On Farm 



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erative drug stores. There is the Re- 

 tailers Marketing Guild, also in Chi- 

 cago, serving more than 150 furniture 

 stores. There are also cooperative as- 

 sociations for cleaners and dyers, 

 bakers, laundries, truck owners and 

 many other businesses. 



These cooperatives have been formed 

 by small businesses in order to enable 

 them to meet competition. Our pro- 

 duction and distribution facilities have 

 tended to become concentrated in the 

 hands of big corporations. In order to 

 meet this situation, small business men 

 have banded together into cooperative 

 organizations and have combined their 

 resources and purchasing power just as 

 farmers have done. 



And big business has well integrated 

 operations. For example a farm imple- 

 ment company may own and operate 

 the iron ore mine, the ship which trans- 

 ports the ore, the steel mill, the factory 

 which manufactures the machine and 

 the trucks which transport the finished 

 machine to the retail distributor. Farm- 

 ers are not critical of these multi- 

 million dollar organizations. It is rec- 

 ognized that they represent the United 

 States industrial capacity and have con- 

 tributed greatly toward the high stand- 

 ard of living which we enjoy. 



However, it is obvious that the 

 farmer and the small business man 

 facing the competition of this type of 

 integrated operation is compelled to 

 cooperate with other farmers or other 

 small business men in order to maintain 

 himself and achieve efficiency in buying 

 and selling and gain the advantages of 

 bigness without surrendering his inde- 

 pendence. 



Our economy, our capitalistic system, 

 is based upon competition. Coopera- 

 tives serve to maintain competition. 

 Without competition we would have 

 monopoly. Then to control monopoly 

 we probably would insist upon govern- 

 mental regulation. This could lead to 

 nationalization and socialization o f 

 many industries just as is happening 

 now in England. 



But it is charged the farm coopera- 

 tives have an unfair tax advantage; that 

 they have grown big through an ac- 

 cumulation of untaxed reserves and sur- 

 pluses. Under the theory of our in- 

 ternal revenue law, there are no net 

 profits in a cooperative. The earnings 

 all are to be distributed to the members 

 and there is nothing to tax in the hands 

 of the cooperative. The earnings which 



are distributed to members as patronage 

 dividends, are, of course, taxable in the 

 hands of the members. However, co- 

 operatives have been permitted to ac- 

 cumulate "reasonable" reserves. 



In cooperatives having complete ex- 

 emption from federal income tax, no 

 taxes have been paid upon the amounts 

 retained as reserves. It is pointed out 

 that in a business corporation the cor- 

 poration would pay a tax upon its earn- 

 ings and when these earnings were dis- 

 tributed to the shareholders as divi- 

 dends they would again be taxable as 

 income to the shareholder. This con- 

 stitutes double taxation. 



While the propaganda as to unfair 

 tax advantage is all directed toward 

 farm cooperatives, it should be pointed 

 out that there are over 500,000 partner- 

 ship business income tax returns. No 

 tax is paid by the partnership as such 

 but the income is taxed as a part of the 

 individual income of the partners. 

 There are more than 2,000,000 propri- 

 etors of non-farm individually owned 

 businesses. These businesses, likewise, 

 are exempt from any double levy on the 

 business income. However, all of the 

 fire is directed toward the 10,125 farm 

 cooperatives. 



The Illinois Agricultural Association 

 agrees that but one income tax should 

 be paid upon earnings. The business 

 corporation should not be required to 

 pay a tax upon the amount of its earn- 

 ings which it distributes to its share- 

 holders as these dividends are taxable 

 as income of the shareholder. 



The Illinois Agricultural Association 

 does not insist upon complete exemp- 

 tion from income tax for farm coopera- 

 tives. It is not opposed to the taxation 

 of the amount of earnings retained by 

 farm cooperatives but it does maintain 

 that the farm cooperatives should be 

 allowed a deduction for amounts paid 

 as patronage dividends or as dividends 

 on invested capital. These dividends 

 would be taxable in the hands of the re- 

 cipient. 



All statewide companies affiliated with 

 Illinois Agricultural Association are now 

 on a tax paying basis. Most of the local 

 companies affiliated with the Farm Bu- 

 reaus in Illinois also pay income tax. It 

 is estimated that the Illinois Farm Supply 

 Company, which has often been referred 

 to recently as "tax free" will pay |400,- 

 000 in federal income tax for its year 

 ending Aug. 31, 1948. Other statewide 

 companies likewise pay substantial income 

 tax. 



FARM fO-OP>'NET EARNINGS OO TU MEMBERii 

 MEMBER? PAY TAX ON THEM TO UNf LE SAM 



lAA FAVORS ONJE TA< ONUV 



ON CORPOftATION NET tUCOMES 



FARM Co OPS Do PAV TAXE-i 



BEHIND AMTi FAR,M CO 0'^ PRl>fAOAk'DA 



The tactics used and the extremes re- 

 sorted to indicate that many of the attacks 

 upon farm cooperatives are not designed 

 to secure tax reform or adjustment but to 

 destroy farm cooperatives. 



Many persons do not like the compe- 

 tition of the farm cooperatives. They do 

 not like this competition even though the 

 cooperative is paying income taxes and is 

 maintaining current retail prices because 

 the cooperative returns a piortion of its 

 net earnings as a patronage dividend to 

 (Continued on page 30) 



NOVEMBER. 1948 



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