Could Texas cotton ginners buy the bagging, metal ties, and identification tags used to bale processed cotton without sales tax?

Plain-English summary

The Comptroller said Texas cotton ginners could buy bagging, metal ties, and bale-identification tags tax free by issuing exemption certificates to their suppliers.

The ruling treated ginning as processing seed cotton for sale. The bagging protected lint cotton during shipping, the ties held it in bale form, and the tags identified the bale and gin until the cotton reached the textile mill. Because the ginners were processing cotton into marketable form, they qualified for the manufacturing exemptions described in the letter.

What this means for you

For the facts presented, all three packaging components qualified: the protective bagging, the ties that maintained the bale, and the identifying tags that traveled with it to the textile mill. The purchaser needed to give the supplier an exemption certificate rather than simply omit tax without documentation.

Common questions

Were the bags and metal ties exempt? Yes. The letter says cotton ginners could purchase them tax free.

Did the identifying tags qualify too? Yes. The tags remained with each bale until the cotton was consumed at the textile mill.

How did the gin claim the exemption? By issuing an exemption certificate to the supplier.

Citations and references

• 34 Tex. Admin. Code Rule 3.314 — wrapping and packaging supplies
• 34 Tex. Admin. Code Rule 3.287 — exemption certificates

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1135B01

Original ruling text

October 1, 1991

Dear *****:

Thank you for the information you sent about the type of packaging
materials purchased by cotton ginners.

You explained that cotton gins process a raw product (seed-cotton)
for producers to put in a marketable form. In the ginning process,
bagging is placed around the lint cotton to protect it during shipping.
Metal ties are then placed around the bagging to hold the
cotton in bale form.

Metal and paper tags are also attached that identify the specific
bale and the gin that processed it. They remain with the bale until
it reaches the textile mill where the cotton is consumed.

As we have discussed, cotton gins are processing the cotton for sale
and are entitled to claim the manufacturing exemptions. Based on
the guidelines developed by Mr. Sharp, sales tax is not due on
packaging supplies purchased by manufacturers for use in the
manufacturing process. Cotton ginners may, therefore, purchase the
bagging, ties, and tags free by issuing an exemption certificate
to their suppliers.

I have enclosed a copy of Rule 3.314 on wrapping and packaging supplies
and Rule 3.287 on exemption certificates for your information. Please
let me know if you have any questions or need more information. My
number is 475-0537.

Sincerely,

Mona Ezell Shoemate
Tax Administration