Tan v Del Rosario, Jr.

Facts:

This is a consolidated case involving the constitutionality of RA 7496 or the Simplified Net Income Taxation (SNIT) scheme.

Petitioners claim to be taxpayers adversely affected by the continued implementation of the SNIT. In the 1^st case, they contend that the House Bill which eventually became RA 7496 is a misnomer or deficient because it was named as “Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession” while the actual title contains the said words with the additional phrase, “…Amending Section 21 and 29 of the National Internal Revenue Code”.

In the 2^nd case, they argue that respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships by issuing Revenue Regulation 2-93 to carry out the RA.

Issue:

Whether or not general professional partnerships may be taxed under SNIT

Held:

No. A general professional partnership is not itself an income taxpayer. Income tax is imposed not on the partnership (which is tax exempt), but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. There is no distinction in income tax liability between a person who practices his profession alone and one who does it through partnership with others in the exercise of a common profession.

In the case, SNIT is not envisioned by the Congress to cover corporations or partnerships which are independently subject to the payment of income tax.

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Notes:

*2 KINDS OF PARTNERSHIPS UNDER TAX CODE

1. Taxable Partnerships – no matter how it was created or organized, they are subject to income tax by law.

2. Exempt Partnerships – the partners, not the partnership (although obligated to file an income tax return for administration and data) are liable for income tax in their individual capacity.