Classification of the Sale of Cottonseeds to Industrial End-Users and Cottonlint to Cotton Millers

January 13, 1987 BIR RULING NO. 008-87 161 (2) 079-86 008-87 Gentlemen : This refers to your letters dated August 19 and 29, 1986 requesting that for sales tax purposes, your sale of cottonseeds to industrial end-users and cottonlint to cotton millers be classified as sale of agricultural non-food products. It is represented that the Philippine Cotton Corporation is a government-owned and controlled corporation created by Presidential Decree No. 350, as amended, to be the central authority to undertake, implement and supervise cotton production in the Philippines on a commercial scale; that the corporation determines what areas nationwide are suitable to cotton growing, taking into consideration the prevailing climatic condition, the quality of the soil and the availability of water for irrigation; that within the areas identified as suitable for cotton production, the corporation encourages and enlists farmers to plant cotton by providing them with cotton technology, by financing their production from planting to harvesting, and by purchasing their seedcotton harvest, and that the corporation then gins the seedcotton and sells the cottonlint to cotton millers and the cottonseeds to industrial end-users. In reply, please be informed that seedcotton purchased from farmers is an agricultural product, and that your drying, cleaning, ginning, baling and sacking thereof into cottonseed and cottonlint constitute simple processes of preservation. Hence, your sale of cottonseeds and cottonlint is considered a subsequent sale of agricultural non-food products in their original state subject to zero per cent (0%) rate. (Sec. 164, Tax Code, as amended by Executive Order No. 36 which took effect on August 1, 1986). In other words, on your sales of cottonseeds and cottonlint, you are not subject to the 1.5% tax on subsequent sales. However, you shall be subject to the C-13 graduated annual fixed tax imposed by Section 161(2) of the Tax Code. (Revenue Memorandum Circular No. 2-86). aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner