Does a cotton mote fiber processing operation qualify for the same sales tax exemption on electricity (without needing a predominant use study) that Texas already grants to cotton ginning operations?

Subject

Cotton Mote Fibers Processing — Treated As Cotton Ginning Processing

Plain-English summary

An industry association wrote to the Comptroller's Research and Policy Development office on behalf of cotton mote fiber processors, asking that they be given the same sales tax treatment on electricity that cotton gins already had. Cotton gins, on an industry-wide basis, had previously been exempted from having to obtain a "predominant use study" to claim the sales tax exemption on the electricity they use -- normally a business has to document that most of the electricity at a given meter is used in an exempt manufacturing process before the exemption applies, but the industry-wide approach let cotton gins skip that study.

The association's letter, along with a technical description of the cotton mote cleaning process from Glen Hunt at the Comptroller's office, explained that cotton motes are waste fibers left over from cotton ginning. A mote processor conditions, dries, cleans, and presses these waste fibers into bales using equipment -- a module feeder, air-suction "Steady Flow" and dryer, air separators, incline cleaners, stick machines, lint cleaners, a battery condenser, and a bale press -- that is functionally identical to a cotton gin's equipment. The only piece of gin equipment absent from the mote process is the gin stand, the machine that actually separates cotton fiber from the seed (motes, being seed-free waste fiber, don't need that step).

Based on that side-by-side comparison, the Comptroller (John Sharp) concluded that the process and equipment used in cotton mote fiber processing are substantially the same as cotton ginning, and extended the same industry-wide predominant-use-study exemption on electricity to cotton mote fiber processors.

What this means for you

Cotton mote fiber processors

If your operation cleans, conditions, and bales cotton motes using equipment that mirrors a cotton gin's process (minus the gin stand), this letter supports treating your electricity purchases the same way cotton gins do for sales tax purposes -- without needing to commission your own predominant use study.

Other agricultural or byproduct processors

This letter is a useful example of how the Comptroller will extend an industry-wide exemption already granted to one process to a closely related process, where the taxpayer can show the equipment and steps are substantially the same. A side-by-side technical description of your process versus the already-exempt process (as the association provided here) is what carried the day.

Accountants and tax professionals

Note that this letter does not cite a specific statute or rule section -- it simply confirms that an existing industry-wide administrative exemption (for cotton ginning electricity) also covers a closely analogous process. When relying on letters like this, keep in mind that only the original recipient can assert detrimental reliance on it, and STAR letters can become outdated even where not marked superseded.

Common questions

Q: Does a cotton mote processor need to do its own predominant use study to buy electricity sales-tax-exempt?
A: According to this letter, no -- the same industry-wide exemption from that requirement that applies to cotton gins was extended to cotton mote fiber processors, because the two processes and their equipment are substantially the same.

Q: What's the one piece of equipment a mote processor doesn't use compared to a cotton gin?
A: The gin stand -- the machine that separates cotton fiber from the seed. Motes are already seed-free waste fiber, so that step isn't needed.

Q: What are cotton motes?
A: Waste fibers left over from the cotton ginning process, which, once cleaned and baled by a mote processor, are used by textile and other fiber/cellulose-related industries.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=
• Opinion: https://star.comptroller.texas.gov/view/9603170L

Original ruling text

March 29, l996

Dear **:

Thank you for your recent correspondence concerning the processing of cotton
mote fibers. Our policy and audit specialists have reviewed the material you
provided and have determined that the process and equipment used in this
process are substantially the same as for the cotton ginning process.

Based on this review, the exemption from obtaining a predominant use study for
sales tax on electricity previously gathered, based on an industry wide
approach, would also apply in the case of cotton mote fiber processing. Please
feel free to contact me at 463-4444 if you have any further questions.

