ADVERTISING ASSOCIATES, INC., PETITIONER, VS. COLLECTOR OF INTERNAL REVENUE, RESPONDENT.

This is a petition for review of the decision of the Board of Tax Appeals
affirming the ruling of the respondent Collector of Internal Revenue which
denied the refund to petitioner of the sum of Pll,986.18 paid by it as
percentage taxes on sales of neon-tube signs, electric signs, and electric
advertising devices, pursuant to section 185 (k) of the National Internal
Revenue Code. The basic facts in this case are not disputed and are stated in
the decision of the Tax Board which we reproduce below:

“The petitioner is a manufacturer of neon-tube signs for advertising
purposes. Petitioner manufactures neon-tube signs upon previous orders from
advertisers. After the neon-tube signs with their corresponding armatures are
finished, they are delivered to petitioner’s customers, who pay the
corresponding sales price, according to contract. Sometimes neon-tube signs are
rented by customers. The respondent assessed the amount of P8,581.59
corresponding to the 3rd quarter of 1948 to 4th quarter of 1919 and the sum of.
P3,404.59, corresponding to the period covered from 1950 to 1951, as sales tax
pursuant to the provisions of Section 185(k) of the Tax Code. The
petitioner paid the total sum of P11,986.18 as demanded by the respondent. On
May 12, 1949, petitioner demanded the refund of P8,581.59 as excess tax,
alleging that petitioner should be taxed as a contractor or publisher and not as
a manufacturer in accordance with the provisions of Section 191 of the Tax Code.
Respondent denied the petitioner’s request for refund in his letter dated
December 20, 1950 and received by petitioner on January 2, 1951. On June 23,
1951, petitioner addressed a letter to the Secretary of Finance requesting
advice as to what steps petitioner should take in order to perfect its appeal
before this Board. Inasmuch as no action was taken by the Department of Finance,
petitioner on April 28, 1952 addressed a letter to the respondent requesting
reconsideration of its letter dated December 20, 1950 and at the same time
requested the refund of the additional sum of P3,404.59, taxes paid for the year
1950-1951. Respondent in his communication dated October 14, 1952, and received
by petitioner on October 20, 1952, refused to reconsider his ruling and
considered his decision dated December 20, 1951, final. Petitioner now comes to
this Board for the review of the respondent’s decision.

We also reproduce the pertinent portions of the two sections of the Tax
Code:

“Sec. 185. Percentage tax on sales of automobiles, sporting goods,
refrigerators, and others.—There shall be levied, assessed and collected
only once on every original sale, barter exchange or similar transaction
intended to transfer ownership of, or title to, the articles herein below
enumerated, a tax equivalent to thirty per centum of the gross value in
money of the articles so sold, bartered, exchanged or transferred, such tax to
be paid by the manufacturer, producer or importer: * * *

“(k) Neon-tube signs, electric signs, and electric advertising
devices.

* * * * * * *

“Sec. 191. Percentage tax on road, building, irrigations, artesian well,
waterworks, and other construction work contractors, proprietors or operators of
dockyards, and others.—* * * publishers, except those engaged in the
publication or printing and publication of any newspaper, magazine, review, or
bulletin which appears at regular intervals, with fixed prices for subscription
and sale, and which is not devoted principally to the publication of
advertisements; printers, and bookbinders, shall pay a tax equivalent to three
per centum of their gross receipts.”

* * * * * * *

It is the contention of petitioner that it is not a manufacturer but only a
contractor of neon-tube signs for the reason that it makes neon-tube signs,
electric signs, and electric advertising devices only by contract and by
previous order of the party paying for the signs or devices; also, that
petitioner may also be considered a publisher for the reason that the neon signs
made by it really publish a product or a business, and that consequently, it
should be taxed under section 191 of the Tax Code which imposes as much lower
tax both in rate and in amount. According to the Solicitor General, however, the
very articles of incorporation of petitioner rebuts its contention that it is
not a manufacturer. We quote a portion of said articles of incorporation,
viz.:

“To conduct a general advertising business, both as principal and agent,
including the preparation and arrangement of advertisements, and the
manufacture and construction of advertising devices and
novelties; * * *”

