HR7230-119

What This Bill Does

The Buying American Cotton Act of 2026 creates a general business credit for documented consumption of U.S.-origin cotton. The credit equals the documented volume of qualified cotton in an eligible article sold in a qualifying sale during the taxable year, multiplied by the applicable percentage and the applicable cotton market price. A qualifying sale is the first sale to an unrelated person and generally excludes foreign-use sales unless the income is effectively connected with a U.S. trade or business. The applicable percentage is 24 percent when the cotton was processed only in the United States or additionally only in countries with a U.S. free trade agreement or covered unilateral preference program, and 18 percent when processing occurred in a non-FTA or non-preference country. The market price is the average price for qualified cotton in a recognized international market for the prior three-calendar-year period, as determined by Treasury in consultation with USDA. Eligible articles must be final-condition products ready for retail sale, contain certified qualified cotton, and avoid double counting components for which a credit was claimed or intended. Qualified cotton must be U.S.-grown extra-long-staple or upland cotton, have a permanent USDA bale ID or other accepted origin proof, and be digitally traced by movement and volume through the supply chain to the last processing stage.

Who Benefits and How

U.S. cotton growers, cotton ginners, textile mills using U.S. cotton, apparel manufacturers, retailers selling traceable U.S.-cotton products, supply-chain tracing vendors, and domestic cotton communities benefit from a tax credit tied to documented U.S.-origin cotton volume. Processors in the United States and in FTA or unilateral-preference countries benefit from the higher 24 percent credit rate, while retailers gain a tax reason to preserve origin documentation through final sale.

Who Bears the Burden and How

Treasury, IRS credit administrators, USDA cotton officials, taxpayers claiming the credit, textile supply chains, retailers, importers using non-FTA processing, and federal revenue collections face new regulatory, certification, digital tracing, bale-identification, market-price, component-tracking, anti-double-credit, tax-return, and revenue-loss burdens. Products with poorly documented cotton origin or nonqualifying processing receive less benefit or no credit.

Key Provisions

• Creates a section 45BB domestic cotton consumption credit for documented U.S.-origin cotton in retail-ready eligible articles.
• Calculates the credit from cotton volume, an applicable percentage, and a three-year average cotton market price.
• Provides a 24 percent rate for U.S., free-trade-agreement, or unilateral-preference processing.
• Provides an 18 percent rate when qualified cotton is processed in non-FTA or non-preference countries.
• Requires permanent bale identification or equivalent proof of U.S. origin and digital tracing through the supply chain.
• Blocks double counting when a component already generated or is intended to generate the credit.
• Requires Treasury regulations in consultation with USDA to certify qualified cotton and tracing rules.