatory measure  in the: exercise of its police power, but for the
purpose of raising revenue under the guise of license or inspection fees.

In order that an act or ordinance imposing an excise or license tax may be sustained as a valid exercise of
the police .power, it must be intended to promote or be sufficiently related to the public health, morals,  
safety or welfare.    An act or ordinance imposing a license or license tax under the police power as a
means of regulation is valid only when it is within the limits of such power and is intended for
regulation, otherwise, it is invalid as where the license or tax is unnecessarily imposed on an
occupation or business not inherently subject to police regulation  (Southwest Utility Ice Co. vs.
Liebmann,  52 P.  2d 349), for an act or ordinance imposing a license or license  tax for revenue
purposes,  under the guise of a police or regulatory measure,   is invalid.

11.)
 Palma Development Corp vs. Municipality of Malangas

GR No. 152492, October 16, 2003

Ruling: The imposition of a service fee for police surveillance on all goods harbored or sheltered in the
premises of the municipal port of Malangas under Sec. 5G.01 of the Malangas Municipal Revenue Code
No. 09, series of 1993, is declared NULL AND VOID for being violative of Republic Act No. 7160.

By express language of Sections 153 and 155 of RA No. 7160, local government units, through their
Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use
of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles
using municipal roads leading to the wharf is thus valid. However, Section 133(e) of RA No. 7160
prohibits the imposition, in the guise of wharfage, of fees—as well as all other taxes or charges in any
form whatsoever—on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for
police surveillance on the goods, because any other form of imposition on goods passing through the
territorial jurisdiction of the municipality is clearly prohibited by Section 133(e).

Under Section 131 (y) of RA No. 7160, wharfage is defined as “a fee assessed against the cargo of a
vessel engaged in foreign or domestic trade based on quantity, weight, or measure received and/or
discharged by vessel.” It is apparent that a wharfage does not lose its basic character by being labeled as a
service fee “for police surveillance on all goods.”

f. TFC on products sold by marginal farmers of fishermen - Definition of Marginalized Fishermen

(Sec. 122)

12.)

City of Cebu vs. IAC

No. L-70684, October 10, 1986.

Ruling: Fish is an agricultural product and an inspection fee is not allowed to be imposed thereon under
the Local Tax Code, whether in its original form or not.

The aforequoted provision prohibits a local government from imposing an inspection fee on agricultural
products and fish is an agricultural product. Contrary to the claim of petitioners, under Section 102 of
City Ordinance No. 1 a fisherman selling his fish within the city has to pay the inspection fee of P0.03 for
every kilo of fish sold. Furthermore, the imposition of the tax will definitely restrict the free flow of fresh
fish to Cebu City because the price of fish will have to increase.

h. Excise taxes under the NIRC/TFC on Petroleum Products

13.)
 Petron Corp. Vs. Mayor Tobias Tiangco
GR No. 158881, April 16, 2008

Ruling: the subject assessment for deficiency taxes on petitioner is ordered CANCELLED.

Section 133 prescribes the limitations on the capacity of local government units to exercise their taxing
powers otherwise granted to them under the LGC. Apparently, paragraph (h) of the Section mentions two
kinds of taxes which cannot be imposed by local government units, namely: “excise taxes on articles
enumerated under the National Internal Revenue Code [(NIRC)], as amended”; and “taxes, fees or
charges on petroleum products.

The current definition of an excise tax is that of a tax levied on a specific article, rather than one “upon
the performance, carrying on, or the exercise of an activity.” This current definition was already in place
when the LGC was enacted in 1991, and we can only presume that it was what the Congress had intended
as it specified that local government units could not impose “excise taxes on articles enumerated under
the (NIRC).” This prohibition must pertain to the same kind of excise taxes as imposed by the NIRC, and
not those previously defined “excise taxes” which were not integrated or denominated as such in our
present tax law.

It can be reasonably presumed that if municipalities, cities and provinces were authorized to impose
business taxes on manufacturers and retailers of petroleum products, the resulting losses to these
enterprises would be passed on to the consumers, triggering the chain of increases that normally
accompany the increase in oil prices. No similarly massive trigger effect would ensue upon the imposition
of business taxes on other commodities, including those already subject to excise taxation under the
NIRC.

