BIR Form 2307 for Quarry and Aggregates Operators: Royalty to the Landowner vs. Hauling Fees to Truckers

A quarry or aggregates operator makes two routine payments that land in completely different parts of the withholding tax system: the royalty it pays a private landowner for the right to extract sand, gravel, or crushed rock is a 20% final tax under NIRC Section 24(B)(1), while the hauling fee it pays independent truckers to move the extracted material is a 2% creditable tax under the general contractor rate. Treating both as the same kind of payment — or assuming neither is withheld because the business “just digs and sells” — misses two separate, well-established withholding obligations.

This guide is part of the BIR Form 2307 series. For the general contractor rate applied to the hauling side, see BIR Form 2307 for Trucking and Cargo Hauling Companies; for how royalties are taxed in a different industry context, see BIR Form 2307: Dividends, Royalties, and the Line Between Form 2306 and Form 2307.

Why is the landowner’s extraction payment a royalty, not rent? #

A quarry operator doesn’t rent the land — it pays for the right to remove and sell a resource the landowner owns, which is the defining feature of a royalty rather than a lease: the payee holds a proprietary interest in what’s being extracted, not merely use of a space. NIRC Section 24(B)(1) sets the rate for this category of passive income directly, in a provision already verified and applied elsewhere on this site:

“A final tax at the rate of twenty percent (20%) is hereby imposed upon the cash and/or property dividends… royalties, in general…”

— NIRC Section 24(B)(1)

A sand-and-gravel operator that pays a farm owner a per-cubic-meter or fixed periodic royalty for the right to extract aggregates from that land is compensating the landowner for a property right being consumed, which is why this payment is classified as a royalty and withheld at the 20% final rate — the same classification this site applies to a franchise fee paid for the right to use a trademark or business system, covered in Is a Franchise Fee a Royalty or Ordinary Income?

Why does the hauling fee follow a completely different rule? #

Hauling extracted aggregates to a buyer or stockyard is a transportation service — the trucker has no ownership stake in the gravel being moved, so the payment compensates labor and equipment, not a property right, placing it under the ordinary contractor-service withholding rules instead of the royalty rate. The same payor-status test this series applies to every contracted service decides who withholds:

A single quarry operation can generate all three payment types in the same month — royalty to the landowner, hauling fees to several independent truckers, and a processing fee to a crushing contractor — each tracked and withheld separately, with the royalty alone closing out on a final-tax basis rather than feeding into the payee’s annual income tax return.

Worked example: a sand-and-gravel operation in one month #

Bukid Aggregates Inc. extracts sand and gravel from land owned by the Villanueva family under a royalty agreement, then pays an independent trucking contractor to haul the material to buyers.

Bukid Aggregates remits the ₱40,000 final tax and the ₱1,200 creditable tax through the appropriate monthly and quarterly withholding returns, issues BIR Form 2306 to the Villanueva family (who have no further income tax to report on that royalty), and issues BIR Form 2307 to Dalisay Trucking (who claims the ₱1,200 as a credit against its own income tax, via SAWT).

Frequently asked questions #

What withholding tax applies to royalty payments a quarry operator makes to the landowner? #

20% final withholding tax under NIRC Section 24(B)(1). A payment for the right to extract sand, gravel, or other aggregates from a landowner’s property is a royalty — compensation for the use of a property right — not rent or a service fee, so it falls under the final tax rate for royalties, not expanded withholding tax.

Is the extraction royalty a final tax or a creditable tax? #

Final. Once the quarry operator withholds the 20% and remits it, the landowner’s tax obligation on that specific royalty is closed — the landowner doesn’t report it again as ordinary income or claim it as a credit, and the operator issues BIR Form 2306 (Certificate of Final Tax Withheld), not BIR Form 2307, for this payment.

What about the trucks that haul the extracted aggregates to buyers? #

A quarry operator that engages independent haulers to transport sand, gravel, or crushed rock withholds 2% creditable withholding tax on the hauling fee under the general contractor bracket (ATC WC160/WI160) — a service payment, not a royalty — and issues BIR Form 2307 for it.

Does the royalty rate change if the landowner is a corporation instead of an individual? #

No. The 20% final withholding tax on royalties applies to both resident individuals and domestic corporations under NIRC Section 24(B)(1) and the parallel corporate provision; the royalty classification, not the landowner’s entity type, decides the rate.

Does withholding on the royalty cover the quarry permit or DENR/LGU fees the operator also pays? #

No. A permit or regulatory fee paid to a government agency like the DENR or an LGU for a quarrying or extraction permit is a government charge, not income paid to a private payee, and sits outside the BIR Form 2307/2306 withholding framework entirely.

Summary #

A quarry or aggregates operator withholds on two legally distinct payments: a 20% final tax on the landowner’s extraction royalty under NIRC Section 24(B)(1), reported on BIR Form 2306, and a 2% creditable tax on independent hauling and processing fees, reported on BIR Form 2307. Confusing the two — or withholding only one — leaves either the landowner’s final tax short or the hauler’s creditable certificate missing.