G.R. No. 19869. March 21, 1923

This is an appeal from a decision of the Court of First Instance of the City
of Manila in an action wherein the plaintiff, R. E. Murphy, seeks to recover of
the defendant, Wenceslao Trinidad, as Collector of Internal Revenue, a sum of
money which had been exacted from the plaintiff, and paid under protest by him,
as internal-revenue taxes, upon the value of certain embroideries exported by
the plaintiff from the Philippines between July 1, 1916, and July 1, 1921. To
the amount involved in the tax proper the statutory penalty, equal to
twenty-five per centum of the tax, and a fine of P200 had been added by the
Collector; and the total amount protested and sought to be recovered herein is
P15,895.93. At the trial in the Court of First Instance his Honor, Judge Geo. R.
Harvey, held that the tax in question” was legally due and had been properly
collected. He therefore absolved the defendant from the complaint, and the
plaintiff appealed.

It appears from the pleadings and admitted facts that the American Import
Company, of San Francisco, California, is extensively engaged in the exportation
of embroideries from the Philippine Islands for sale in the United States; and
the plaintiff, R. E. Murphy, during the period covered by the transactions now
in question, was employed by said company as its supervising agent in these
Islands, upon a commission of three per centum of the value of the labor
expended in the embroidery work. It further appears that the company has adopted
the plan of causing all its product from the Philippine Islands to be
embroidered here by native workers under the supervision of the company’s agent,
and upon material supplied by the company from the United States. For the
purpose of securing a uniform quality of work, even the thread used in the
embroidery is supplied by said company to the embroiderers, but for this a
charge is made at cost price. In his capacity as agent, the plaintiff receives
from San Francisco the goods to be embroidered, supervises the manufacture of
the embroidered product, and returns the same from time to time in a finished
state to the company in San Francisco.

In respect to the transactions thus conducted by the plaintiff for the
American Import Company of San Francisco during the period of five years from
July 1, 1916, to July 1, 1921, the said plaintiff made returns to the Collector
of Internal Revenue, for the purposes of taxation under section 1459 of the
Administrative Code, showing taxable transactions to the value of P339,544.59,
consisting, first, of P36,691.94, the value of thread and damaged materials sold
by the plaintiff in the Islands; and, secondly, of P302,852.65, the value of the
labor expended upon the embroidery work prior to September of the year 1919.
Upon these returns he was taxed accordingly and paid the tax without
protest.

From the foregoing it will be seen that in the returns upon which the
plaintiff was thus taxed, no account was taken of the value of the goods used in
the making of the embroideries, and after September, 1919, no account was taken
even of the value of the embroidery work.

It appears, however, that during the aforesaid period of five years the
plaintiff caused to be embroidered cloth, belonging to the American Import
Company of a total value of P597,248.31, upon which there was expended labor of
a total value of P931,823.30, all of which was returned to the American Import
Company from time to time during the said period at its office in San Francisco,
California. The freight and cartage on said shipments amounted to P670.42; and
the plaintiff earned as his commission during the same time the sum of
P28,785.04.

In view of the facts stated in the preceding paragraph, the Collector of
Internal Revenue, evidently assuming that the plaintiff had previously been
underassessed, demanded payment of the tax of one per centum on the difference
between the gross amount of P1,595,219.01 and the amount upon which the
plaintiff had already been taxed (P339,544.59), that is to say, upon the amount
of P1,255,674.41, thus claiming additional tax to the amount of P12,556.74,
together with the statutory penalty of twenty-five per centum for delinquency,
as prescribed in section 1458 of the Administrative Code, and a fine of P200,
making in all the sum of P15,895.93. This amount the plaintiff paid under
protest, and now sues to recover the same, under the authority granted in
section 1579 of the Administrative Code.

The principal points of controversy are two, namely, first, whether the
plaintiff Murphy (or his principal, the American Import Company of San
Francisco) is liable in any event for the tax, commonly called the merchants’
tax, imposed by section 1459 of the Administrative Code; and, secondly, whether,
assuming such liability to exist, the value of the goods upon which the
embroidery work is done can be properly included in the taxable value of the
manufactured product.

