                            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 in-
                                               secticides  and other prod-
                                               ucts 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 fol-
       lows:

              *’‘The Comptroller    may authorize and per-
             mit . . . any licensed distributor     of motor
             fuel in this State to make a sale, resale,
             or distribution   of ~ . Dmotor fuel. without
             collecting  the tax levied herein, to any dis-
             tributor holding a valid permit, etc., . ~ .
             when the product is sold and purchased for
             the purpose of exportation,     further refiniig,
             further processing,     turther treating, blend-
             mg or compoundlng with other products to
             produce motor fuel, or for resale for some
             one or more of such purposes,        and not otber-
             wise.’

              “‘We have requests from motor fuel distributors
       for authority to make tax-free    sales to other distribu-
       tors of toluol, xylol and cycle-hexane    - unfinished ma-
       terials 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 re-
         lated products to produce paints and stains, and (2)
         compounding them with other chemicals      and materials
         to produce acetic acid (for making nylon) and to pro-
         duce powdered insecticides,   etc., none of sti:ch finish-
         ed 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    un-
         der 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.”

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

                  “The Comptroller     may authorize and permit any
         person producing natural gasoline,         casing-head    gaso-
          line, 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 lev-
         ied herein, to any distributor     holding a valid permit un-
         der the terms of this Article,      when such distributor       pur-
         chasing 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.            fur-
         ther refining, further processing,       further treating, blend-
         ing or compounding with other products to produce motor
         fuel, or for resale for some one or more oi such purpos-
         es, and not otherwise.      If the distributor   purchasing said
         products without paying said tax shall thereafter          sell, or
         distribute said products, either alone or when compound-
         ed with other products, in this State, for any purpose
         other than that hereinabove      provided, he shall be requir-
         ed 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 frac-
         tional 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 liabili-
      ties, penalties,  forfeitures,  interest and costs provided
      in this Article.”

              Subsection        (b) of said Section   5 reads:

              “Provided further, that any person whether pro-
      ducer, 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 Sec-
      tion 3 of this Article,     showing all the information    con-
      tained therein.      The manifest required to be issued up-
      on such sale or distribution        shall bear the notation that
      said product is being sold or distributed for further re-
      fining, further processing,       treating, blending, compound-
      ing, or for exportation,       whichever    the case may be.
      Provided further, that every producer and every pipe-
      line 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 mo-
tor 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, distribu-
tion 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 pur-
      pose of generating power for the propulsion of any mo-
      tor 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 oppor-
tunity for tax evasion.    The seller of motor fuel is a mere collect-
ing 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 tax-
free 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 “fur-
ther 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) fur-
ther 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 rel-
ative to making tax-free      sales of motor fuel for the purpose of fur-
ther treating. blending or compounding with other products to pro-
duce 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 intend-
ed to ultimately   tax the actual volume used in the propelling of mo-
 tor 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    Dic-
tionary, 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 ‘proc-
ess as a mode of treatment of certain materials         to aroduce a eiv-
en 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 re-
fer 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 ma-
terial 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 sat-
isfactory  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 author-
      ize and permit a licensed distributor       of motor fuel in
      this State to make a sale, resale,     or distribution  of mo-
      tor 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 pro-
      duce paints, stains, acids, powdered insecticides       and
      other non-motor     fuel products provided the distributor
      purchasing   the same has, in the opinion of the Comp-
      troller, a satisfactory   and sufficient bond. Art. 7065b-
      5, V.C.S.;  Texas Co. v. Miller,165      F.2d 111 (C.C.A.5th
      1947).

                                               Yours   very   truly,

                                                PRIG E DANIEL
                                               Attorney General


APPROVED:

Charles D. Mathews
Executive Assistant

WV G/mwb
