Overview: What the Buying American Cotton Act Is
The Buying American Cotton Act is a bill introduced in Congress to amend the Internal Revenue Code and create a new “domestic cotton consumption credit.” Its core objective is to harness tax incentives and supply-chain traceability to drive more U.S. and global manufacturers toward American cotton fiber, yarn, and fabric. The legislation has appeared in both Senate (e.g., S.1919 in 2025) and House (e.g., H.R. 7230 in 2026) versions, with similar structures focused on traceable U.S. cotton content and end-stage retail sales.
Under the bill, eligible U.S. businesses that sell qualifying cotton products to consumers could claim a transferable tax credit tied to the amount and value of U.S.-grown cotton in those items. This framework is explicitly framed as a demand-side tool: instead of paying farmers directly, it rewards the brands, retailers, and supply chains that choose American cotton and can prove it.
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Key Features of the Act
The Act is built around several key concepts: eligible articles, eligible taxpayers, documented U.S. origin, and a volume-and-price based tax-credit formula.
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Eligible articles
These are cotton products ready for retail sale, including apparel, home textiles (like towels and sheets), and nonwovens, that are made in whole or in part from U.S. upland cotton or extra-long staple cotton. Articles can be either fully manufactured in the United States or imported into the U.S., as long as they contain qualified U.S.-grown cotton. -
Eligible taxpayer
The credit goes to the first U.S. entity that sells the finished article in its final condition to a consumer in the United States (for example, a retailer selling T‑shirts at retail). This “end-stage seller” structure is designed so the market-facing company that actually moves cotton-containing goods to consumers gets the incentive. -
Documented proof of U.S. origin
To qualify, sellers must demonstrate the origin and volume of U.S.-grown cotton in the product through a credible supply-chain tracing system. The legislation explicitly leans on the U.S. cotton industry’s existing ability to trace fiber from bale to finished good to ensure integrity and prevent double-counting. -
Transferable tax credits
The domestic cotton consumption credit is designed to be transferable, allowing companies that may not have large tax liabilities to sell the credit in the market. This makes the incentive more usable across the cotton value chain and potentially more attractive to brands and retailers with varying tax profiles.
How the Tax Credit Works
The credit is calculated based on the volume of U.S.-grown cotton in a qualifying product, multiplied by a factor tied to average market prices and adjusted by percentages that reflect where the product was processed.
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Volume-and-price formula
The basic credit is the product of:- The documented volume of U.S.-grown cotton in the article (e.g., pounds of U.S. cotton in a shirt), and
- A factored percentage of a three‑year rolling average market price for cotton.
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Processing-location percentages
The bill sets different applicable percentages depending on where cotton is spun or processed:- A higher percentage (e.g., around the mid‑20 percent range) if the cotton is processed in the United States or a country with a U.S. free trade agreement.
- A lower percentage (e.g., high‑teens range) if processed in non‑FTA countries.
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Enhanced credits for yarn and fabric
An important design feature is enhanced credit multipliers when the product can be documented as using U.S.-manufactured cotton yarn or fabric:- If the credit is claimed on U.S.-manufactured yarn, the value is multiplied by 1.6.
- If claimed on U.S.-manufactured fabric, the value is multiplied by 6.5.
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Qualification and exclusions
A “qualifying sale” is typically the first sale of an eligible article to an unrelated party for use or consumption in the U.S.; sales destined primarily for foreign use generally do not qualify. Certain complex products or components may be excluded or treated carefully to avoid multiple credits on the same cotton content.
Traceability, Compliance, and Treasury’s Role
Because the Act ties federal tax benefits to cotton origin and volume, it relies heavily on supply-chain traceability and federal regulation to ensure compliance and avoid abuse.
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Traceability through the supply chain
Entities claiming the credit must show a trustworthy chain of documentation tracing U.S. cotton from fiber through yarn and fabric to the finished product. This can include certifications, bale identification, third‑party verification, or other industry traceability tools capable of linking finished goods back to U.S. cotton bales. -
Preventing double-counting
The legislation requires systems and rules that prevent the same units of U.S. cotton from being counted multiple times across different products or credit claims. That means detailed recordkeeping, standardized documentation, and potentially audits to ensure each pound of cotton only generates a single credited value. -
Treasury regulations
The Secretary of the Treasury is tasked with issuing regulations to:- Define and police the tracing requirements.
- Clarify what constitutes proof of origin and volume.
- Set rules for credit transfers and interactions with other business credits.
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Effective date
Provisions would apply to sales of eligible products occurring after the law is enacted, so companies would need to have traceability and documentation in place going forward to claim credits.
Why It Matters for the U.S. Cotton Industry
For growers, ginners, merchants, mills, brands, and retailers, the Buying American Cotton Act creates a new demand-driven policy tool that could realign purchasing decisions toward U.S. cotton across global supply chains.
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Demand-side support rather than direct farm payments
Instead of adding another layer to traditional farm-safety-net tools, this Act aims to shift downstream behavior, rewarding retailers and brands that choose American cotton and document it. That pull-through demand can support farm-level prices and utilization without paying producers directly. -
Competitive positioning versus synthetic and foreign fibers
By lowering the effective tax burden on sellers of products using U.S. cotton, the credit helps close cost gaps with synthetic fibers and competing foreign cotton sources. For consumer brands, this can make an “American cotton” program not only a marketing story but also a financially attractive sourcing decision. -
Reinforcing U.S. spinning and textile manufacturing
The enhanced multipliers for U.S.-manufactured yarn and fabric specifically target the midstream of the supply chain, where many U.S. mills have historically struggled with offshoring and cost competition. If successful, the structure could encourage brands to rebuild or expand relationships with U.S. spinners and fabric mills to unlock higher-value credits. -
Role of industry groups
Organizations such as the National Cotton Council have publicly backed the Act, emphasizing the industry’s existing traceability capabilities and the potential to increase domestic and export demand for U.S. cotton content in finished goods. Regional growers’ groups and cotton organizations also frame it as a way to modernize policy by tying incentives to traceable, verifiable use of American fiber in the products consumers actually buy. -
Example for brands and retailers
A practical illustration:- A U.S. retailer sells a line of bath towels made with certified U.S. upland cotton, woven into fabric in a U.S. mill, and finished in the United States.
- With documented proof of U.S. cotton volume and U.S. fabric manufacturing, the retailer can claim a credit equal to the volume of U.S.-grown cotton in those towels times a factored average cotton price, then multiplied by 6.5 because the fabric is U.S.-manufactured.
- The retailer can use that credit against its tax bill or transfer it, effectively monetizing the decision to source American cotton and U.S. textile manufacturing.
For cotton growers, ginners, and allied businesses reading CottonGins.org, the Buying American Cotton Act is thus best understood as a proposed, traceability‑driven tax-credit framework that aims to reward and expand real-world use of U.S. cotton in consumer products, from bale to retail shelf.
