The New Federal Tax Bill 



I. A. A. After Axnendment to Protect Illinois Co-operatives, Would 



Prevent $25,000 Additional Taxes 



IN minois most of our co-operative 

 associations are organized with cap- 

 ital stock. Fanners put in some if 

 not all of their own money to finance 

 the association. The I. A. A. believes 

 this is good business. It promotes 

 greater loyalty and support. When 

 you're doing business on the other fel- 

 low's capital you are not likely to be 

 as interested in making the business 

 sqeceed as if you were using your own. 



Another difference between the I. 

 A. A. type of co-operative and those 

 of other states is that in many Illinois 

 co-ops there is a distinction between 

 members and non-members. In the case 

 of County Farm Bureau service com- 

 panies, there is patronage from mem- 

 bers and non-members. Members are 

 those who belong to the Farm Bureau. 

 They alone share in patronage divi- 

 dends. 



The new federal tax bill which re- 

 cently passed the House fails to recog- 

 nize the I. A. A. type of cooperative. It 

 places them in about the same class as 

 corporations organized for profit. This 

 bill is designed to raise $620,000,000 ad- 

 ditional revenue. To encourage greater 

 distribution of earnings to stockholders, 

 it sets up a graduated tax on such earn- 

 ings from nothing to 42y2% depending 

 on the percentage distributed. The 

 smaller the distribution of dividends, 

 the heavier the tax. When all earnings 

 are distributed there is no tax. 



Many Not Exempt 



Most co-operative associations are 

 exempt from this tax. Many are not, 

 however, because non-members do not 

 participate in earnings. Under existing 

 tax regulations such co-operatives are 

 permitted to deduct from net income 

 the amount of patronage refunds paid 

 up to the proportionate amount earned 

 on business done with members, in 

 computing taxable net income. Under 

 the proposed act this advantage is lost: 

 in fact many Illinois co-operatives 

 would be required to pay a higher rate 

 than applies to general business cor- 

 porations. This situation results from 

 the fact that patronage refunds, while 

 still deductible in arriving at taxable 

 net income, will not be included in the 

 didivend credit. 



Since the ratio of dividend credit to 

 net income determines the rate of tax. 

 It is apparent that increased taxes on 



cwnfftcnxow 



BUTTER 



IttKMtK* (HI 4MtK» UIC 



"It Payi to Advertise" believes the Farmen 

 Creamery Co., Bloominqton. This sign on the 

 {arm of John Stanford, Livingston County 

 Farm Bureau member, can be seen a long 

 ways as you approach Forrest from the South. 



The Stanfords have a fine set of build- 

 ings, one of the first in the county to be 

 electrified. Eighty-five to ninety-five dol- 

 lars a year, or about $7 to $8 a month, 

 is what electricity costs us, says Mrs. 

 John Stanford, member of the Livingston 

 County Home Bureau. Their ten-room 

 house and buildings have been wired for 

 ten years or more. The Central Illinois 

 Public Service Company provides the 

 service. Current is used for lighting, 

 pumping water, washing machine, elevat- 

 ing grain, refrigeration from May to 

 October inclusive, churn, electric range, 

 radio, and smaller appliances. 



co-operative associations will result. 



Fred E. Ringham, manager of the 

 Illinois Agricultural Auditing Associa- 

 tion appeared before the Senate Fi- 

 nance Committee on May 8 to secure an 

 amendment which would exempt from 

 tax that part of the earnings resulting 

 from business done with member pa- 

 trons. 



It is difficult to estimate the amount 

 of additional tax that would have to be 

 paid by co-operative associations in 

 Illinois under the proposed 1936 Rev- 

 enue Act. However, the income tax 

 on co-operative service or farm supply 

 companies for 1935 averaged about 

 $675. The total tax paid by co-oper- 

 atives of this type affiliated with Illi- 

 nois Farm Supply Company amounted 

 to more than $40,000. It seems likely 

 that at least an additional $25,000 of in- 



come tax would be assessed against 

 this group of companies on the new 

 basis. 



This estimate is based on the fact that 

 McLean County Service Company, 

 which last year paid an income tax 

 of $1,941.34, would be required to pay 

 a tax of $4,053.59 if the same net in- 

 come and the same distribution were 

 made as in 1935. This would represent 

 an increase of 109 per cent. 



Similarly, the Wabash Valley Serv- 

 ice Company would have its tax in- 

 creased $768.42, or 73 per cent over 

 that paid last year. In both cases over 

 80 per cent of the net income was 

 distributed either as dividends on pre- 

 ferred stock or in the form of patron- 

 age refimds to holders of common 



stock. ■ r",' ' '■■'• . ■■■ 



Will Be Changed 



The Revenue Act is being considered 

 by the Finance Committee of the Sen- 

 ate in executive session, and because 

 of the objection voiced against the tax- 

 ing of undistributed earnings it ap- 

 pears likely that the House measure 

 will be considerably changed. Regard- 

 less of the tax finally agreed upon, cor- 

 porations in general undoubtedly will 

 be taxed at higher rates than exist un- 

 der the present Revenue Act. There- 

 fore, if the principle of exempting in- 

 come on business done with members 

 in the case of co-operative associations 

 is incorporated in the Act as finally 

 passed, a very considerable saving will 

 be secured for agricultural co-operative 

 ; associations. 



i 



One Healthy Squawk 

 Is Old Enough Here 



Will County boasts of having the 

 youngest policyholder in Country Life. 

 When the question was put to Larry Wil- 

 liams, manager of Country Life, some 

 months ago, "Just how old must a child 

 be in order to insure him," he snapped 

 back, "One good healthy squawk." So 

 when little Lorraine Evalyne, youngest 

 daughter of M. C. Weber, County Organ- 

 ization Director, arrived in Will county, 

 an application was writteii out imme- 

 diately, and the lady's age on the ap- 

 plication blank reads, "One good health; 

 squawk!" , . .,,.-: ■ ,- ., .-. ^ . 



I. A. .A. RFCOKO 



