This case clarifies the extent to which local governments can impose amusement taxes, specifically holding that provinces cannot levy amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots. The Supreme Court ruled that these establishments do not fall within the category of “other places of amusement” as defined in the Local Government Code (LGC), thus limiting the taxing power of the Province of Benguet. This decision protects these businesses from unauthorized local taxation, ensuring they are not unduly burdened by levies beyond the scope of the law.

Resort or Recreation: Can Provinces Tax Admission to Fun?

Pelizloy Realty Corporation, owner of Palm Grove Resort in Benguet, challenged the province’s attempt to impose a 10% amusement tax on admission fees. The heart of the dispute lies in whether establishments like resorts and swimming pools can be classified as “other places of amusement” under Section 140 of the LGC, which grants provinces the power to levy amusement taxes. This case highlights the delicate balance between local government autonomy in generating revenue and the need to protect businesses from overreaching tax regulations.

The power to tax is inherent to the State, but local government units (LGUs) like provinces derive their taxing authority from the Constitution and statutes. As the Supreme Court emphasized in Icard v. City Council of Baguio, “the charter or statute must plainly show an intent to confer that power or the municipality, cannot assume it.” This principle underscores that any ambiguity in the grant of taxing power must be interpreted strictly against the LGU. The 1987 Constitution grants LGUs the power to create their own revenue sources, but this is subject to guidelines and limitations set by Congress.

Congress enacted the LGC to define the scope of local taxation. Section 133 (i) of the LGC generally prohibits LGUs from levying percentage or value-added taxes (VAT) on sales, barters, or exchanges of goods or services, with exceptions as otherwise provided in the LGC. Pelizloy argued that the Benguet tax ordinance violated this prohibition by imposing a percentage tax on admission fees. While amusement taxes are indeed a form of percentage tax, as defined in Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc., Section 140 of the LGC provides a specific exception.

Section 140 allows provinces to levy amusement taxes on “the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement.” The critical question is whether the phrase “other places of amusement” encompasses resorts, swimming pools, and similar establishments. To interpret this phrase, the Court applied the principle of ejusdem generis, which dictates that general words following specific ones should be limited to things similar to those specifically enumerated.

The Supreme Court had previously addressed a similar issue in Philippine Basketball Association v. Court of Appeals, interpreting the phrase “other places of amusement” in the context of the Local Tax Code of 1973. The Court held that the enumerated places (theaters, cinematographs, concert halls, circuses) shared a common characteristic of artistic expression, and thus, professional basketball games did not fall within the same category. However, Section 140 of the LGC adds “boxing stadia” to the list, complicating the application of the ejusdem generis principle since “artistic expression” doesn’t apply to boxing.

To resolve this ambiguity, the Court turned to Section 131 (c) of the LGC, which defines “amusement places” as “theaters, cinemas, concert halls, circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances.” This definition emphasizes the act of viewing a show or performance as the defining characteristic of an amusement place. This means the determining factor is whether the primary purpose of the venue is for staging spectacles or holding public shows for an audience.

Applying this definition, the Court concluded that resorts, swimming pools, bath houses, hot springs, and tourist spots do not primarily function as venues for shows or performances. While they may offer visual engagement, their main purpose is not to actively display, stage, or present entertainment to an audience. Therefore, these establishments do not belong to the same category as theaters, cinemas, and circuses, and cannot be considered “other places of amusement” subject to amusement taxes.

In reaching this decision, the Supreme Court reiterated the principle that the power to tax, when granted to a province, must be construed strictly. Any doubt or ambiguity must be resolved against the province. The clear definition of “amusement places” in Section 131 (c) of the LGC provided a sufficient basis for determining the scope of “other places of amusement,” precluding any need for broader interpretation that could unfairly burden taxpayers.

The Court’s ruling clarifies that while the first paragraph of Section 59, Article X of the Benguet Provincial Revenue Code of 2005, which covers theaters, cinemas, and similar establishments, remains valid, the second paragraph, insofar as it imposes amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots, is null and void. However, the second paragraph remains valid for admission fees to boxing stadia, as Section 140 of the LGC explicitly allows amusement taxes on such venues.

FAQs

What was the key issue in this case?	The central issue was whether the Province of Benguet had the authority to impose amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots under the Local Government Code.
What is an amusement tax?	An amusement tax is a percentage-based tax on the gross receipts from admission fees to places of amusement, such as theaters, cinemas, and circuses. It is a form of percentage tax levied on certain specified establishments.
What does ejusdem generis mean?	Ejusdem generis is a legal principle stating that when general words follow an enumeration of specific words, the general words should be limited to things similar to the specific ones. This is used to interpret the scope of general terms in statutes.
How did the court define “amusement places”?	The court, referencing Section 131 (c) of the LGC, defined amusement places as venues where one seeks admission to entertain oneself by seeing or viewing a show or performance. This definition emphasizes the act of viewing a show or performance.
Why were resorts and swimming pools excluded from amusement taxes?	Resorts and swimming pools were excluded because they are not primarily venues for staging shows or performances meant to be viewed by an audience. Their main purpose is recreation, not the presentation of spectacles.
What is the significance of Section 140 of the LGC?	Section 140 of the LGC grants provinces the power to levy amusement taxes on specific establishments, including theaters, cinemas, concert halls, circuses, and boxing stadia. This section creates an exception to the general prohibition on percentage taxes in Section 133 (i) of the LGC.
What was the court’s ruling in this case?	The Supreme Court ruled that the Province of Benguet could not impose amusement taxes on admission fees to resorts, swimming pools, bath houses, hot springs, and tourist spots. The court permanently enjoined the province from enforcing the tax ordinance with respect to these establishments.
Does this ruling affect amusement taxes on boxing stadia?	No, the ruling does not affect amusement taxes on boxing stadia. The second paragraph of the tax ordinance remains valid for admission fees to boxing stadia, as Section 140 of the LGC explicitly allows such taxes.

This case serves as a reminder of the importance of clearly defined taxing powers for local governments and the need to protect businesses from unauthorized taxation. The Supreme Court’s decision underscores the principle that any ambiguity in the grant of taxing power must be interpreted strictly against the local government unit.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Pelizloy Realty Corporation v. Province of Benguet, G.R. No. 183137, April 10, 2013