Mr. S..X Snedeker

Assistant District Cameroncounty Brownsville, Texas

Dear Mr. Snedeker : w 18, 1970

@d.nion No. Y-632

You recently,Attorney - Re: 78520

requeeted an

_ _Advalorem taxation of cottonseed In the physical possesrlon of Valley Co-Op Oil Mill, a co-operative marketing association. opinion of this office

. . _ - as to whether or not cottonseed ln tne pnyrlcal posseselm onJanuary 1st of Valley Co-Op Oil Mill, a non-profit co-operative marketing association, was subject to ad valorem taxation based onthe following facts:

The Valley Co-Op 011 Mill Is a co-operative marketing 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 TheValley Co-Op 011 llill, supra, are eligible for membership In TheValley Co+ Oil Mill. There are twenty-two of such organizations which make up the membership of ’valley Co-Op 011 will. These membersare all cotton gins.

Each of the twenty-two memberglno have menbsrs whoare individual cotton farmers. They bring their cotton to the Gin for processing. TheGin separates the seed from the zotton, andbecause of lack 

### of storage space and other equipment, It hauls It direct to Valley Co-Op 05.1Nil1 **for** processing into cottonored oil, lintera andhulls. Whenthe @In receives the cotton from the farmer, It gives hima ticket showing what It owes himlees the ginning cost. If this latbr is proved to be In error, it is adjusted. Likewise, whenthe Gin delivers the seed to Valley Co-Op 011 Mill, it Is given a ticket showing whatwas received and Its value. This is entered as a credit on the books of the Oil Mill, or, 

### Ifthe Gin demandsIt, the Oil Mill will pay them by check the sameor the next day.

-3024-Mr. S.R. Snedeker, page 2 (H- 632)

Valley Co&p 011Mill 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-OpGin memberss The charter of Valley Co-Opprovides that only Co-OpGrower Associationa incorporated under the Cooperative Marketing Act of the Sthte of Texas in operating Qlne for the benefit of their membersshall 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 mayhave to its twenty-two membdrGina, which in turn, do the samething with their individual farmer nember6.

Both the Co-Op Qine andValley Co-Op 011 Mill are non-profit organizationr.

The City of Harlingen claims certain ad valorem taxes to ,bedue 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, 

### Isconstrued more broadly than mere phylrlcal poeaeralon and Includes constructive possession as well; it In the power to demandand receive possesalon from another, including an aglnt. Routledge v. Elmendorf, 

### 116S.W.156, (Tax. f it5 ~&0i?‘3~?~~0=::~ f:g’)h2CAm %. R , 196. Sw “Price v. Socistx,

v. Warren, 

### 158Mass.i.1; &uitt v: Arm&% 

### 56xd? 30b ” See oleo City of bwensboro v. Darktibacco Groifere Aes’n, 

### 3abSW 330 (Ky. App. m Wedo not hesitate to folldr’the consistent rulini of thie Office to the effect that farm pFOdUCtU dellvered by apFOdUC0rto a third party for storage and ultimate eale are et.111 "in the hands **of** the producer" when the third party acts as agent anda eale has not been made. Attorney &morale1 V-193 

### (1947),and 

### V-511 (1 inion Nos. O-5091 

### (1943), 8). Policy” TheMarketing Assoclatlon’r “Declaration of



### Isasfollows: Article 

### 5737provides a4 follows: %I order t0 DFOIZOt8,fo8teF and

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Mr. S.N. Snedeker, page 3 (M-632)

cooperation and to eIlmlnate speculation end waste; and to makeproduction **and** distribution of agricultural products di t as can be effectively done bak%hO pFOdUC0F and COliSkllll0Fj and to etabill th od tlon andmarketing probIe:z ofe~flcKural DFOdUCtS. this law la Passed." Acts 1943, 48th Leg., Section 1. (Emphasis Article VIII, Section is as follows: Acta 1921, p.45; p. 601 ch. 346, added.) 19,Conatltution of Texas,

"Sec. 19. Of the DFOdUCOF, homeand farm use, are exempt from all ,tht!FWiSedlrect

’ed **by** a taxation until 0

-third8 vote of all the memberailect tyboth Houses of the Laglslature. Added 1st Tuesd"i; in Sept., Oct. 14, 1 79.” 1879, proclsmatlon (Emphaale added.)
The purpose clause of Valley Co+ Oil 11111I.8 stated to be identical with Article 5740, Vernon18 Civil Statutes, which 1s aa follows:

"AnAssociation maybe OFKanized to engage In MY activity ln connection with th p d ti 1t1 ti clt"ru~Og%e?&c~he grkzti? d f oz% ing of agricultural products and citrus fruits produced by andmarketed for It8 m0mb0Fs, drYin& or in the harvesting, preserving, shipping or u manufacturing,, or'marketing of the by-products thereof; OFin cOM0CtiOn with the manufactuFlng, sailing, or supplying to ita member8of tW.ZhinOFy,0qUlpment OF**SUpplieS;** or **in** the financing of the above enumerated actlvitiee; OFin any one or more Ofthe **aCtiViti08** specified herein. Provided, however, sny such actlvltles mayextend 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 

### 5738as heretofore amended.” (apha.eis added.) Attorney Qcneral's Oplnlon No. O-5404 (le3) lnvolved 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, Conatitutlon of Texas, and thus could not be taxed notwlthstanding 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, 122T

. 61 S W 26 79 ThC the'contr& were'couc~ed"~ t h ld th 1Gguage at even tho$?

of "sale and delivery" such wasnot an "absolute sale". The Court said to so hold wourdeatroy It as a Co-Operati?e Marketing Association. The Court observed that the me,mbers had constituted the Association as their agent. In the factual situation nowpcesanted, 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. Theproducers ownthe gin and have constltuted 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-Op911 Mill Is controlled by Attorney General’s Opinion Ho. O-5404, supra, and the SupremeCourt case of Texas Certified Cottonseed Breeder~e Association v. Aldridge, 122T 4b4 61 SW 26nm
. The cottonseed In the phyaicale&maakn of Galley 3) Co-Op011 Mill la therefore held to be exempt from payment **of** ad valorem tax.

Cottonseed in the physical possession of Valley Co-Op 011 Mill, a co-operative marketing 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: OPINIOIJ

COMMITTEE Kerns Taylor, Chairman Bill Allen, Acting Co-Chairman J.W. BFOadhuFSt EdEsquivel Jack Goodman Robert Flowers MEADE F. GRIFFIN Staff Legal Assistant
ALFRED WALKER Executive Aemletant NOti WRITE FiFmt Assistant

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