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Author Topic: Tax Exempt Patronage Dividends  (Read 6878 times)
Ilsa
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« on: July 25, 2008, 01:37:37 PM »

This article on the Cooperative Grocer site gives a good legal definition of patronage dividends and suggests that it is possible for patronage dividends, if handled correctly, to be exempt from taxation.

http://www.cooperativegrocer.coop/articles/index.php?id=779

Ilsa

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cj9
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Posts: 9

« Reply #1 on: July 26, 2008, 04:17:55 PM »

Excellent site. Can we get our lawyer to look at it?
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Ingrid Naiman
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« Reply #2 on: July 26, 2008, 06:48:44 PM »

I will ask our lawyer when what we have that is tangible enough to show someone else.  He is still putting together the information needed to incorporate.
« Last Edit: July 28, 2008, 04:51:42 AM by Ingrid Naiman » Logged
nate
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Posts: 8


« Reply #3 on: July 28, 2008, 03:52:28 AM »

That's a very informative link; thank you for posting it.  Cooperative Grocer is a pretty well known trade association in the national coop community and they are a good source for information and networking.

A patronage refund is basically a deduction for excess profits returned to the members at the end of the year.  There are a bunch of formalities, but if the coop gets its ducks lined up, the refund is deductible to the coop and not taxable income to the member-owners who receive it (because it's just money they spent earlier that year coming back to them).

This little tax perk makes coops more economically efficient than regular corporations, a fact that has brought them under periodic political attack.  For our purposes, the patronage refund is a built in self-corrective mechanism to overpricing - we can market the products we want to each other, and charge as an operating margin whatever we feel is appropriate at the time.  If the coop operates efficiently and there is money left over at year end after expenses are paid, the coop can distribute those profits back to us, tax-free.  Thus, the coop operates as a tax-efficient collective buying mechanism - we can pool our capital and knowledge and meet our needs without too many financial middlemen in the way.

For no good reason I am envisioning this a consumer cooperative, probably because it is the kind I am familiar with.  There are also producer coops.  There may be hybrid versions.  Since many of us want to share our skills and creations we will have to discuss this.  I will advocate for whatever way of organizing allows us to meet our needs without the loss of value to too many intermediaries.

There are lots of legal issues.  I can't identify too many in a vacuum.  Questions help, so please ask.  Thanks!
 
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Barbara
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Posts: 9

« Reply #4 on: July 29, 2008, 10:55:59 AM »

What if we used the profits (assuming we will make a profit) to donate to causes the coop supports? Our bylaws would have to define our mission.  I would rather funnel money to a good cause then put it in my bank account.
The coop could be run on alternative energy sources.
We could lease land and grow/sell organic herbs.
We could donate profits to green causes.
You get my drift. All the best, Barbara
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All the best, Barbara
Ingrid Naiman
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« Reply #5 on: July 29, 2008, 01:36:23 PM »

Barbara,

Thanks to your private email to me, I wrote something along this line under Pet Projects.

I understand completely what you are saying, but "balance" is a crucial term and this is where the group will be deeply challenged to find the appropriate inner guidance.

Keep in mind that I have had my fingers in many pies but the role that defines me best might be patient advocate/healer.  In this capacity, I am often brought face-to-face with the financial realities and added stress that those realities constitute.  When I was in Europe, I saw how much more relaxed patients were because insurance does really cover a lot, not always what people want, but it covers a lot.

For years, I have operated a very tiny fund called "Sacred Medicine Trust" that consisted of percentage of funds off the top, i.e., percentage of sales, not of profits, that could be used basically as I deemed appropriate.  The range of projects benefiting from this fund was rather large and serves as an example of the possibilities.  For instance, the funds have occasionally been used to subsidize patients.  Once, they helped an herbalist rebuild a lab that had been damaged.  Some funds went to victims of the Asian tsunami through Ammachi's charitable work.  Some funds have been used to buy cameras to document medical conditions in the war zone or to take pictures of medicinal plants in remote areas.  I have given myself a lot of latitude but now a group has to decide what I have been doing unilaterally and they truly have to balance the need some people have for low prices with the ideals others have to create an alternate reality that is financially sound.

I have been thinking about these topics for many, many years and am very excited by the possibilities.  I discussed the concept of ahimsa in the business world with an old friend in Hawaii who used to be a lawyer and now is a honey moghul.  He recommended a book called "The Diamond Cutter" by an American who became a Tibetan Buddhist monk.  One day, his teacher told him to put on a three-piece business suit and go out into the world and demonstrate the fact that Buddhist ethics can work in the business world.  He started with $50,000 and was a millionaire in a year but this is not exactly my goal.

My goal is a model that demonstrates ahimsa in action.  The reason is very, very simple.  Ahimsa is a concept that embraces 100% respect for all life and that grants to all life the opportunity to unfold its potential without fear, without fear of being exploited or harmed in any way.  I think of Creation as a yin-yang joint venture in which the yin must contain all the potential of the yang.  It will reject what feels bad or else it will suffer.  Today, we are suffering so the ultimate path of healing is the path in which one can truly experience the deepest safety and security in a manner that is enlivening, creative, and completely honest.

It's very complex and yet really simple.  The business models we have now are about mundane success and prosperity, achieved in any way one can and the law of the land is to do anything one thinks one can do without having to pay a price for crossing legal lines, those blurry roads in the sand that are being eroded by judges and politicians who are part of the problem rather than the solution.  My goal is to demonstrate a solution that is sustainable for all Time and that is perfectly suited to our dear Lady Gaia.
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nate
Member

Posts: 8


« Reply #6 on: August 06, 2008, 12:29:45 AM »

Many consumer coops doing patronage refunds give their members an option to have their refund sent to one of several local charities rather than being refunded to the member.  Some consumer coops operate alongside a sister nonprofit corporation that receives donations and applies them to the member's pet causes.  We can certainly arrange for either when the time is right.
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