NCBA CLUSA and numerous cross-sector organizations representing the cooperative movement in the United States continue to meet, discuss and unite around the potential of Congress introducing fundamental tax reform legislation that advocates say could substantially impact cooperatives in the country.
While the exact language and timing of a prospective bill are currently unclear, all indications suggest that the incoming Trump Administration and the 115th Congress have identified fundamental tax reform among their key agenda items for 2017.
“Tax policy is fundamental to the way cooperatives operate in the national economy,” said Doug O’Brien, NCBA CLUSA’s Executive Vice President for Programs. “Now is the time for the cooperative community to come together to ensure that policymakers understand the tremendous benefits that cooperatives and their members provide to their communities and the nation.”
In general, cooperatives pay taxes and fees at various local, state and federal levels—the same applies for their member-owners. The principle underlying the federal income tax treatment of cooperatives and their patrons is that earnings derived by a cooperative from transacting business with and for its patrons are taxed once, rather than twice, at both the cooperative and patron levels.
This tax treatment is accomplished by allowing cooperatives to deduct certain distributions and allocations made to their patrons. Subchapter T therefore recognizes that the objective of cooperative business is not to generate earnings for the cooperative, but to increase the income of its member-owners. Other cooperative sectors—including credit unions, farmer cooperatives, mutual insurance and rural electric cooperatives—may have more industry-specific tax policy implications that could factor in future legislation.
While meetings on tax reform will continue and may intensify as the direction of federal tax legislation becomes clear, NCBA CLUSA and the U.S. co-op community will continue to encourage common messaging that unites us cross-sector and demonstrates the principles of cooperative business and the impact they have on communities nationwide.