vA 
54 BULLETIN 1106, U. S. DEPARTMENT OF AGRICULTURE. 
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 them the proceeds 
ef the 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 
of 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 
be 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 for the use of members and turning over such supplies and equip- 
ment to members at actual cost, plus necessary expenses, are also exempt. In 
erder to be exempt under either (a) or (Db) an association must establish 
that it has no net income for its own account. An association acting both as 
a 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- 
ehasing 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 
income 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 eopy 
of 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 
