The Honorable Joe Hubenak             Opinion No. Ii-932
Chairman
Committee on Agriculture &            Re: Application of sales
     Livestock                        tax exemption to machinery
Texas House of Representatives        and equipment used by an
State Capitol                         agricultural cooperative.
Austin, Texas 70767
Dear Chairman Hubenak:
     you have requested our opinion whether the sales tax
exemption described in article 20.04(N) (6), Taxation-General,
applies to machinery and equipment used by an agricultural
cooperative association organized pursuant to articles 5737-
5764, V.T.C.S. We assume in answering your inquiry that
you are referring to an agricultural cooperative which
handles, processes or markets the goods grown by its members.
The sales tax exemption of article 20.04(N)(6) applies to:
          Machinery or equipment exclusively used or
          employed on farms or ranches in the pro-
          duction of food for human consumption,
          production of grass, the building or
          maintaining of roads and water facilities,
          feed for any form of animal life, or other
          agricultural products to be sold in the
          regular course of business, and machinery,
                          ooseneck trailers exclusive1




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The Honorable Joe Hubenak - page 2 (H-932)


As you note, the underscored portion of subsection 6 was
added to the statute by House Bill 2195, 64th Legislature.
     The Comptroller of Public Accounts, in Ruling .016,
effective July 20, 1976, has interpreted subsection 6 to
exempt machinery and equipment used by agricultural cooperatives
in the processing, packing and marketing of agricultural
products. As an author and sponsor of the bill and as
chairman of the committee which favorably reported House
Bill 2195, you state that the bill was intended merely to
clarify the statutory sales tax exemption available to a
farmer purchasing equipment for use on his farm or for use
at a location elsewhere for processing his own agricultural
commodities, and was not intended to apply to machinery
purchased by cooperative associations.

     The legislative history of House Bill 2195 appears to
support your position. The bill analysis distributed in
connection with House Bill 2195 noted that under existing
law, machinery or equipment used in the production of
agricultural products was exempt from the sales tax, but
that machinery and equipment used in processing, packaging
or marketing of these products was not exempt. The
analysis stated that House Bill 2195:
          Clarifies farm machinery and equipment
          exempt from sales tax. State Comptroller
          asked that this legislation be enacted to
          clarify the statutes to conform with the
          farm usage of machinery and equipment.
The fiscal note regarding House Bill 2195 stated:
          No fiscal implication or additional cost
          to the State attributable to the bill,
          should it be enacted, is anticipated.
Thus, it seems clear to us that the Legislature, in enacting
House Bill 2195, contemplated no major extension of existing
exemptions to the sales tax.
     The exemption of machinery or equipment purchased by
agricultural cooperatives from the sales tax could hardly
be said to have "no fiscal implications." The University
of Texas Natural Fibers Economic Research Division's Cotton
Ginning Cost Study for the 1974-75 Season reported that the




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The Honorable Joe Hubenak - page 3 (H-932)


cost of new gins being built at that time was in the "one-
half million dollar range or more." Id. at 37.. The 1975-76 Texas
Cooperative Handbook lists over 200 cooperative ginners in
Texas, and over 200 other cooperative associations of various
types, including grain elevator associations, food locker
associations, and feed and supply associations. The exemp-
tion of industry segments of this size from the sales taxi
would appear to have some fiscal implications to the State.
     We likewise find difficulty in concluding that the
express language of the statute lends itself to an interpretation
exempting machinery used by cooperatives. The exemption
applies specifically to machinery
         exclusively used . . . by the orginal
         producer at a location operated by the
         original producer exclusively for . . ..
         his own products. Tax.- Gen. art. 20.04(W) (6).
While agricultural products delivered by a producer to a third
party. including a cooperative, for storage and ultimate
sale remain "in the hands of the producer" for purposes of
ad valorem taxation, Attorney General Opinions M-632 ~(1970)
E2,   V-511 (1948) at 3, O-5405 (1943) at 7, thatis not to
say that cooperative associations are operated by the original
producer exclusively for processing, packing or marketing
his own products.
     We think that machinery and equipment utilized by an
agricultural cooperative association to process, pack or
market its members' products is neither "operated by the
original producer" nor used "exclusively for . . . his own
products," and is not, therefore, within the sales tax
exemption of article 20.04(N) (6), Taxation-General. Our
view is reinforced by the "well settled [rule] that exemptions
from taxation . . .. should be strictly construed." city of
Amarillo v. e,     356 S.W.2d 325, 328 (Tex. Civ. App. --
Amarillo m62, writ ref'd n.r.e.).
                     SUMMARY
          The exemption from the sales tax of
          machinery and equipment exclusively used
          in the processing, packing or marketing
          of agricultural products by the original


                            p. 3896
The Honorable Joe Hubenak - page 4 (H-932)


         producer does not extend to inachineryand
         equipment utilized by an agricultural
         cooperative association to process, pack
         or market its members' products.

                             Very truly yours,




jwb




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