At the inception of the discussion we should note the fact that in the
section referred to a tax of one per centum is imposed upon the gross value of
goods sold, bartered, exchanged, or consigned abroad. The expression “consigned
abroad,” as here used, means approximately the same as “exported;” and under the
organic law here in force the Philippine Legislature’ has no power, without the
express approval of Congress, to make a law imposing a tax on exports. But the
provision now in question has been three times ratified by different Acts of the
Congress of the United States, that is to say, first, as it originally stood in
Act No. 2541, as amended by Act No. 2622 of the Philippine Legislature;
secondly, as it now stands in section 1459 of the Administrative Code of 1917;
and, thirdly and lastly, as it stood in section 1614 in the Administrative Code
of 1916 (Acts of Congress of July 1, 1916; of June 4, 1918; and of June 5,
1920). There can therefore be no question as to the validity of said provision
as it has stood at all times upon our statute books since its first enactment;
and we may say that the Congressional Act of ratification of June 5, 1920, was
passed by Congress after this court had decided the case of Smith, Bell &
Co. vs. Rafferty (40 Phil., 691), and said decision was reversed by the
Supreme Court of the United States, in so far as relates to the efficacy of
section 1614 of the Administartive Code of 1916, solely because of said
ratification by Congress pending the appeal.

And now, upon the point of liability for the tax that has been collected, we
note the contention in the appellant’s brief that the plaintiff Murphy himself
is not a “merchant.” This contention is undoubtedly correct if the plaintiff is
considered without relation to the master that stands behind him. Individually
the plaintiff is no merchant. But he is the agent and representative in the
Philippine Islands of the American Import Company of San Francisco; and that the
latter is a merchant in the sense intended in section 1459 of the Administrative
Code is obvious.

The term “merchant” is there defined as a person engaged in the sale, barter,
or exchange of personal property of whatever character, and it is declared that
the term includes manufacturers who sell articles of their own production. The
American Import Company fulfills every requirement of this definition because it
is engaged in the manufacture of Philippine embroideries and exports the
finished product for sale in the United States. The fact that the production and
export of these embroideries is effected through the agency of the plaintiff
Murphy and that the operations of the company in these Islands are conducted in
his name in no wise alters the case. Nor is the further circumstance here
material that the consignor or shipper of the goods from these Islands is Murphy
and the consignee in the United States is the American Import Company. Where a
consignment of goods is otherwise taxable, the tax should be assessed and
collected regardless of the personality of the consignor or consignee. A
shipment of goods abroad is no less taxable under this section, though consigned
to the order of the shipper himself.

Upon the question whether the value of the material used as a base for the
embroidery work should be taken into account in estimating the value of the
finished product for the purposes of taxation under section 1459, we are clearly
of the opinion that the proper answer is in the affirmative, and the Collector
of Internal Revenue made no mistake in including said item in his estimate. The
merchants’ tax, when paid by a manufacturer, should be computed upon all the
elements of value in the finished product; and it would be singular indeed if a
person residing in a foreign country could send his raw materials to his agent
in this country to be here manufactured and then export the finished product
free of tax on the basic material in competition with local manufacturers who
are required to pay tax on the entire value. The possibility of so unjust a
discrimination against local capital was foreseen by the lawmaker and defeated
by the use of carefully chosen words in section 1459, for it is there declared
that the tax shall be paid on the gross value of the goods, “whether consisting
of raw material or of manufactured or partially manufactured products, and
whether of domestic or foreign origin.” (Italics ours.)

It is hardly necessary to observe that in every case of manufacture the value
of the basic or raw material represents an investment of capital which must be
carried by someone, usually the manufacturer himself, during the process of
manufacture; and there is no reason why a foreign company, buying its material
in a foreign market, should not be required to carry the weight of the
investment, when such material is sent to this country to be converted into a
finished product, the same as a local manufacturer who buys his material here,
or in any market.

Besides, as already pointed out, the case of the American Import Company, of
California, falls squarely within; the letter of the statute; and in this
connection we desire to quote a passage from an opinion of Lord Cairns, speaking
in the House of Lords in Partington vs. Attorney-General (Law Reports, 4
H. L., 100, 122), in which the principle by which the courts should be guided in
interpreting revenue laws is stated with notable force and perspicacity. Said
his Lordship: * * * “As I understand the principle of all fiscal legislation, it
is this: If the person sought to be taxed comes within the letter of the law he
must be taxed, however great the hardship may appear to the judicial mind to be.
On the other hand, if the Crown, seeking to recover the tax, cannot bring the
subject within the letter of the law, the subject is free, however apparently
within the spirit of the law the case might otherwise appear to be. In other
words, if there be admissible, in any statute, what is called an equitable
construction, certainly such a construction is not admissible in a taxing
statute, where you can simply adhere to the words of the statute.”

