ILOCOS NORTE ELECTRIC COMPANY, INC., PLAINTIFF-APPELLEE, VS. MUNICIPALITY OF LAOAG AND MUNICIPAL TREASURER OF LAOAG, DEFENDANTS-APPELLANTS.

The Municipality of
Laoag
, Ilocos Norte, brought this appeal to this
Court from a decision of the Ilocos Norte Court of
First Instance which held a tax ordinance of the municipality null and void and
ordered it to refund to the Ilocos Norte Electric Co.,
Inc. the amount of P1,200 paid by the latter under the ordinance.

The ruling was made in a suit filed by the electric power company. The lower
court found that the company was granted a municipal franchise (Resolution No.
308), pursuant to Act No. 667 in relation to Act Nos. 1022, 3636 and 3108, to
operate an electric plant within the municipality. Under Act No. 3636, the
company paid a tax equal to 2 per cent of its gross earnings “in lieu of any and
all taxes.”^[1]

On September 29, 1960 , however, the
municipality enacted Ordinance No. 20, series of 1960 imposing an annual rate
tax of P800 on persons engaged in the business of supplying electricity. By
January, 1962, the company had paid under protest to the municipality the amount
of P1,200.

The company contended that the ordinance impaired the obligations of its
contract, ^[2] considering that under
Act No. 3636, as well as under its franchise, it was exempted from the payment
of any tax other than that provided therein. On the other hand, the municipality
asserted its power to tax on the basis of the Local Autonomy Act of 1959 (Rep.
Act No. 2264), section 2 of which provides in part as follows:

“Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal
license taxes or fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or municipal districts
by requiring them to secure licenses at rates fixed by the municipal board or
city council of the city, the municipal council of the municipality, or the
municipal district; xxx Provided, however. That no city, municipality or
municipal district may levy or impose any of the following:

“x x x x

“(d) Taxes on persons operating waterworks, Irrigation and other public
utilities except electric light, heat and power;

“x x x x

“(j) Taxes of any kind on banks, insurance companies, and persons paying
franchise tax; x x x”

The lower court sustained the company’s stand and held the ordinance null and
void, prompting the municipality to bring this appeal to this Court.

The question, troublesome for some time because of the new orientation
introduced by the Local Autonomy Act, was recently resolved in Butuan Sawmill, Inc. v. City of Butuan . G. R. No. L-21516, April 29, 1966. Through Mr. Justice J.B.L. Reyes, this
Court held that local governments are without power to tax electric power
companies already subject to franchise tax unless their franchise allows the
imposition of additional tax. It said:

“The argument of the appellant city is that, under subparagraph (d) of the
above-quoted provision, the business of electric light, heat and power, being an
exception to those which it cannot tax like waterworks and irrigation is within
the city’s taxing power. This argument is untenable, because (1) sub-paragraph
G) of the same section specifically withholds the imposition of taxes on persons
paying franchise tax (like appellee herein), and (2)
the city’s interpretation of the provision would result in double taxation
against the business of the appellee because the
internal revenue code already imposes a franchise tax. The logical construction
of section 2(d) of Republic Act No. 2264 that would not nullify section 2(j) of
the same Act is that the local government may only tax electric light and power
utilities that are not subject to franchise taxes, unless the franchise itself
authorizes additional taxation by cities or municipalities.

WHEREFORE, the decision appealed from is affirmed without costs.

Concepcion, C.J., Reyes, J. B. L.,
Barrera, Dizon, Makalintal,
Bengzon, J. P., Zaldivar,
Sanchez and Ruiz Castro, JJ., concur.

^[1] Thus section 10 of the
law provides:

“…. In consideration of the franchise and rights hereby granted, the grantee
shall pay into the municipal treasury of the municipality in which it is
supplying electric current to the public under the franchise, a tax equal to two
per centum of the gross earnings sold or supplied under this franchise in said
municipality. Said tax shall be due and payable quarterly and, shall be in lieu
of any and all taxes of any kind, nature or description levied, established, or
collected by any authority whatsoever, municipal or provincial, or insular, now
or in the future, on its poles, wires, insulators, switches, transformers and
structures, installations, conductors, and accessories, placed in and over and
under all public property, including public streets and highways, provincial
roads, bridges and public squares, and on its franchise, rights, privileges,
receipts, revenues and profits, from which taxes the grantee is hereby expressly
exempted.”

^[2] Const, art.
Ill , sec. 1(10).