-11- 



While these trends toward large-scale retailing and the integration of 

 supply and demand can be looked upon as an improvement in the efficiency 

 of food marketing, from the standpoint of the grower this trend means 

 fewer, but larger, buyers for their products. For growers to compete 

 effectively and have some influence on price, it becomes essential that 

 they use large-scale operations in the marketing of their products. 



Thus, in considering the future of the marketing of apples from the Entiat 

 area, growers can generally benefit themselves economically to a greater 

 extent by recognizing that the trends toward integration and mass dis- 

 tribution require large-scale, joint effort in the marketing of their fruit. 

 In the past there was more opportunity for various marketing methods to be 

 used. But today the marketing pattern is set by the retailer groups; and 

 regardless of who does the marketing, they must all meet the needs of the 

 mass distribution retail system. The more complete organization at the 

 retail level suggests further organization and/or reorganization at the 

 grower level. ^j% _; ', .,, ... ,..-r. ....... ,,.. •.,._. .-, \ ^ 



TAX SITUATION • ^^^^•:^-..' S'-' -'^■'•' ' -^.to:. ■ -. -•', 



The sale of each cooperative's assets to the Public Utility District (PUD) 

 raises the question of the tajc liability of (1) the cooperatives, and (2) 

 the members of the cooperative under various methods of handling funds 

 from the settlement. 



Let us first consider the tajc liability of the cooperatives, as incorpora- 

 ted business organizations, v/here (1) the funds are allocated to the 

 members, and (2) where the funds are not allocated to the members. 



Since both cooperatives have filed "letters of exemption'' with the Internal 

 Revenue Service and qualify as exempt cooperatives, it is clear that if 

 the cooperatives allocate the funds from the PUD settlement to the members, 

 on or before the 15th day of the 9th month following the close of the 

 taxable year, the cooperatives themselves have no liability or taxes on 

 these amounts. This allocation can be made in the form of certificates, 

 stock, or book credits, so long as the patron is notified of his share 

 of the allocation. 



In addition, the allocations must be made to all past patrons of the 

 cooperative "insofar as is practicable."' This is set forth in 26 C.F.R. 

 1.522-2(d), as follox^s: "Similarly, if capital gains are realized by the 

 association from the sale or exchange of capital assets held for a period 

 of more than one taxable year, income realized from such gains must be 

 allocated, in proportion insofar as is practicable, to the patrons of 

 the taxable years during which the asset is owned by the association, and 

 to the amount of business done by such patrons during such taxable years." 



Even though they qualify as exempt cooperatives, if the funds are not 

 allocated to the members and not used to convert to other facilities, then 

 the cooperatives would be liable for capital gains tax on the difference 



