w 18, 1970
Mr. S. .X Snedeker @d.nion No. Y- 632
Assistant District Attorney -
Cameron county Re: Ad valorem taxation
Brownsville, Texas 78520 of cottonseed In the
physical possesrlon
of Valley Co-Op Oil
Mill, a co-operative
Dear Mr. Snedeker : marketing association.
_ _opinion
You recently, requee ted an . . of _this
- office
as to whether or not cottonseed ln tne pnyrlcal posseselm
on January 1st of Valley Co-Op Oil Mill, a non-profit
co-operative marketing association, was subject to ad
valorem taxation based on the following facts:
The Valley Co-Op 011 Mill Is a co-operative market-
ing association Incorporated under the provlrlons of
Chapter 8, Title 93, Artlcler 5737-5764, Venmnqr Civil
Statutes.
Only Co-operative Grower Associations incorporated
under the 8-e provisions as The Valley Co-Op 011 llill,
supra, are eligible for membership In The Valley Co+
Oil Mill. There are twenty-two of such organizations
which make up the membership of’valley Co-Op 011 will.
These members are all cotton gins.
Each of the twenty-two member glno have menbsrs
who are individual cotton farmers. They bring their
cotton to the Gin for processing. The Gin separates
the seed from the zotton, and because of lack of storage
space and other equipment, It hauls It direct to Valley
Co-Op 05.1 Nil1 for processing into cottonored oil,
lintera and hulls. When the @In receives the cotton
from the farmer, It gives him a ticket showing what It
owes him lees the ginning cost. If this latbr is proved
to be In error, it is adjusted. Likewise, when the Gin
delivers the seed to Valley Co-Op 011 Mill, it Is given
a ticket showing what was received and Its value.
This is entered as a credit on the books of the Oil Mill,
or, If the Gin demands It, the Oil Mill will pay them
by check the same or the next day.
-3024-
Mr. S.R. Snedeker, page 2 (H- 632)
Valley Co&p 011 Mill processce all of the s8ed
into cottonseed oil and other by-products and 60114 them
on the competitive market. It handles no cottonseed
except that brought in by Its twenty two Co-Op Gin
members s The charter of Valley Co-Op provides that
only Co-Op Grower Associationa incorporated under the
Cooperative Marketing Act of the Sthte of Texas in
operating Qlne for the benefit of their members shall
be eligible for membership in Valley Co-Op Oil Mill.
Periodically, Valley Co-Op Oil Mill audits its
finances and return8 any accumulated aurplue funds it
may have to its twenty-two membdr Gina, which in turn,
do the same thing with their individual farmer nember6.
Both the Co-Op Qine and Valley Co-Op 011 Mill
are non-profit organizationr.
The City of Harlingen claims certain ad valorem
taxes to ,be due on cottonsadd ln,the physical possersion
of Valley Co-Op 011 Mill on January let, and the Co-Op
has refused to pay the tax claiming It to be exempt
under Article VIII, Sec. 19, Constitution of Texae as
being “farm products In the hands of the producer.”
It ie well settled that the term “In the hands
of”, a8 used in an exemption etatutc, Is construed
more broadly than mere phylrlcal poeaeralon and Includes
constructive possession as well; it In the power to
demand and receive possesalon from another, including
an aglnt. Routledge v. Elmendorf, 116 S.W. 156, (Tax.
f it5 “Price v. Socistx,
~&0i?‘3~?~~0=::~ f:g’)h2CAm %. R , 196. Sw
v. Warren, 158 Mass.i.1; &uitt v: Arm&% 56 xd?
30b ” See oleo City of bwensboro v. Dark tibacco
Groifere Aes’n, 3ab S W 330 (Ky. App. m We do
not hesitate to folldr’the consistent rulini of thie
Office to the effect that farm pFOdUCtUdellvered by
a pFOdUC0r to a third party for storage and ultimate
eale are et.111 "in the hands of the producer" when
the third party acts as agent and a eale has not been
made. Attorney &morale1 inion Nos. O-5091 (1943),
V-193 (1947), and V-511 (1 8).
The Marketing Assoclatlon’r “Declaration of
Policy” Is as follows:
Article 5737 provides a4 follows:
%I order t0 DFOIZOt8, fo8teF and
-3025-
I -
Mr. S.N. Snedeker, page 3 (M- 632)
cooperation and to eIlmlnate speculation
end waste; and to make production and
distribution of agricultural products
di t as can be effectively done
bak%hO pFOdUC0F and COliSkllll0Fj
and
to etabill th od tlon and market-
ing probIe:z ofe~flcKural DFOdUCtS.
this law la Passed." Acta 1921, p.45;
Acts 1943, 48th Leg., p. 601 ch. 346,
Section 1. (Emphasis added.)
