AUSTIN. TEXAS 

January 28; 1950 

Hon. Robert S. Calvert Opinion Nd. V-992, 

Comptroller of Public Accounts 

Austin, Texas Re: Whether the Comptroller 

may authorize a distributor 

to make tax-free sales of 

motor fuels purchased for 

the purpose of processing 

or compounding with other 

products to make paints, 

stains, acids, powdered insecticides and other products which are not motor 

fuel. 

Dear Mr. Calvert: 

YOUP Better requesting our opinion relative to the above 

captioned matter reads in part as follows: 

“We desire the opinion of your office as to the 

proper construction to be placed on Section 5(a), of the 

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 of motor 

fuel in this State to make a sale, resale, 

or distribution of ~ . D motor fuel. without 

collecting the tax levied herein, to any distributor holding a valid permit, etc., . ~ . 

when the product is sold and purchased for 

the purpose of exportation, further refiniig, 

further processing, turther treating, blendmg or compoundlng with other products to 

produce motor fuel, or for resale for some 

one or more of such purposes, and not otberwise.’ 

“‘We have requests from motor fuel distributors 

for authority to make tax-free sales to other distributors of toluol, xylol and cycle-hexane - unfinished materials which come within the statutory definition of 
Hon. 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 to produce paints and stains, and (2) 

compounding them with other chemicals and materials 

to produce acetic acid (for making nylon) and to produce powdered insecticides, etc., none of sti: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 of motor fuels to another licensed distributor under the terms of the said Section 5(a), when the motor 

fuels are purchased for the purpose of compounding 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) of Article 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, in their natural and unrefined 

state, or any person operating a pipe line as a common 

carrier, or any licensed distributor of motor fuel in 

this State to make a sale, resale, or distribution of such 

products or of motor fuel, without collecting the tax levied herein, to any distributor holding a valid permit under the terms of this Article, when such distributor purchasing the same has, in the opinion of the Comptroller, 

a satisfactory and sufficient bond. and when the product 

is sold and purchased for the purpose of exportation. 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. If the distributor purchasing said 

products without paying said tax shall thereafter sell, or 

distribute said products, either alone or when compounded with other products, in this State, for any purpose 

other than that hereinabove provided, he shall be required to collect and pay over to the State of Texas at the 

time and in the manner herein provided, the tax at the 

rate of four (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 to pay to 
Hon. 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 the State 

of Texas 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 

in this Article.” 

Subsection (b) of said Section 5 reads: 

“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 of a distributor in Section 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 of this Article, showing all the information contained therein. The manifest required to be 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 to any person other than a licensed and 

qualified distributor. All such sales and distributions 

shall be made in accordance 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” of motor fuel, 

but the “use* of motor fuel in the propelling of motor vehicles upon 

the public highways of this State. It is true that the law levies and 

imposes a tax of four cents per gallon upon the first sale, distribution or use of motor fuel. However, in all cases where the ultimate 

use of the 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 of the act, the user of the motor fuel 

is refunded the tax paid. In this connection we call your attention 

to that part of Section 2(a) of Article 7065b, V.C.S., which reads: 

. 

. . . In each subsequent sale or distribution of 

motor fuel upon which the tax of four (4) cents per gallon 
Hon. 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 of any motor vehicle upon the public highways of this State.” 

The provisions relative to the tax being paid by the first seller or 

distributor of the motor fuelwere enacted for administrative and 

enforcement purposes, and to remove as far as possible the opportunity for tax evasion. The seller of motor 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 of motor fuel in certain 

instances, the Legislature evidenced its intention of not making an 

“idle expenditure of public funds” by collecting a tax on the first 

sale or distribution of motor fuel and then refunding the same, in 

those instances where the motor fuel was to be so handled that it 

would not be used to generate power to propel motor vehicles upon 

the public highways of this State. This is evidenced by making taxfree sales of motor fuel which is sold for the purpose of exportation, 

and by the provision for making tax-free sales where the motor fuel 

is purchased for the purpose of either further refining or further 

processing. You will note that as to both “further refining” and “further processing” of the motor fuel, the statute does not provide that 

the further refining or further processing in order to be tax-free 

shall produce motor fuels. It is clear that the underscored portion 

of Section 5(a) of Article 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 ,of such purposes. The evident purpose of the provision relative to making tax-free sales of motor fuel for the purpose of further treating. blending or compounding with other products to produce motor fuel, was that although the finished or ultimate product 

to be obtained would be motor fuel, the further treating, blending or 

compounding with other products.would either increase or diminish 

the taxable quantity of the motor fuel. The Legislature only intended to ultimately tax the actual volume used in the propelling of motor vehicles upon the highways. Without this provision a hiatus would 

result in that after the treating, blending or compounding, a tax would 

have been paid on a gallonage either greater or less than the amount 

to be used on the highways in propelling 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 a series of acts or steps, esp. in the regular course of 
Hon. Robert S. Calvert, Page 5 (V-992) 

perfrming, producing, or making something.” “The word ‘process as a mode of treatment of certain 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 of Town of Westerly, 64 R.I. 

, .dL~l. “Processing is a flexible 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, 53 A.2d 250 

m47). The court in Auricchio v. United States, D.C..N.Y., 49 F. 

SuppO 184, held that the mining of sunflower oil with coloring material and flavoring matter in the production of an article intended 

for sale was a “processing.” 

Of course, a distributor can only be authorized to make 

a tax-free purchase of motor fuel when such distributor has, in your 

opinion, a satisfactory and sufficient bond. Art. 7065b, sec. 5(a), 

V.C.S. This bond is to protect the State in the event of a diversion 

of the 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 to make tax-free 

sales of motor fuels to another licensed distributor, who has a satisfactory and sufficient bond, when the motor fuels are purchased 

for the purpose of further processing, although the finished product 

will not be a “motor fuel.” 

SUMMARY 

The Comptroller of Public Accounts may authorize and permit a licensed distributor of motor fuel in 

this State to make a sale, resale, or distribution of motor fuel, without collecting the tax levied by Section 2 

of Article 7065b, V.C.S., when the product is sold and 

purchased for the purpose of further processing to produce paints, stains, acids, powdered insecticides and 

other non-motor fuel products provided the distributor 

purchasing the same has, in the opinion of the 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 

WV G/mwb 

PRIG E DANIEL 

Attorney General