Mr. S. .X Snedeker 

Assistant District 

Cameron county 

Brownsville, Texas 

Dear Mr. Snedeker : 

w 18, 1970 

@d.nion No. Y- 632 

You recently, 

Attorney - 

Re: 

78520 

requee ted an _ _ 

Ad valorem 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 

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 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 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 

~&0i?‘3~?~~0=::~ f:g’)h2CAm %. R , 196. Sw 

“Price v. Socistx, 

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 pFOdUCtU dellvered 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 

V-193 (1947), and V-511 (1 

inion Nos. O-5091 (1943), 

8). 

Policy” 

The Marketing Assoclatlon’r “Declaration of 

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 marketing 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, 

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 

"i; 

in Sept., 

Oct. 14, 1 79.” 

1879, proclsmatlon 

(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 

clt"ru~Og%e?&c~he grkzti? 

d f 

oz% 

ing of agricultural products and citrus 

fruits produced by and marketed for It8 

m0mb0Fs, 

drYin& 

or in the harvesting, preserving, 

shipping or u 

manufacturing,, or' marketing of the by-products 

thereof; OF in cOM0CtiOn with the manufactuFlng, 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) 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, 122 T . 

61 S W 26 79 ThC 

the'contr& were'couc~ed"~ 

t h ld th 

1Gguage 

at even tho$? 

of "sale and 

delivery" such was not 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 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 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-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 

The cottonseed In the phyaicale&maakn of Galley 3) 

Co-Op 011 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 

Ed Esquivel 

Jack Goodman 

Robert Flowers 

MEADE F. GRIFFIN 

Staff Legal Assistant 

ALFRED WALKER 

Executive Aemletant 

NOti WRITE 

FiFmt Assistant 

-3028-