Hon. George Ii. Sheppard        ~OpinianHo. o-?L4!j
Comptroller of                  ore:, @ether cost of elletiz-
 Public Aocounts                lag caxbom black ahouEd be
Austin, Texas                   alas-sad as paok$ng expense In
                                arr$olng at market va&utefor
Dear Sir1                       tax purposea.
          Your letter  of September 17, 1946 requests      our opln-
ion on the above quest Ion.
           From the faots given,, it appears that Continental
Carbon Company produoes and manufaoturea *Class B” carbon
black as defined in Oubd$risioa    46 of Article 7047, V.4.C.S.
Such statute levies a.tax of 5.2$ ,*of the value of all such
carbon black produced or manufactured vhere the market value
is in excess of four (W.) cents per pound;” The statute de-
fines market value as the average sales price ‘less    the cost
of packing, freightis and oartagrs?’
            The statute   further   staterr
           “The term ‘carbon blaok’ as herein used
     includes all black pigment produced In whole
     or in part from natural gas, oaslng-head gas
     or residue gas by the impinging of a flame
     upon a channel disk or plate,  and the tax here-,
     in imposed shall reach all products produoeni in
     such manner. I’
          Your letter  encloses a dlagxam showing the various
steps used by Continental Carben Company Za the production
and sale of its product.    Qa t~he burner house, the impinging
M?Gnfe$ame burning natural gas deposits black upon a moving
          The black Is soraped off     is put through an air sep-
arator ;or removal of foreign subs Eanuas and then Is driven
through a %lcro-pulver%Br      to insure fineness.
           At this point, acoording to the information      furnished,
the black is in a fY.ne, pewdery    form, ailnllar to ordinary soot
and now has all the hyelcal characteristics       aec9ssary for com-
mercial use.   About ,F $ or the pmduot &s actually     sold in this
form.   However, it cannot be shlppb3d in bulk but must be care-
fully packed In neosasarily    bulky paokages., : It has been dis-
covered that by agltatl.mg this product :%n a rotating,     horizontal
Hon. George II. Sheppard,                 page 2   (O-7145)


drum, it would be converted into pellets.      In this form, the
black can be shipped Fn bulk in covered hopper cars, and,
because of its density,  in smaller sized bags.      The change
effected by pelletizing  is simply to change the shape of the
black for economy and convenience in shipping and ultimate use.
No chemical change takes place.    About 95% of the product is
shipped in this manner.             _,,_,,, 4~

         “. If ,:t.he ~exp,ense ‘of pelletlzlng   is a “cost of packing”,
,then,~%&sr::the. termsof        the statute,   it is properly deduct-
 ibl-e fromthe    salesprloe      in determining the market value of
the carbon black for taxpurposes.             We think such deduction is
proper.
           Instate v’. Parsons,. 27:S.W..1102 (MO.) the court
quoted from Keith v. State, 8 So. 353 (Ala.),   as )ollowsr
          ,.:,~.%he ~,term ato paokl, ~‘i.n its, ordinary signifi-
       cationi ,,especially       w.hen used in reference     to car-
     : riage, means to place ,together and prepare for
   + taansportat ion. .. i u
                                   ,.: .,
The pelle&i.ng          ,op~eration::app,&rs clearly     to be part of the
preparation       for transportation.        It :is not a part of the manu-
facturing       process.      A study of the tax statute convinces us
that it was the intention             of the Legislature    to base this pro-
duction tax on the market value of the finished                product   to be
determinediby sales ‘price less packing and shipping cos c . We
th~ink the psoduct,ion or manufacture of the finished              product,
suitablezfor       commercial us,e,.. is complete immediately prior to
the pelletizing        ,.pr,ocess. ”
      . :. .’.Th,e‘above question              is accordingly   answered in the
affirmative.
                                        Yours very truly
 APPROVED.:O’CT  10,’ 1.9%6     .’      ATTORIWY  GENERAL OF TEXAS
/s/‘.Grover    Sellers;     ~~~
                              ’
 ATTPRREYGE@ER&‘OF TEXAS           . ~. By /s/ J. Arthur Sandlln
                                        J. Arthur Sandlin, Assistant
 APPROVED:OPII$I,& CO~MBITTEE
BY:     .,. ,jiVG~;,X!HAIRMti
JAS:,ms:wb

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