Court Opinion

ID: 4134036
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:45:12.604921+00
Date Added: 2024-06-11T14:31:40.796664
License: Public Domain

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-