From any point of view the tax which was collected in this case was due to
the Philippine Government from the American Import Company of San Francisco; and
the circumstance that it has been collected nominally from the plaintiff Murphy
should mislead no one. He has acted throughout as agent, and it is to be
assumed, in the absence of proof to the contrary, that the money which went into
the public coffers belonged to his principal. Besides, as consignor of the
exported product, the plaintiff was apparently the person directly responsible
to the Collector for the taxes due on the several consignments.

We note that in his estimate of the value of the exported embroideries, the
Collector adopted the gross cost of production, including the value of material,
work done, commissions of plaintiff, freight, and cartage. The last three of
these items are of course merely incidental expenses and are not per se
contributory to value. The value assessed by the Collector, however, cannot be
said to be excessive, since all the elements entering into the cost of
production are merely items of proof upon which the Collector based his
estimate, and the true value of the exported articles cannot be supposed to be
less than the sum of all the elements of cost going1 into production and
exportation.

Upon one point alone do we consider that error has been committed. This
relates to the fine of P200 imposed on the plaintiff by the Collector and
included in the amount which was paid by the plaintiff under protest. The
question of liability for this fine seems not to have been called to the
attention of the trial judge, and for that reason was evidently overlooked by
him.

The imposition of this fine by the Collector serves as a reminder of a
practice sanctioned by the Internal Revenue Law of 1904 (Act No. 1189), and the
Collector no doubt supposed the same practice to be permissible under the
Internal Revenue Law now in force. The history of the legislation on the subject
is this: Under various provisions of the Internal Revenue Law of 1904 (Act No.
1189), the Collector had authority to impose administrative fines of varying
proportions for sundry delinquencies on the part of persons liable for
internal-revenue taxes; and although the person subjected to such a fine had a
right of appeal to the Court of of First Instance (Act No. 1189, sec. 54), the
Code Committee, when engaged in the revisal of that Act for incorporation in the
Administrative Code did not look with favor on this feature of the law.
Accordingly the Code Committee proposed to the Collector of Internal Revenue to
eliminate the administrative fine altogether and in lieu thereof to insert a
general provision, such as is contained in section 2741 of the Administrative
Code of 1917, imposing a penalty, to be enforced by the courts, for the
violation of any provision of the Internal Revenue Law or of any lawful
regulation of the Bureau of Internal Revenue for which no specific penalty was
provided by law. This proposal met the approval of the Collector; and the
administrative fine disappeared from our fiscal system with the adoption of the
Internal Revenue Law of 1914, an Act prepared by the Code Committee and
embodying the feature we have mentioned. The individuals responsible for this
change in the law were of the opinion that the practice of allowing the
Collector to impose fines in his discretion, even though within moderate limits,
was objectionable. It certainly was not in harmony with legislation in the
United States and is said to have been originally here adopted from the fiscal
practices of the Government of Mexico. However that may be, the administrative
fine has clearly ceased to be, imposable in this country, and the judgment
appealed from must be corrected to the extent of allowing a recovery for the
amount paid as such fine.

For the reasons stated, the judgment appealed from will be affirmed with
respect to the tax and penalty thereon paid under protest, and reversed to the
extent of the fine; and judgment will be entered for the plaintiff to recover of
the defendant the sum of P200, but without interest, pursuant to section 1579 of
the Administrative Code, and without costs. So ordered.

Araullo, C.J.,
Malcolm, Avanceña, Ostrand, and Romualdez, JJ., concur.

---

JOHNS, J.:

Although standing alone, I vigorously dissent.

The plaintiff is a resident of the City of Manila and engaged in supervising
the manufacture of embroidered cloth within the Philippine Islands under a
contract with the American Import Company. The defendant is the duly appointed
and acting Collector of Internal Revenue of the Philippine Islands.

