Non-profit clubs’ fees tax-exempt: SC
MANILA -- Membership fees, assessment dues, and other fees collected by clubs, which are organized operated exclusively for pleasure, recreation and other non-profit purposes, are not subject to income and value added taxes, the Supreme Court (SC) said in a ruling.
In a decision dated July 26 and penned by Associate Justice Estela M. Perlas Bernabe and released Wednesday, the SC directed the Bureau of Internal Revenue (BIR) to re-align its Aug. 3, 2012 Memorandum Circular No. 35-2012 in accordance with its decision that granted the petition of the Association of Non-Profit Clubs, Inc. (ANPC).
Such dues and fees “do not constitute as ‘the income of recreational clubs from whatever source’ that is ‘subject to income tax’ and part of the ‘gross receipts of recreational clubs’ that are subject to value added tax (VAT),” the SC said.
RMC No. 35-2012, entitled “Clarifying the Taxability of Clubs Organized and Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes,” states that “clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax under the National Internal Revenue Code (NIRC) of 1997, as amended.”
The circular states that “the gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income, and service fees are subject to VAT.”
The BIR said “the provision in the 1977 Tax Code
which granted income tax exemption to such recreational clubs was omitted in the current list of tax-exempt corporations under the 1997 NIRC, as amended” and thus, it said, “the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income, and service fees are subject to income tax.”
On VAT, “the BIR relied on Section 105, Chapter I, Title IV of the 1997 NIRC, which states that even a non-stock, non-profit private organization or government entity is liable to pay VAT on the sale of goods or services.”
The ANPC held a dialogue with the BIR in October 2012. The association was asked to submit its position paper on the issue.
When the BIR did not act on its request after two years, ANPC filed on Sept. 17, 2014 a petition for declaratory relief with the Makati City regional trial court (RTC) to declare the RMC No. 35-2012 “invalid, unjust, oppressive, confiscatory, and in violation of the due process clause of the Constitution.”
On July 1, 2016, the RTC dismissed ANPC’s petition as it upheld the validity and constitutionality of the BIR’s circular.
In ruling for ANPC, the tribunal said that “In fine for as long as these membership fees, assessment dues, and the like are treated as collections by recreational clubs from their members as an inherent consequence of their membership, and are, by nature, intended for the maintenance, preservation, and upkeep of the clubs’ general operations and facilities, then these fees cannot be classified as ‘the income of recreational clubs from whatever source’ that are ‘subject to income tax.’
“Instead, they only form part of capital from which no income tax may be collected or imposed.“It is a well-enshrined principle in our jurisdiction that the State cannot impose a tax on capital as it constitutes an unconstitutional confiscation of property.” the High Court said. (PNA)