Progressive Development Corporation v. Quezon City
Facts: The City Council of QC passed an ordinance known as the Market Code of QC, which imposed a
5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC.
In case of failure of the owners of the market spaces to pay the tax for three consecutive months, the
City shall revoke the permit of the privately-owned market to operate.
Progressive Development Corp, owner and operator of Farmer’s Market, filed a petition for
prohibition against QC on the ground that the tax imposed by the Market Code was in reality a tax on
income, which the municipal corporation was prohibited by law to impose.
Issue: Whether or not the supervision fee is an income tax or a license fee
Held: It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily for
purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising
revenues.
If the generating of revenue is the primary purpose and regulation is merely incidental, the
imposition is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also
obtained does not make the imposition a tax.
To be considered a license fee, the imposition must relate to an occupation or activity that so
engages the public interest in health, morals, safety, and development as to require regulation for
the protection and promotion of such public interest; the imposition must also bear a reasonable
relation to the probable expenses of regulation, taking into account not only the costs of direct
regulation but also its incidental consequences.
In this case, the Farmers’ Market is a privately-owned market established for the rendition of service
to the general public. It warrants close supervision and control by the City for the protection of the
health of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the
buying public, etc.
Since the purpose of the ordinance is primarily regulation and not revenue generation, the tax is a
license fee. The use of the gross amount of stall rentals as basis for determining the collectible
amount of license tax does not, by itself, convert the license tax into a prohibited tax on income.
Such basis actually has a reasonable relationship to the probable costs of regulation and supervision
of Progressive’s kind of business, since ordinarily, the higher the amount of rentals, the higher the
volume of items sold.
The higher the volume of goods sold, the greater the extent and frequency of supervision and
inspection may be required in the interest of the buying public.
Facts: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and
operated public markets to pay 10% of the gross receipts from stall rentals to the City, as supervision
fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross
receipts on rentals or lease of space in privately-owned public markets in Quezon City. Progressive
Development Corp., owner and operator of Farmer’s Market and Shopping Center, filed a petition for
prohibition against the city on the ground that the supervision fee or license tax imposed is in reality
a tax on income the city cannot impose.
Issue: Whether the supervision fee / license tax is a tax on income
Held: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income
tax (distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g)
of the Local Autonomy Act, but rather a license tax or fee for the regulation of business in which the
company is engaged. To be considered a license fee, the imposition must relate to an occupation or
activity that so engages the public interest in health, morals, safety and development as to require
regulations for the protection and promotion of such public interest; the imposition must also bear a
reasonable relation to the probable expenses of the regulation, taking into account not only the
costs of direct regulation but also its incidental consequences as well. The gross receipts from stall
rentals have been used only as a basis for computing the fees or taxes due to the city to cover the
latter’s administrative expenses. The use of the gross amount of stall rentals, as basis for the
determination of the collectible amount of license tax, does not by itself convert or render the
license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall rentals,
the higher the aggregate volume of foodstuffs and related items sold in the privately owned market;
and the higher the volume of goods sold in such market, the greater extent and frequency of
inspection and supervision that may be reasonably required in the interest of the buying public.