Hon. Geo. H. Sheppard
Comptroller   of Publir Accounts
Austin, Texas                                Opinion No. V-697

                                             Re:.   Basis for computation of
                                                    occupation tax on produc-
                                                    tion of carbon black pro-
                                                    duced by Witco Hydrocar-
                                                    bon Corporation   under con-
                                                    tract with Witco Chemical
                                                    Company.

Dear Mr.   Sheppard:

           Your   letter   request   reads   as follows:

         “I am attaching herewith copy of contract be-
    tween Witco Hydrocarbon     Corporation,   a corpora-
    tion of the State of Delaware and Witco Chemical
    Company, a corporation    of the State of Illinois.

          “In view of your Opinion #V-616 please advise
    me if Witco Hydrocarbon     Corporation would be au-
    thorized to deduct the 74% allowed Witco Chemical
    Company in arrivmg at the sales price before com-
    puting the tax levied under Section 46 of Article
    7047, R. C. S.”

          We have carefully     examined the copy of the enclosed
agreement    between the parties.    This agreement    on its face is
a sales agreement.      It purports to sell the carbon black and pass
the title to the purchaser.    It provides that the sales price shall
be determined by the amount received by the purchaser.           That
is, the purchaser    shall pay the seller  “a sum equal to the net
price f. o. b. works at which carbon black is sold by Witco (the
purchaser)    less 7+% thereof.”    Although this method of arriv-
ing at the sales price is unusual, the parties may lawfully en-
ter into such a method.

          Article   7047(46), V.C.S., provides that the occupation
tax shall be paid on a certain percentage     of the market value
of the carbon black produced or manufactured.        It defines “market
value” as: follows:
HOn.   Gee,   H. Sheppard,   Page   2 (V-697)



            “The market value of a particular   type or grade
       of carbon black shall be the average sales price of
       that type or grade of all bona fide sales made dur-
       ing the month on which the tax is being paid less the
       cost of packing, freight and cartage.”   (Emphasis
       added)

           We have no way of determining     whether or not under
the contract in question a “bona fide sale” has been made.       This
is a fact issue to be determined by your department.       If you find
that a “bona fide sale” has been made, then the tax is to be com-
puted on the net price f. o. b. works at which the carbon black is
sold by Witco Chemical Company, less 7;s         thereof, and less
cost of packing, freight and cartage.    If such sale is not “bona
fide,” but merely entered into as a subterfuge to evade full pay-
ment of the tax, then the tax should be computed on the net price
f. o. b. works at which the black is sold by Witco Chemical Com-
pany, less packing, freight and cartage.

                              SUMMARY

             The submitted contract between Witco Hydro-
       carbon Corporation     and Witco Chemical Company on
       its face is a sales agreement.     If this is a “bona fide”
       sales agreement,     the occupation tax on the carbon black
       produced and sold under such agreement         should be
       computed on the net price f. o. b. works at which the
       carbon black is sold by Witco Chemical Company, less
       7;s   thereof and less the packing, freight and cartage.
       If this sales agreement    is not “bona fide,” but merely
       entered into as a subterfuge to evade full payment of
       the tax, then the tax should be computed on the net
       price f. o. b. works at which the carbon black is sold
       by Witco Chemical Company, less packing, freight and
       cartage.    Art. 7047(46),  V.C.S.

                                                Yours   very truly

APPROVED:                           ATTORNEYGENERALOFTEXAS




                                                 W. V. Gcppert
                                                   Assistant
WVG/JCP
