54 BULiLETIlSr 1106, U. S. DEPARTMENT OF AGRICULTUEE. 



Article 522 of the regulations referred to reads as follows : 



Cooperative Associations: (a) Cooperative associations, acting as sales agents 

 for farmers, fruit growers, dairymen, etc. and turning back to tliem the proceeds 

 of tlie sales;, less the necessary selling expenses, on the basis of the produce 

 furnished by them are exempt from income tax. Thus cooperative dairy com- 

 panies, which are engaged in collecting milk and disposing of it or the products 

 thereof and distributing the proceeds, less necessary operating expenses, among 

 their members upon the basis of the quantity of milk or of butter fat in the 

 milk furnished by such members, are exempt from the tax. If the proceeds 

 ©f the business are distributed in any other way than on such a proportionate 

 basis, or if the association deducts more than necessary selling expenses, it 

 does not meet the requirements of the statute and is not exempt. The main- 

 tenance of a reasonable reserve for depreciation or possible losses or a reserve 

 required by State statute will not necessarily destroy the exemption. A cor- 

 poration organized to act as a sales agent for farmers and having a capital 

 stock on which it pays a fixed dividend amounting to the legal rate of interest, 

 all of the capital stock being owned by such farmers, will not for that reason 

 fce denied exemption. 



(6) Cooperative associations organized and operated as purchasing agents for 

 farmers, fruit growers, dairymen, etc., for the purpose of buying supplies and 

 equipment fof the use of members and turning over such supplies and equip- 

 ment to members at actual cost, plus necessary expenses, are also exempt. In , 

 order to be exempt under either (a) or (&) an association m^st establish 

 that it has no net income for its own account. An association acting both as 

 ft sales and a purchasing agent is exempt if as to each of its functions it 

 meets the requirements of the statute. 



It will be noted that under the language of subdivision (11), sec- 

 tion 231 of the revenue act, that a farmers' cooperative sales or pur- 

 chasing association would not be entitled to exemption if it did busi- 

 ness for nonmembers. Of course, if no profit accrued to an associa- 

 tion from its activities no income taxes would be due, regardless of 

 whether or not it did business for nonmembers. 



Article 511 of the regulations referred to states how an associa- 

 tion may establish its right to exemption. It reads in part as fol- 

 lows: 



Proof of exemption. — In order to establish its exemption and thus be re- 

 lieved of the duty of filing returns of income and paying the tax it is necessary 

 that every organization claiming exemption, except personal service corpora- 

 tions, file an affidavit with the collector of the district in which it is located, 

 showing the character of the organization, the purpose for which it was organ- 

 ized, the sources of its income and its disposition, whether or not any of its 

 imcome is credited to surplus or may inure to the benefit of any private stock- 

 holder or individual, and in general all facts relating to its operations which 

 affect its right to exemption. To such an affidavit should be attached a copy 

 ef the charter or articles of incorporation and by-laws of the organization. 

 Upon receipt of the affidavit and other papers by the collector he will inform 

 the organization whether or not it is exempt. If, however, the collector is in 

 doubt as to the taxable status of the organization he will refer the affidavit 

 and accompanying papers to the commissioner for decision. When an organi- 

 zation has established its right to exemption it need not thereafter make a 