Omitting the formal parts, for cause of action the plaintiff alleges:

“II. That the plaintiff is engaged in the business of supervising the
manufacture of embroidered cloth within the Philippine Islands, all of the cloth
utilized in the said business being the exclusive property of the American
Import Company, a California corporation with its principal office in the City
of San Francisco, State of California, United States of America.

“III. That the said American Import Company pays the plaintiff for his
services the sum of three per cent of the value of the labor expended upon the
said cloth.

“IV. That the plaintiff upon causing the said cloth to be embroidered returns
the same to the said American Import Company at San Francisco, California.

“V. That the plaintiff during the period from July 1, 1916 to July 1, 1921,
caused to be manufactured into embroidered cloth, cloth belonging to the
American Import Company of San Francisco of a total value of P597,248.31 upon
which there was expended labor of a total value of P931,823.30, all of which was
forwarded to the American Import Company from time to time during the said
period at its office in San Francisco, California, the freight and cartage on
the said shipments amounting to the sum of P670.42; that during the same period
plaintiff sold on behalf of the said American Import Company within the
Philippine Islands thread and damaged materials of a total value of P36,691.94;
that plaintiff received as his commission during the said period the sum of
P28,785.04.

“VI. That plaintiff declared for the purpose of taxation the sum of
P339,544.59 and duly paid to the defendant as Collector of Internal Revenue the
taxes due on the said sum.

“VII. That the defendant in his capacity as Collector of Internal Revenue and
under the pretended authority of section 1459 of Act No. 2711 of the Philippine
Legislature demanded of the plaintiff a tax of 1 per centum of P1,255,674.41,
which sum is the total of the sums alleged in paragraph five hereof after
deducting therefrom the sum of P339,544.59 alleged in paragraph six hereof.

“VIII. That in addition to the sum of P12,556.74 demanded of the plaintiff by
the defendant as is alleged in the preceding paragraph the defendant as a
penalty for the late payment of the said tax imposed a further tax of 25 per
centum of the said sum, or the sum of P3,139.19 and a fine of P200 or a total of
P15,895.93.

“IX. That the plaintiff involuntarily and to avoid the summary seizure and
sale of his property paid the said defendant the sum of P15,895.93 under written
protest upon the ground that the tax was improperly levied, the said goods not
having1 been consigned abroad within the meaning of section 1459 of Act No.
2711.

“X. That the defendant overruled the said protest of plaintiff and refused
and continues to refuse to return to the plaintiff the sum of P15,895.93 or any
part thereof.”

Wherefore, plaintiff prays for judgment against the defendant for P15,895.93,
with interest and costs.

For answer, the defendant alleges:

“1. That the plaintiff consigned abroad embroidered cloth of the value of
P1,255,674.41.

“2. That upon said sum the defendant in his capacity as Collector of Internal
Revenue levied, assessed, and collected from the plaintiff the amount of
P12,556.74, as one per cent tax under the authority of section 1459 of Act No.
2711, plus 25 per cent as penalty for delay in payment, amounting to P3,139.19
and a fine of P200, making a total of P15,895.93.

“3. That said total sum was paid by the plaintiff to the defendant under
protest which was duly overruled by the defendant.”

Wherefore, defendant prays judgment for costs.

Upon such issues the parties entered into the following stipulation of
facts:

“It is stipulated and agreed by and between the parties to the above entitled
action that the facts alleged in paragraphs 1, 2, 3, 4, 5, 6, 8, and 10 of the
complaint are true.

“It is further stipulated and agreed that the defendant, in his capacity as
Insular Collector of Internal Revenue, demanded that the plaintiff pay a tax of
1 per cent of P1,255,674.41, which sum is the total of the sums alleged in
paragraph 5 of the complaint after deducting therefrom the sum of P339,544.59
alleged in paragraph 6 of the complaint; and that the plaintiff involuntarily
and to avoid the summary seizure and sale of his property paid the defendant the
sum of P15,895.93 alleged in paragraph 8 of the complaint under written protest
upon the ground that the tax was improperly levied.