JOHN SHARP
Comptroller of Public Accounts

March l5, l996

Mr. Glen Hunt,
Director Research and Policy Development
Comptroller of Public Accounts
LBJ State Office Building
lll E. 17th St.
Austin, Texas 78774

Dear Mr. Hunt:

Enclosed is a description of the process used to condition, clean and package
cotton mote fiber. As you will note, this process is identical to processing
seed cotton, with the exception that mote processing does not include the
removal of the cotton seed. Because the process is identical, the equipment
used to process motes is the same equipment used in the cotton ginning process.
The only piece of equipment not used in the mote process is the gin stand,
which removes the fiber from the cotton seed.

Cotton motes are waste fibers from the cotton ginning process. After these
fibers are processed by a mote processor, they are utilized by textile and
other fiber/cellulose related industries.

Mote processors typically will operate for a period of 8-12 months, depending
on the size and quality of the crop produced. Any off season is spent repairing
and reconditioning the equipment used to process the motes.

Since the process and equipment used by mote processors is essentially the same
as that of a cotton gin, ASSOCIATION is requesting that the exemption on the
requirement of providing a predominant use study for sales tax on electricity
and gas, extend to cotton mote fiber processors. If you have any questions,
please give me or *at * **a call. If you wish to have
someone from your agency tour a mote processing plant it can be arranged. Thank
you for your time, and consideration of our request.

Sincerely

THE PROCESS OF CLEANING COTTON MOTE FIBER

The cotton mote fiber arrives from the gins in a moduled/and or baled packages.
The cotton mote fiber is placed on a feeder belt in a CMC 2+2 "Mini Module
Feeder" where the cotton mote fiber is conditioned for ginning. The "Mini
Module Feeder" operates exactly like a module feeder in a cotton gin, the
feeder disperses the cotton mote onto a 36" wide conveyor belt and conditions
the fiber for ginning. The cotton mote fiber is suctioned off of the conveyor
belt by a 96" Hardwick Etter "Steady Flow". The cotton mote fiber is pulled
thru the Steady Flow by a 75HP - 55" air suction blast fan thru a "Vandergriff
Turbulent Air Flow Hot Shelf Tower Dryer" where the drying process takes place,
The cotton mote fiber is dryed down from 15-20% moisture to 6-8% moisture by a
3 million BTU natural gas burner. After the drying process the cotton mote
fiber is pulled thru a 72" "Horn" air separator and is then dropped thru to a
72" "Horn" vaccumm box into four (4) "Hardwick Etter" incline cleaners. These
cleaners operate exactly like incline cleaners in a cotton gin by removing
small sticks and pin trash.

After passing thru the incline cleaners, the cotton mote fiber is suctioned
from the last incline cleaner by a 72" "Horn" air separator and is deposited
into a 36" "Horn" overhead conveyor distributor. The distributor then
disperses the cotton mote fiber to four (4) individual 72" "Hardwick Etter"
stick/feeder machines. These machines like a stick machine in a cotton gin
also removes large cotton stalk fibers and trash. After passing thru the
"Hardwick Etter" sticks machines the cotton fiber is conveyed to the lint
cleaning process by means of four (4) metal lint slides exactly like the slides
in a cotton gin that feeds the gin stands.

The cotton mote fiber goes thru three (3) stages of cleaning utilizing two (2)
Moss Gordon 66" lint cleaners which are linked together in tandem (back to
back) which is also typical in a cotton gin. The cotton mote fiber is combined
and is processed in the third state of cleaning by utilizing a "Twin Moss
Gordon 66" Constellation lint cleaner. The cleaned finish product is removed
from the twin lint cleaners by a "Horn" 72" battery condenser which produces a
uniform bat of clean cotton. The cleaned "bat" of cotton is then conveyed by
means of a 72" lint slide into a "Murry PBX Twin Box Universal Density bale
press.

The cotton mote fiber is then pressed into a 480 lb. U.D. bale. the bale is
then removed from the U.D. press by a Murray bale handling system. The bale is
sampled, dressed into a burlap bag, weighed and stored in a warehouse. The
cleaned cotton mote fiber is then shipped to textile and other related cotton
fiber use industries.