G.R. No. L-27498 February 24, 1971
LAOAG PRODUCERS’ COOPERATIVE MARKETING ASSOCIATION, INC., plaintiff-appellant, vs. THE MUNICIPALITY OF LAOAG, ILOCOS NORTE, and PETRONILO JULIAN, as Municipal Treasurer, defendants-appellees.

FACTS

The plaintiff-appellant, Laoag Producers’ Cooperative Marketing Association, Inc., a wholesale dealer in Virginia leaf tobacco, challenged the validity of two municipal ordinances enacted by the Municipality of Laoag, Ilocos Norte. Ordinance No. 10, series of 1960, as amended by a later ordinance, required wholesale dealers of Virginia leaf tobacco, garlic, and onion to secure a permit, report their monthly sales and purchases, and pay a “municipal tax or inspection fee” of one-half centavo (later increased to one centavo) per kilo of these goods. The appellant paid the tax under protest, totaling P2,401, while also paying other local fees and a separate transport tax to the Bureau of Internal Revenue. The municipality defended the ordinances as valid exercises of its authority under the Local Autonomy Act ( Republic Act No. 2264 ), rendering services like inspecting scales and maintaining police and fire protection for the trade.

ISSUE

Whether the municipal ordinances impose a prohibited percentage tax on sales, in violation of the Local Autonomy Act.

RULING

The Supreme Court reversed the lower court and declared the ordinances null and void. The Court rejected several of the appellant’s arguments, holding that the prohibition against export taxes in the Revised Administrative Code was impliedly repealed by the Local Autonomy Act, that double taxation by different government entities is not inherently invalid, and that the record did not show the fee was unjust or excessive. However, the Court sustained the appellant’s primary contention. The ordinances violated the explicit proviso in Section 2 of Republic Act 2264, which states that “municipalities and municipal districts shall, in no case, impose any percentage tax on sale or other taxes in any form based thereon.” The ordinance required dealers to report the kilos sold and purchased monthly, and the tax was levied “on every kilo” on wholesale dealers and vendors. Since a dealer’s business inherently involves selling what is purchased, the tax was directly based on the volume of sales, constituting a prohibited tax on sales. The Court distinguished precedents involving chartered cities, which are not bound by this specific prohibition. The fact that Laoag later became a city did not retroactively validate ordinances that were invalid when enacted by a municipality. Consequently, the appellees were ordered to refund the taxes paid by the appellant with legal interest.