“It is further stipulated and agreed that the sum of P339,544.59 declared by
the plaintiff for taxation as alleged in paragraph 6 of the complaint is made up
of the sum of P36,691.94 covering sales of thread and damaged materials and the
sum of P302,852.65 the value of labor expended on the cloth belonging to the
American Import Company of San Francisco, California, up to and including the
month of September, 1919; and that since the month of October, 1919, the
plaintiff has declared for the purpose of taxation only the amount received by
him for the sale of thread and damaged materials within the Philippine
Islands.

“It is further stipulated and agreed that the American Import Company of San
Francisco, California, is engaged in the business of selling the embroidered
cloth forwarded to it by the plaintiff as alleged in paragraph 4 of the
complaint.”

Upon such pleadings and stipulation the case was submitted to the trial
court, which dismissed the complaint and rendered judgment in favor of the
defendant for costs.

The plaintiff appeals, claiming that the judgment is contrary to law and the
evidence.

The question presented involves the construction of section 1459 of Act No.
2711, known as the Administrative Code.

“SEC. 1459. Percentage tax on merchants’ sales.—All merchants not
herein specifically exempted shall pay a tax of one per centum on the gross
value in money of the commodities, goods, wares, and merchandise sold, bartered,
exchanged, or consigned abroad by them, such tax to be based on the actual
selling price or value of the things in question at the time they are disposed
of or consigned, whether consisting of raw material or of manufactured or
partially manufactured products, and whether of domestic or foreign origin. The
tax upon things consigned abroad shall be refunded upon satisfactory proof of
the return thereof to the Philippine Islands unsold.

” ‘Merchant,’ as here used, means a person engaged in the sale, barter, or
exchange of personal property of whatever character. Except as specially
provided, the term includes manufacturers who sell articles of their own
production and commission merchants having establishments of their own for the
keeping and disposal of goods of which sales or exchanges are effected, but does
not include merchandise brokers.”

It appears from an analysis of the pleadings and stipulated facts that the
American Import Company is a California corporation with its principal office in
the City of San Francisco, and that it was the exclusive owner of the cloth
before and after it was embroidered, and that it furnished all of the materials
necessary and used in the work. That at all the times alleged the plaintiff was
the agent and in the employ of the company under a contract in and by which he
was to receive for his services 3 per cent for supervising the embroidering of
the cloth, and that after the cloth was embroidered, the cloth in its finished
condition was returned to the company at its home office at San Francisco. That
between July 1, 1916 and July 1, 1920, the value of the cloth used in the work
was P597,248.31, and the value of labor which was expended in embroidering the
cloth was P931,823.30 upon which freight and cartage was paid amounting to
P670.42. During the times alleged, and acting for, and representing, the
company, the plaintiff sold within the Philippine Islands thread and damaged
materials of the value of P36,691.94, upon which the tax was voluntarily paid,
and, hence, the amount of any “sales tax” on any goods sold in the Philippine
Islands is not in controversy. The only question involved here is whether a
sales tax should be paid on the value of the cloth imported by the American
Import Company and the value of the labor expended upon embroidering of it
within the Philippine Islands.

I will frankly concede that if either the plaintiff or the American Import
Company is a merchant within the meaning and definition of section 1459 of the
Administrative Code, that tax should be paid. The majority opinion says that,
individually, the plaintiff is not a merchant, “but lie is the agent and
representative in the Philippine Islands of the American Import Company of San
Francisco; and that the latter is a merchant in the sense intended in section
1459 of the Administrative Code is obvious.”

As I construe the record, although the American Import Company is a merchant
doing business in San Francisco, California, it is not a merchant doing business
in the Philippine Islands within the meaning of section 1459 of the
Administrative Code, and, hence, should not be liable for a sales tax on the
value of cloth which it imported here to have embroidered, or for the value of
the labor used in embroidering the cloth.

The caption of section 1459 is “Percentage tax on merchants’ sales,” and the
section provides that all merchants not specifically exempt shall pay a tax of
one per centum on the gross value in money of the commodities, goods, wares and
merchandise sold, bartered, exchanged or consigned abroad by them to be based on
the actual selling price or the value of the things in question at the time they
are disposed of or consigned, whether consisting of raw material, or of
manufactured or partially manufactured products, or whether of domestic or
foreign origin.

It must be conceded that the law was intended to apply to merchants doing
business as such within the Philippine Islands, and that it does not apply to a
merchant in San Francisco, unless he does business as a merchant in the
Philippine Islands.

