Cooperatives and Income Taxes

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Cooperative associations are subject to every real and personal property tax and almost every other type of tax, in the same way and to the same extent as ordinary private business corporations. It is in respect to income taxes that their treatment is different. It is to that point that this article is addressed. In order fairly to judge the point of view of cooperatives as to their income tax status, an understanding of the general nature of cooperatives is necessary. The cooperative corporation is essentially a group of individuals or corporations, or both, organized into corporate form for the purpose of acting collectively in the marketing of their products or the acquisition of their supplies. Almost every state in the Union has statutes expressly providing for the organization of cooperative corporations, and Congress has provided for the organization in the District of Columbia of cooperative associations of consumers.' Most of these laws were originally enacted principally to insure to groups of farmers the right to act collectively without violating state antitrust statutes. Congress assured to cooperatives the same immunity from federal antitrust statutes by enactment of the Capper-Volstead Act in 1922.2 Neither state nor federal law grants such immunity to cooperatives in their ordinary commercial transactions and dealings. A cooperative may be organized under the ordinary business corporation statutes of most states. The Federal Farm Board, acting under the advice of Stanley Reed, then its general counsel, now a Justice of the Supreme Court of the United States, organized its great cooperative marketing and warehousing corporations under the general corporation statutes of Delaware. There are, of course, some advantages in organization under the usual cooperative statutes, but there are also definite restrictions and disadvantages. The Minnesota General Cooperative Act3 is fairly typical. Cooperative associations organized under these statutes differ from business corporations in several important respects, among which are the following: i. There is a limit on the amount of voting stock a member may own, a common limitation being more than one-twentieth of the stock outstanding; 2. Dividends on capital stock may not exceed a stated rate, such as 6 per cent per annum, and are not cumulative;