A patronage refund is simply the distribution of a portion of the net income, or profit, attributed to the purchases by members in a given year. There are a number of benefits both to the members and the Co-op:
1. Generally, Co-op profit is taxable income. However, by declaring a Patronage Refund, the Co-op’s net profit is not taxable.
2. Co-op members receive a check or credit distribution when the Co-op is profitable from 20-100% of the net income, and normally tax-free. That portion of the net income retained by the Co-op as an additional capital contribution and not paid in cash is credited to each member’s Capital Account.
3. The Patronage Refund Program provides tax-free capital to enable the Co-op to make improvements and plan for store expansion. The IRS requires the Co-op to pay a minimum of 20% to members, but allows the Co-op to retain up to 80% of the allocation; the retained portion provides a tax-free and interest-free way to allow the Co-op to make improvements or plan for expansion.
4. The Patronage Refund Program emphasizes ownership and equity which are real benefits to membership. When a cashier asks, “Are you a member,” we really should be asking, “Are you an owner?” All members really do own the business. Income is not whisked away to corporate headquarters in Dallas, Texas or New York City; it stays right here in SLO County.
Please attend the Special Members’ Meeting so that you can vote on a bylaws amendment to allow your San Luis Obispo Natural Foods Co-op to implement the Patronage Refund Program for 2017.
Links to what other co-ops are doing:
Board President, SLO Natural Foods Co-op