It is true that plaintiff sold some damaged thread and materials within the
Philippine Islands. But the sales tax was paid in full upon all of the property
sold, and the question of a sales tax upon any property which was sold is not
involved in this case, an important distinction which the majority opinion
apparently overlooks. That opinion is founded upon the fact that, because at one
time the plaintiff sold some damaged materials and thread upon which the sales
tax was paid, therefore, the American Import Company during the whole period of
five years was doing business here as a merchant when it imported its own
material and employed labor within the Philippine Islands upon that material. I
frankly concede that for any sale of goods, wares and merchandise made by either
the plaintiff or the American Import Company within the Philippine Islands that
the tax would be valid. But the record shows that the sales tax was paid upon
all of the goods sold, hence, the only question here involved is the right to
levy and collect a sales tax on the goods which have been imported and the value
of the labor employed upon those goods within the Philippine Islands.

Hence, the question here involved is whether the importing of goods and the
employment of labor upon those goods within the Philippine Islands makes and
constitutes the importer a merchant within section 1459. That section was
intended to apply to merchants within the Philippine Islands and to commodities,
goods, wares and merchandise sold, bartered, exchanged or consigned abroad by
persons doing business as merchants within the Philippine Islands.

It must be conceded that the Legislature of the Philippine Islands could not
enact a law which would require a merchant doing business as such in California
to pay a sales tax on goods, wares and merchandise which he sells in California.
The existing law only applies to a California merchant who comes here and does
business as a merchant within the Philippine Islands. The section itself defines
the word “merchant” and says that, as here used, the word “means a person
engaged in the sale barter or exchange of personal property of whatever
character.” Here, again, the meaning of the word should be confined and limited
to a person who does business as a merchant within the Philippine Islands as
defined by the legislative act, and it does not apply to a person who does
business as a merchant in the State of California, If it is a fact that the
plaintiff or the American Import Company is a person who is engaged “in the
sale, barter or exchange of personal property of whatever character” within the
Philippine Islands, then the sales tax should be paid, otherwise not. The word
“sale” has a well denned legal meaning.

In Words and Phrases, vol. 7, page 6291, it is said:

“A sale, as defined by Blackstone, is a transmutation of property from one
man to another in consideration of some price or recompense in value.

“A sale is a transfer of the absolute or general property in a thing for
money or anything of value.

“A sale is a contract for the transfer of property from one person to another
for a valuable consideration.

“The word ‘sale’ has a fixed legal signification, and means an exchange of
goods or property for money paid or to be paid.

“A sale, in the ordinary sense of the word, is a transfer of property for a
fixed price in money or its equivalent.

” ‘To constitute a valid sale, there must be a concurrence of the following
elements, viz.: (1) Parties competent to contract; (2) mutual consent; (3) a
thing, the absolute or general property in which is transferred from the seller
to the buyer; and (4) a price in money paid or promised.’ “

The books are full of such definitions.

The same authority, volume 1, page 715, defining the word “barter,” says
that:

“A barter is the exchange of goods of one character for goods of another; any
sale of one character of merchandise where any transfer of merchandise is taken
in exchange instead of money.

“* * * means the exchange of one commodity or article of property for
another, and has about the same meaning as ‘exchange.’ “

The same authority says in volume 3, page 2546, that:

“Exchange is a contract by which the parties mutually give or agree to give
one thing for another, neither thing nor both things being money only.

“Exchange is a contract by which the parties to the contract give to one
another one thing for another, whatever it be, except money, for in that case it
would be a sale.

“An exchange is a transfer of certain goods for other goods received
therefor.”

Bouvier’s Law Dictionary, volume 1, defines the word “exchange” as:

“The transfer of goods and chattels for other goods and chattels of equal
value. This is more commonly called barter.

“The distinction between a sale and exchange of property is rather one of
shadow than of substance. In both cases the title to property is absolutely
transferred, and the same rules of law are applicable to the transaction,
whether the consideration of the contract is money or by way of
barter.”

