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FEDERAL income taxes paid by 

 your 15 state Farm Bureau coopera- 

 tives in 1947 alone amounted to 

 $106,518. This does not include 

 taxes paid by County Farm Bureau 

 Co-op units. 



In spite of this, your state-wide co- 

 operatives in recent months have been 

 the target of a well-organized campaign 

 to discredit them in the eyes of the 

 public. 



The attack generally has followed the 

 line that cooperatives enjoy tax-exempt 

 privileges thereby competing unfairly 

 with privately-owned businesses. 



Some enemies of farmer cooperatives 

 would like the public to believe that co- 

 operatives not only are privileged but 

 actually are tax-free and huge, like some 

 alien monster, and therefore un-Amer- 

 ican. 



They forget, or ignore the fact, that 

 in their attacks they are questioning the 

 integrity of the Illinois Farm Bureau 

 member; because the Illinois Agricul- 

 tural Association associated cooperatives 

 were founded and are owned and op- 

 erated by you and your Farm Bureau 

 neighbors. 



or corporation. This includes the per- 

 sonal property tax, real estate tax, the 

 two per cent state sales tax, and various 

 license fees. In Illinois we can dismiss 

 state and local taxes as an issue. 



Consider the federal income tax. This 

 is the tax that enemies of cooperatives 

 imply we do not pay. It is not generally 

 realized outside of farm groups that the 

 Illinois Agricultural Association has been 

 a leader in the movement to surrender 

 the income tax-exempt privileges allowed 

 by federal law to many farm coopera- 

 tives. This leads one to believe that the 

 enemies of farm cooperatives are more 

 interested in destroying them than in tax 

 reform. 



In this day of billion dollar corpora- 

 tions the average small farmer would be 

 lost if he were to set up small co-ops 

 that extended only to his four corners. 

 He knows very well why he needs state- 

 wide cooperatives. There is little likeli- 

 hood that he will change his course. 



Men who are blind will remain blind. 

 It will do no good to tell them that our 

 cooperatives are not tax-free. What is 

 the true record of the state-wide coopera- 

 tives associated with the Illinois Agri- 

 cultural Association? 



All Farm Bureau-type cooperatives in 

 Illinois are subject to every state and local 

 tax paid by a privately-owned business 



All except two of the lAA associated 

 cooperatives already have surrendered 

 their income tax-exempt privileges and 

 the two remaining will consider the 

 matter of removing their exemptions 

 soon. 



A non-exempt tax cooperative pays 

 taxes on all that portion of its income 

 which is used for payment of preferred 

 stock dividends or is put into the surplus 

 account or the reserve fund of the coop- 

 erative. All patronage dividends paid 

 out to patrons go into the deductible 

 column when the cooperative files its tax 

 returns. 



The lAA service cooperatives which 

 depend on dues from members are 



exempt as are other dues-paying organi- 

 zations such as the Illinois Chamber of 

 Commerce or the Progressive Mine 

 Workers. 



Cooperatives that are income tax 

 exempt do not pay federal income taxes 

 on profits retained as reserves and not 

 passed back as patronage dividends. It 

 has been claimed that coof>eratives have 

 used these savings to expand their ojjera- 

 tions instead of returning them as re- 

 funds. 



Since similar savings in the hands of 

 privately-owned businesses are taxed, 

 many business men claim this allows co- 

 operatives an unfair tax advantage. 



This is not an important issue to co- 

 operative's affiliated with the Illinois Ag- 

 ricultural Association since most of the 

 companies have or are exf>ected soon to 

 surrender their letters of exemption. It 

 refutes the argument that our coojjera- 

 tives pay no federal income tax. 



There are three possible sources of 

 income tax in cooperatives like the lAA 

 associated companies. The first is on 

 profits from business done with non- 

 members. We pay income tax on profits 

 realized from such business. As an ex- 

 ample, the 66 service companies in Illi- 

 nois in 1943 paid income tax of $120,- 

 146.98 on this account. 



The second source is income tax on 

 profits paid as dividends to preferred 

 stockholders or put away into surplu^. 

 All companies having these funds have 

 or will pay taxes on these accounts as 

 explained previously. 



The third is income tax on profits paid 

 as refunds to members. This is the crux 

 of the fight on taxing farm co-ops. The 

 rest is pretty much smoke-screen. 



Over a long period of time the Treas- 

 ury Department and the Bureau of In- 

 ternal Revenue have taken, the position 

 that patronage refunds made by a true 

 cooperative are the property of the pa- 

 tron. 



Patronage refunds are not a profit to 

 the cooperative since the cooperative 

 agrees in advance to pay back to the 

 members any money left after deducting 

 expenses. 



When these refunds go back to the 

 farmer they increase the farmer's income 

 which is silbject to income tax. The 

 privilege is not restricted to cooperatives. 



FEBRUARY. 1948 



