AUSTIN. **TEXAS**

January 28; 1950

Hon. Robert S. Calvert Opinion Nd. V-992, Comptroller ofPublic Accounts Austin, Texas Re: Whether theComptroller may authorize a distributor to make tax-free sales of motor fuels purchased for thepurpose ofprocessing
or compounding with other products to make paints, stains, acids, powdered insecticides and other products which are not motor fuel.

Dear Mr. Calvert:

YOUPBetter requesting our opinion relative to the above captioned matter reads in part as follows:

“We desire the opinion ofyour office as to the proper construction tobe placed onSection 5(a), ofthe motor fuel tax law - Art. 7065b, V. A. C. S., which, as far as it is applicable to the question here, reads as follows:

*’‘The Comptroller may authorize and permit

. . .any licensed distributor ofmotor fuel inthis State to make a sale, resale,
or distribution of ~. Dmotor fuel. without collecting the tax levied herein, to any distributor holding avalid permit, etc.,

. ~. when the product is sold and purchased for the purpose ofexportation, further refiniig, further processing, turther treating, blendmg or compoundlng with other products to produce motor fuel, or for resale for some one or more ofsuch purposes, and not otberwise.’

“‘We have requests from motor fuel distributors for authority to make tax-free sales to other distributors oftoluol, xylol and cycle-hexane - unfinished materials which come within the statutory definition ofHon. Robert S. Calvert, Page 2 (V-992)

motor fuel - when the products are purchased for the purpose of (1) compounding them with lacquer and related products toproduce paints and stains, and (2) compounding them with other chemicals and materials to produce acetic acid (for making nylon) and toproduce powdered insecticides, etc., none ofsti:ch finished products being motor fuel.
I.

. . .

“It is therefore respectfully requested that you advise this department whether or not the Comptroller may legally authorize a distributor to make tax-free sales ofmotor fuels toanother licensed distributor under the terms of the said Section 5(a), when the motor fuels are purchased for the purpose ofcompounding or blending them with other products to produce paints, stains, acids and other similar by-products which in their finished forms are not motor fuel.”

lows : Said Section 5(a) ofArticle 706513, V.C.S., reads as fol-

“The Comptroller may authorize and permit any person producing natural gasoline, casing-head gasoline, drip gasoline, or any derivative or condensate of crude oil or natural gas, intheir natural and unrefined state, or any person operating a pipe line as acommon carrier, or any licensed distributor ofmotor fuel in this State to make a sale, resale, or distribution ofsuch products or ofmotor fuel, without collecting the tax levied herein, toany distributor holding avalid permit under the terms ofthis Article, when such distributor purchasing the same has, in the opinion ofthe Comptroller,
a satisfactory and sufficient bond. andwhen the product is sold and purchased for the purpose ofexportation. further refining, further processing, further treating, blending or compounding with other products to produce motor fuel, or for resale for some one or more oi such purposes, and not otherwise. Ifthe distributor purchasing said products without paying said tax shall thereafter sell, or distribute said products, either alone or when compoundedwith other products, inthis State, for any purpose other than that hereinabove provided, he shall be required to collect and pay over to theState of Texas at the time and inthe manner herein provided, the tax at the rate offour (4) cents per gallon upon each gallon or fractional part thereof sold or distributed. Said distributor shall also be liable for and shall be required topay toHon. Robert S. Calvert, Page 3 (V-992)

the State of Texas said tax at the aforesaid rate upon each gallon of such motor fuel used by said distributor. Failure or refusal to collect and pay over to theState ofTexas the tax on motor fuel so sold or distributed by said distributor, or to pay the tax on motor fuel used by said distributor, shall subject him to all the liabilities, penalties, forfeitures, interest and costs provided inthis Article.”

Subsection (b) of said Section 5reads:

“Provided further, that any person whether producer, pipe-line operator or licensed distributor, who shall make any sale or distribution as provided herein, shall be required to make and keep all the records and manifests involving such sales or distributions as is required ofa distributor inSection 9(b) of this Article. Said person shall also be required to make and filizwith the Comptroller the return or report required by Section 3 ofthis Article, showing all the information contained therein. The manifest required tobe issued upon such sale or distribution shall bear the notation that said product is being sold or distributed for further refining, further processing, treating, blending, compounding, or for exportation, whichever the case may be. Provided further, that every producer and every pipeline operator shall qualify as a distributor and obtain a distributor’s permit before selling the commodities named herein toany person other than alicensed and qualified distributor. All such sales and distributions shall be made inaccordance with rules and regulations promulgated by the Comptroller.”

We have given careful consideration to the entire motor fuel tax statute, but we shall refer only to such of its provisions
as are deemed material in the consideration of the question involved herein. A reading of the entire motor fuel tax law reflects that the incidence of the tax is not the “sale” or “distribution” ofmotor fuel, but the “use* ofmotor fuel in the propelling ofmotor vehicles upon the public highways of this State. Itis true that the law levies and imposes a tax offour cents per gallon upon the first sale, distribution or use ofmotor fuel. However, in all cases where the ultimate
use ofthe motor fuel is for purposes other than the propelling,of motor vehicles upon the public highways of this State, by complying with the “refund” provisions ofthe act, the user ofthe motor fuel is refunded the tax paid. Inthis connection we call your attention to that part ofSection 2(a) ofArticle 7065b, V.C.S., which reads:

.