All of such definitions are undisputed, standard and authentic. Upon any of
the questions involved in the instant case, there is no claim or pretense that
either the plaintiff or the American Import Company has ever sold, bartered or
exchanged any personal property within the Philippine Islands. Yet within the
express provisions of the statute the word “merchant” is confined and limited to
“a person engaged in the sale, barter or exchange of personal property of
whatever character.” If neither the plaintiff nor his company has sold, bartered
or exchanged personal property, then they are not merchants within the meaning
of the word, as defined by the statute, and it expressly provides that “all
merchants not herein specifically exempted shall pay a tax of one per centum,
etc.” If the plaintiff or his company is not doing business here as a merchant
within the definition of the legislative act, how and upon what theory should
they be subject to a “sales tax?” But it is said that the word “merchant,” as
defined in the act, “includes manufacturers who sell articles of their own
production and commission merchants having establishments of their own for the
keeping and disposal of goods of which sales or exchanges are effected, but does
not include merchandise brokers.” But here, again, “articles of their own
production” are not sold, bartered or exchanged within the Philippine Islands.
The title to the cloth in both its original and manufactured form remained in
the American Import Company from the time of its shipment from San Francisco to
its return in the form of finished product.

It is admitted that the American Import Company imports the cloth from itself
to itself in the Philippine Islands; that while here it is embroidered with
Filipino labor, after which in its manufactured form the goods are again shipped
from the Philippine Islands by the American Import Company to itself in
California; and that no sales of the embroidered finished work have ever or at
any time been made by the plaintiff or any one else within the Philippine
Islands. All sales of the embroidered work are made by the American Import
Company within the United States after its return shipment from the Philippine
Islands.

This action is brought by the plaintiff in his own proper person. It is
alleged in the complaint and admitted by the answer “that the plaintiff
involuntarily and to avoid the summary seizure and sale of his property, paid
the said defendant the sum of P15,895.93 under written protest upon the ground
that the tax was improperly levied,” and the case was brought by the plaintiff
to obtain the return of the money which it is alleged and admitted that he
personally paid.

The majority opinion admits that the plaintiff is not personally a merchant,
and that he is not personally liable for the tax. In legal effect, it holds that
the American Import Company is a merchant within the meanings of section 1459,
and, as such, is liable for the tax, and assumes that the sales tax was paid by
the plaintiff as the agent and for the use and benefit of the American Import
Company. That assumption is a fiat contradiction of the pleadings and stipulated
facts. There is no allegation or proof that the plaintiff paid the “sales tax”
as the agent of, or for, or on account of, the American Import Company, and the
assumption is in direct conflict with the pleadings and stipulated facts, and,
yet, the majority opinion is founded upon that assumption.

Section 1459 provides for a “Percentage tax on merchants’ sales,” and that
merchants within the meaning of the act “shall pay a tax of one per centum,
etc.” Such a tax is confined and limited to persons who are doing business as
merchants within the Philippine Islands, and the act itself defines the word
“merchant” as “a person engaged in the sale, barter or exchange of personal
property of whatever character.”

Upon the questions here involved, there is no allegation or proof that either
the plaintiff or the American Import Company was ever engaged in the sale,
barter or exchange of personal property within the Philippine Islands. Under the
admitted facts, their business is confined and limited to the importing of cloth
to have it embroidered here and then returned to the place of its origin as a
finished product. There is no claim or pretense that either of them ever sold,
bartered, or exchanged any of the plain or embroidered cloth within the
Philippine Islands, The statute has specifically defined the word “merchant” to
mean a person who sells, barters or exchanges personal property, and was
intended to apply to persons doing business as merchants within the Philippine
Islands, and it should not be given any extraterritorial Jurisdiction. Here,
there is no claim or pretense that the cloth in its original or finished form
was ever bartered, sold or exchanged within the Philippine Islands, and, yet,
the majority opinion holds that it is liable to a sales tax. The very nature of
a sales tax carries with it and legally implies that something has been sold,
and a tax is levied because it is sold. Here, you are levying a tax upon
property which it is admitted has not been sold. If the American Import Company
is liable for a sales tax upon its property which has not been sold, and the
State of California was to levy a sales tax, which it would have a legal right
to do, then under the majority opinion the American Import Company would be
required to pay a sales tax on its property before it is sold, and a sales tax
on the same property after it is sold, or a double sales tax on one sale only of
the property.

In the final analysis, the majority opinion requires the
payment of a sales tax for the privilege of employing labor in the Philippine
Islands. It is not legally sound, and violates every rule of statutory
construction.