There are two requirements for taxpayer to be liable for franchise tax: (1) it has a “franchise” in the sense of a secondary or special franchise; and (2) it is exercising its rights or privileges under this franchise within the territory of the local government unit concerned.

The Provincial Treasurer assessed the taxpayer and demanded payment for franchise tax on its receipts from a customer. The taxpayer argued that it cannot be considered to be operating or performing its privilege under its franchise within the Province of Bataan because although it has a substation in the said Province, its customer is in the City of Balanga, which is outside the territorial jurisdiction of the Province. The Court ruled that there are only two requirements for taxpayer to be liable for franchise tax: (1) it has a “franchise” in the sense of a secondary or special franchise; and (2) it is exercising its rights or privileges under this franchise within the territory of the local government unit concerned. While taxpayer has exercised its rights and privileges under its franchise within the Province of Bataan, including the City of Balanga in connection with its electrical transmission function, nevertheless, the Province of Bataan is not authorized to impose franchise tax on taxpayer’s gross receipts from its customer. The one authorized to impose such franchise tax is the City of Balanga. (National Transmission Corporation vs. Province of Bataan, CTA AC No. 78, December 16, 20113)