. . . Ineach subsequent sale or distribution of motor fuel uponwhich the tax offour (4) cents per gallonHon. Robert S. Calvert, Page 4 (V-993)

has been collected, the said tax shall be added to the selling price, so that such tax is paid ultimately by the person using or consuming said motor fuel for the purpose of generating power for the propulsion ofany motor vehicle upon the public highways ofthis State.”

The provisions relative to the taxbeing paid by the first seller or distributor ofthe motor fuelwere enacted for administrative and enforcement purposes, and to remove as far as possible the opportunity for tax evasion. The seller ofmotor fuel is a mere collecting agency for the State. Texas Co. v. Miller, 165 F.2d Ill (C.C.A. 5th 1947).
By providing for tax-free sales ofmotor fuel in certain instances, the Legislature evidenced its intention ofnot making an

“idle expenditure of public funds” by collecting a tax on thefirst sale or distribution ofmotor fuel and then refunding the same, in those instances where the motor fuel was tobe so handled that it would notbe used to generate power to propel motor vehicles upon the public highways ofthis State. This is evidenced by making taxfree sales ofmotor fuel which is sold for the purpose ofexportation, andby the provision for making tax-free sales where the motor fuel is purchased for the purpose ofeither further refining or further processing. You will note that as toboth “further refining” and “further processing” ofthe motor fuel, the statute does not provide that the further refining or further processing in order tobe tax-free shall produce motor fuels. Itis clear that the underscored portion ofSection 5(a) ofArticle 7065b provides that the Comptroller may authorize tax-free sales when the motor fuel is purchased for the following purposes: (1) exportation or (2) further refining or (3) further processing or (4) further treating, blending or compounding with other products to produce motor fuel or (5) for resale for some one or more ,ofsuch purposes. The evident purpose of the provision relative tomaking tax-free sales ofmotor fuel for the purpose offurther treating. blending or compounding with other products to produce motor fuel, was that although the finished or ultimate product tobe obtained would be motor fuel, the further treating, blending or compounding with other products.would either increase or diminish the taxable quantity ofthe motor fuel. The Legislature only intended to ultimately tax the actual volume used in the propelling ofmotor vehicles upon the highways. Without this provision a hiatus would result in that after thetreating, blending or compounding, atax would have been paid ona gallonage either greater or less than the amount tobe used onthe highways inpropelling motor vehicles.

The meaning of the words “process” and “processing” is very broad and comprehensive. Webster’s New International Dictionary, Second Edition, states: ”‘Process’ denotes a progressive action or aseries ofacts or steps, esp. in the regular course of**Hon.** Robert S. Calvert, Page 5 (V-992)

perfrming, producing, 

### ormaking something.” “The word ‘process asa mode oftreatment ofcertain materials to aroduce a eiven result.” France Co. v. Evatt, 143 Ohio St. 455, 55 N.E.2d 6322; Ralston Purina Co. v. Zoning Board ofTown ofWesterly, 64 R.I.

, .dL~l. “Processing is aflexible term and may refer to either chemical or physic;1 change in the thing acted upon.” Gulf Oil Corp. V. City of Philadelphia, 357 Pa. 101, 53A.2d 250 m47). The court inAuricchio v. United States, D.C..N.Y., 49 F. SuppO184, held that the mining ofsunflower oil with coloring material and flavoring matter inthe production ofanarticle intended for sale was a “processing.”

Of course, a distributor can only be authorized tomake
a tax-free purchase ofmotor fuel when such distributor has, inyour opinion, a satisfactory and sufficient bond. Art. 7065b, sec. 5(a), V.C.S. This bond is to protect the State inthe event ofa diversion ofthe motor fuel by the purchaser to a taxable use.

You are therefore advised that it is our opinion that the Comptroller may legally authorize a distributor tomake tax-free sales ofmotor fuels toanother licensed distributor, who has a satisfactory and sufficient bond, when the motor fuels are purchased for the purpose offurther processing, although the finished product will not be a “motor fuel.”

SUMMARY

The Comptroller ofPublic Accounts may authorize and permit a licensed distributor ofmotor fuel in this State tomake a sale, resale, or distribution ofmotor fuel, without collecting the tax levied by Section 2 ofArticle 7065b, V.C.S., when the product is sold and purchased for the purpose offurther processing toproduce paints, stains, acids, powdered insecticides and other non-motor fuel products provided the distributor purchasing the same has, in the opinion ofthe Comptroller, a satisfactory and sufficient bond. Art. 7065b5, V.C.S.; Texas Co. v. Miller,165 F.2d 111 (C.C.A.5th 1947).

Yours very truly,

APPROVED:

Charles D. Mathews Executive Assistant

WVG/mwb PRIGE DANIEL Attorney General