Petitioner makes extensive arguments and citation of authorities as to the
meaning of manufacturer in an endeavor to show that it does not really
manufacture neon-tube signs, electric signs and electric advertising devices but
only sells or leases its services in making said signs according to the wishes
and instructions of the customer. To us there is no need of seriously
considering said authorities and arguments because the decisive point involved
in the case is the meaning and purpose of section 85(k) of the Tax
Code. What was the intention of the Legislature in enacting said legal provision
and what did it mean to tax? In this connection, it is both relevant and
interesting to give a brief history of this legal provision. According to the
decision of the Tax Board, and we quote:

“* * * The original text of the Tax Code (Commonwealth Act No. 466) approved
on June 15, 1939, does not include the manufacture of neon-tube signs as taxable
under Section 185. This was due to the fact that the business of manufacturing
neon-tube signs was not at the time very lucrative for lack of demand. But as
years went by, the demand for such devices increased, so, under Republic Acts
Nos. 41, 217, 588, and 594, the rate of percentage tax was increased from 10% to
15% and then to 30%.”

And, the Solicitor General adds that at the beginning When the tax was only
10 per cent the petitioner without question or protest paid the same; and it was
only when the tax was increased to 15 per cent and then to 30 per cent that it
thought of questioning the legality of the assessment and for the first time
claimed that it did not fall under the provisions of section 185(k).
From the time that the tax on neon-tube signs, electric signs, and electric
advertising devices was imposed there had been no such neon-tube signs and
electric devices mass-produced for sale to the public. And even at the present
time petitioner admits that no such signs and devices are made or sold to the
public except upon orders by the customers. This being the case, and if as
contended by petitioner that its business of making and manufacturing neon-tube
signs, electric signs, and electric advertising devices does not come under
section 185 (k) of the Tax Code then one may ask what neon-tube signs,
electric signs, and electric advertising devices does said section
185(k) tax? As the Tax Board aptly frames the question in the last part
of this decision:

“If petitioner does not come within the purview of section 185 (k)
of the Tax Code, what neon-tube signs, electric signs, and electric advertising
devices does Congress intend to tax?”

The answer would be “none”. In other words, Congress would be placed in the
position of imposing a tax on something that did not exist and so will have
performed a futile and useless legislative act.

“A statute is a solemn enactment of the state acting through its legislature
and it must be assumed that this process achieve result. It cannot be presumed
that the legislature would do a futile thing.” (Sutherland Statutory
Construction, Vol. 2, p. 237.)

As a rule taxes are imposed on existing industries, occupations,
transactions, products and articles and not on those that may possibly exist or
come in the future. Tax law makers, and tax collectors who generally propose and
recommend the enactment of tax laws, are usually practical-minded people who
deal with and consider existing situations and problems and not those that may
possibly arise in the future. When the 10 per cent, then 15 per cent and later
30 per cent tax was imposed on neon-tube signs, electric signs, and electric
advertising devices sold, exchanged, or transferred the Legislature could not
have had in mind and referred to any other signs or devices than those which
were being made and manufactured by previous order, such as those manufactured
by petitioner. The Legislature was not so much interested in how those neon-tube
signs and electric advertising devices were made and manufactured as it was in
their eventual sale to the public and to customers who ordered them. We
therefore find and hold that the Tax Board committed no error in affirming the
ruling of the Collector of Internal Revenue.

Petitioner also claims that it should be allowed deductions for the materials
used in the making of these electric signs which are now being taxed under
section 185(k). But according to the Solicitor General, although he
agrees that the cost of the materials used in the manufacture of the finished
articles on which the sales tax has been previously paid may be deductible from
the gross selling price of the finished article, petitioner did not raise this
issue before the Tax Board, and during the hearing before said body no proof,
was presented to show that said deduction had not been allowed, as a result of
which the Tax Board did not make any finding on the point. We agree with the
Solicitor General that at this stage of the case, this matter cannot be
considered.

In view of the foregoing, the decision of the Tax Board is hereby affirmed
with costs. We find it unnecessary to pass upon the other points raised in the
petition.

Bengzon, Acting C. J., Padilla, Reyes, A., Jugo, Bautista Angelo,
Labrador, Concepcion and Reyes, J. B. L., JJ., concur.