It cannot be denied that subjecting petroleum products to business taxes apart from the taxes already
imposed by Congress in this age of deregulation would lead to the same result had they been so taxed
during the era of oil regulation – the increase of oil prices.

14.)

Province of Bulacan vs. CA

GR No. 126232, November 27, 1998

Ruling: Issues raised by petitioners are devoid of merit.

A province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as
the same are already taxed under the National Internal Revenue Code.—It is clearly apparent from the
above provision that the National Internal Revenue Code levies a tax on all quarry resources, regardless
of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes
on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National
Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other
quarry resources extracted from public land because it is expressly empowered to do so under the Local
Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private
land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation
to Section 151 of the National Internal Revenue Code.

Also, province may not invoke the Regalian doctrine to extend the coverage of its ordinance to quarry
resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the
applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the
government.—Section 21 of Provincial Ordinance No. 3 is practically only a reproduction of Section 138
of the Local Government Code. A cursory reading of both would show that both refer to ordinary sand,
stone, gravel, earth and other quarry resources extracted from public lands. Even if we disregard the
limitation set by Section 133 of the Local Government Code, petitioners may not impose taxes on stones,
sand, gravel, earth and other quarry resources extracted from private lands on the basis of Section 21 of
Provincial Ordinance No. 3 as the latter clearly applies only to quarry resources extracted from public
lands.

15.)

Batangas City vs. Pilipinas Shell Petroleum Corporation

GR No. 187631, July 8, 2015

Ruling: SC affirmed CTA en banc’s decision which adopted in toto the RTC’s ruling:

sustaining the imposition of business taxes by petitioners upon the

manufacture and distribution of petroleum products by respondent.
However, the RTC withheld the imposition of Mayor’s Permit Fee in
deference to the provisions of Section 147 of the LGC, in relation to
Section 143(h) of the same Code, which imposed a limit to the power of
petitioners to collect the said business taxes.

Power to tax is inherent in the State, the same is not true for local government units (LGUs) because
although the mandate to impose taxes granted to LGUs is categorical and long established in the 1987
Philippine Constitution, the same is not all encompassing as it is subject to limitations such as those set
forth under Section 133 of the LGC.

Although petroleum products are subject to excise tax, the same is specifically excluded from the broad
power granted to local government units (LGUs) under Section 143(h) of the Local Government Code
(LGC) to impose business taxes.—Section 133(h) clearly specifies the two kinds of taxes which cannot be
imposed by LGUs: (1) excise taxes on articles enumerated under the NIRC, as amended; and (2) taxes,
fees or charges on petroleum products. Indisputably, the power of LGUs to impose business taxes derives
from Section 143 of the LGC. However, the same is subject to the explicit statutory impediment provided
for under Section 133(h) of the same Code which prohibits LGUs from imposing “taxes, fees or charges
on petroleum products.” It can, therefore, be deduced that although petroleum products are subject to
excise tax, the same is specifically excluded from the broad power granted to LGUs under Section 143(h)
of the LGC to impose business taxes.

i. Percentage taxes and VAT

 16.)

Pepsi Cola Bottling vs. Municipality of Tanuan

GR No. L-31156. February 27, 1976

Ruling:

Municipalities are empowered to impose not only municipal license but just and uniform taxes for public
purposes. A municipal tax of P0.01 on each gallon of soft drinks produced is not unfair or oppressive. An
increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is
in line with the constitutional policy of according the widest possible autonomy to local governments in
matters of local taxation.

A municipal ordinance which imposes a tax of P0.01 for every gallon of soft drinks produced in the
municipality does not partake of a percentage tax.—The imposition of “a tax of one centavo (P0.01)
on each gallon (128 flued ounces, U.S.) of volume capacity” on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any
form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The
volume capacity of the taxpayer’s production of soft drinks is considered solely for purposes of
determining the tax rate on the products, but there is no set ratio between the volume of sales and the
amount of the tax.

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles,
such as distilled spirits, wines, x x x cigars and cigarettes, matches, x x x bunker fuel oil, diesel fuel oil,
cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. Soft drinks is not
one of those specified.