Local Business Tax Situs and Jurisdiction: Lessons from the Villanueva v. STEAG Case

The allocation of local business taxes among municipalities is a recurring source of disputes, especially when a single business operation spans multiple localities. The case of Municipality of Villanueva v. STEAG State Power, Inc. (G.R. No. 214260, May 3, 2021) clarifies two important points: how the 70% sales allocation under the Local Government Code (LGC) should be divided when a plant's facilities straddle two municipalities, and—more critically—which court has jurisdiction to review local tax cases.

The Facts of the Case

STEAG State Power, Inc. (SPI) operates a coal-fired power plant in Misamis Oriental. The main plant structure, where electricity is produced, is located in the Municipality of Villanueva, while the water-intake facility, which supplies the water needed for electricity generation, is in the Municipality of Tagoloan.

Both municipalities sought to impose local business taxes on SPI. Villanueva claimed the entire 70% sales allocation under Section 150(b) of the LGC because the plant itself was within its territory. Tagoloan, on the other hand, argued that the water-intake facility was an integral part of the production process, so the 70% should be shared equally between the two municipalities.

SPI paid the assessments under protest and filed a complaint with the Regional Trial Court (RTC) for refund and consignation, asking the court to determine the correct allocation.

The RTC and CA Rulings

The RTC ruled that the 70% sales allocation should be divided equally between Villanueva and Tagoloan. It reasoned that the plant in Villanueva could not produce electricity without the water-intake facility in Tagoloan, so the power plant effectively spanned both municipalities.

On appeal, the Court of Appeals (CA) modified this ruling. It applied Section 150(c) of the LGC, which provides for a 60-40 split when a factory and a plantation are located in different places. The CA likened the water-intake facility to a "plantation" because it supplied the raw material (water) needed for production. Thus, it ordered that Villanueva receive 60% and Tagoloan receive 40% of the 70% sales allocation.

The Supreme Court's Ruling on Jurisdiction

The Supreme Court did not rule on the merits of the tax allocation dispute. Instead, it declared the CA's decision null and void for lack of jurisdiction.

Under Section 7 of Republic Act No. 9282, which expanded the jurisdiction of the Court of Tax Appeals (CTA), the CTA has exclusive appellate jurisdiction over decisions of RTCs in local tax cases originally decided by them. Since SPI's complaint involved the correct amount of local business taxes, the proper remedy for Villanueva was to appeal to the CTA, not the CA.

The Court emphasized that a judgment rendered by a court without jurisdiction is null and void. It creates no rights and produces no legal effect. Because Villanueva failed to file the proper appeal with the CTA, the RTC decision became final and executory.

Practical Takeaways

• Appeals in local tax cases go to the CTA. Under R.A. 9282, any decision of an RTC in a local tax case—whether involving refunds, assessments, or allocation disputes—must be appealed to the Court of Tax Appeals. Filing with the CA is a jurisdictional error that voids the entire proceeding.

• The 70% sales allocation is not always paid to a single locality. When a business's factory, plant, or production facilities are located in different municipalities, the 70% sales allocation under Section 150(b) of the LGC may need to be prorated or divided among the affected localities.

• The situs rules under Section 150 are specific. The LGC provides different allocation formulas depending on the situation—whether there is a separate plantation, multiple factories, or facilities in different localities. Determining the correct formula requires a careful reading of the facts and the law.

• Timing matters. R.A. 9282 took effect in 2004, well before the dispute in this case arose. Businesses and local governments should be aware of the current rules on appellate jurisdiction to avoid costly procedural mistakes.

• A void judgment is no judgment at all. When a court acts without jurisdiction, its decision has no legal effect, and the case may be attacked at any time. This underscores the importance of choosing the correct forum from the start.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.