Article VIII, Section 19,Conatltution of Texas,
is as follows:
"Sec. 19.
Of the DFOdUCOF,
home and farm use, are exempt from all
taxation until 0,tht!FWiSe dlrect’ed by a
- third8 vote of all the membera ilect
tyboth Houses of the Laglslature. Added
1st Tuesd in Sept., 1879, proclsmatlon
Oct. 14, 1 "i; 79.” (Emphaale added.)
The purpose clause of Valley Co+ Oil 11111 I.8
stated to be identical with Article 5740, Vernon18 Civil
Statutes, which 1s aa follows:
"An Association may be OFKanized to
engage In MY activity ln connection with
th p d ti 1t1 ti d f
clt"ru~Og%e?&c~he grkzti? oz%
ing of agricultural products and citrus
fruits produced by and marketed for It8
m0mb0Fs, or in the harvesting, preserving,
drYin&
shipping or u
manufacturing,, or'marketing of the by-products
thereof; OF in cOM0CtiOn with the manufactuF-
lng, sailing, or supplying to ita member8 of
tW.ZhinOFy, 0qUlpment OF SUpplieS; or in the
financing of the above enumerated actlvitiee;
OF in any one or more Of the aCtiViti08
specified herein. Provided, however, sny
such actlvltles may extend to non-members and
to the production, cultivation and care of
land8 owned OF cultivated by them @nd their
-3026-
Mr. S.N. Snedeker, page 4 (M-632)
products limited by Article 5738 as heretofore
amended. ” (apha.eis added. )
Attorney Qcneral's Oplnlon No. O-5404 (le3) ln-
volved the liability for aa valorem taxes on peanuts,
which were held and stored by Co-operative Marketing
Organizations, incorporated under Articles 5737, et seq.
It was there concluded that the peanuts were to be deemed
as still "farm products in the hands of the producer"
within the meaning of Article VIII, Section 19, Conati-
tutlon of Texas, and thus could not be taxed notwlth-
standing the fact that legal title thereto was In the
corporation rather than in the producer. The Opinion
quotes at great length from the case of Texas Certified
Cottonseed Breeder's Association v. Aldrldge, 122 T .
61 S W 26 79 ThC t h ld th at even tho$?
the'contr& were'couc~ed"~ 1Gguage of "sale and
delivery" such was not an "absolute sale". The Court
said to so hold wourdeatroy It as a Co-Operati?e Market-
ing Association. The Court observed that the me,mbers
had constituted the Association as their agent. In the
factual situation now pcesanted, the association, as
agsnt, has turned over the,physlcal possession of the
farm products to the Valley Co-Op Oil Wll, as sub-agent.
The mere transfer of physical possession from one agent
of the producer to another agent would not destroy the
exemption. The producers own the gin and have constl-
tuted the oil mill their agent; thus, the cottonseed
is still In the hands of the producers.
It is the opinion of this office that the Instant
case concerning Valley Co-Op 911 Mill Is controlled by
Attorney General’s Opinion Ho. O-5404, supra, and the
Supreme Court case of Texas Certified Cottonseed Breeder~e
Association v. Aldridge, 122 T 4b4 61 S . W 26 nm 3)
The cottonseed In the phyaicale&maakn of Galley
Co-Op 011 Mill la therefore held to be exempt from
payment of ad valorem tax.
Cottonseed in the physical possessionof
Valley Co-Op 011 Mill, a co-operative market-
ing association, incorporated Wider Articles
5737-5764, V.C.S., being “farm products ln
the hands of the producer” la exampt from
-3027-
^. -
Mr. S. N. Snedeker, page 5 (V-632)
payment of ad valorem taxes under Article
VIII, Sec. 19, Constitution of Texas.
General of Texas
Prepared by Fisher A. Tyler
Assistant Attorney General
APPROVED:
OPINIOIJCOMMITTEE
Kerns Taylor, Chairman
Bill Allen, Acting Co-Chairman
J.W. BFOadhuFSt
Ed Esquivel
Jack Goodman
Robert Flowers
MEADEF. GRIFFIN
Staff Legal Assistant
ALFRED WALKER
Executive Aemletant
NOti WRITE
FiFmt Assistant
-3028-