As part of the planning to open Willy West, we had estimated a three-year wait until the entire Co-op would become profitable again. However, in Fiscal Year 2012 (FY12), Willy Street Co-op returned to generating a surplus (a.k.a. profit) a full two years ahead of schedule. Thanks to everyone for the overwhelming support that has made this success possible!

Per bylaw 6.5, your Board of Directors has elected to allocate part of the surplus back to Owners as a patronage refund, which will be distributed as a combination of store credit and retained patronage equity. On January 22nd, all Owners who have purchased at least $613 worth of eligible goods from the Co-op between July 4, 2011 and July 1, 2012 will receive a patronage refund. Patronage refunds are a deferred or retroactive price reduction, and are calculated in proportion to your purchases.
This year’s refund is a combination of 80% retained patronage equity, which is money held by the Co-op in each Owner’s name and the rest, 20%, is issued as a store credit. A total of $94,853 (20%) will be returned to Owners as store credits and $379,414 (80%) will be retained as patronage equity in each owner’s name. That’s a total refund of $474,267. Those are dollars that are not subject to federal or state income tax. That means more dollars stay in our community, increasing the local impact of your purchases, improving the Co-op’s financial health, and securing its future!

The 80% of the total refund that is retained is reinvested in the Co-op, including to help fund our major capital expenditures and improvements (such as the upcoming Willy East major remodel) and to secure our long-term financial health. If at some point in the future the Co-op felt that it no longer needed the retained patronage equity, the Co-op could choose to pay it out to Owners. Retained patronage equity is non-voting and does not give anyone greater Owner rights/privileges. Owners’ Fair Share equity (the amount paid to become an Owner) is completely separate from retained patronage equity. Also, the total patronage refund is not taxable income to you or the Co-op unless your purchases were for business purposes rather than personal use, in which case you should consult your tax adviser.

For those who have purchased less than $613, their patronage refund would have resulted in a store credit of less than $2. These Owners will not receive a patronage refund. Instead, the entire refund (store credit and patronage equity) will be retained by the Co-op as taxable earnings. The Board and management agreed to apply a minimum $2 store credit as a cut-off point to this and future patronage refunds for two primary reasons: 1. The costs associated with distributing a store credit as small as this would outweigh the benefits; 2. The Co-op has developed a tax management strategy with input from our auditors that enables us to avoid taxation on these earnings due to a large tax loss carry-forward from Fiscal Year 2011.

Those who are being issued a store credit will receive a letter in the mail the week of January 22nd detailing your refund. Your store credit will also be available at the registers starting on January 22nd. You may apply the credit towards a purchase, request cash back, donate it to CHIP, or donate it to the FEED Kitchens; any cashier can assist you with this transaction and Customer Service is also available to assist you with cash back or donating your credit if you are not planning to make a purchase. To ensure that only the primary or secondary Owner uses credits, you will be asked to present identification. By using your store credit, you accept the full amount of your patronage refund per IRS Code section 1385. To avoid paying income taxes on any unused credits, we ask that all patronage store credits be used by June 16, 2013. Because the Co-op will pay income taxes on any unused credits, please…spend ’em if you’ve got ’em!
To learn more about patronage refunds:

  • See the accompanying Frequently Asked Questions (FAQ);
  • Go to www.cooperativegrocer.coop/articles/2009-07-14/patronage-dividends-primer; or
  • Contact me at.

On January 22nd, a letter will be sent to all Owners who are receiving a store credit. If you do not receive one, you may not have spent over $613 in our last fiscal year (July 4th, 2011–July 1st, 2012). If you believe you are eligible for a store credit and haven’t gotten a letter by February 7th, please contact Tamara Urich-Rintz, Owner Records Administrator, for more information about your purchases for FY12: (608) 251-0884 ext. 734 or .

Frequently Asked Questions

What purchases don’t count toward my patronage refund?
Seafood Center and Okinawa Sushi items purchased are not calculated into the patronage, nor are CHIP contributions, Community Room classes, Co-op-branded merchandise, or any of the ticket sales for area fundraisers, shows or bus passes. Equity payments are not merchandise sales and are not counted toward a refund. Access users are credited with the total after their 10% discount has been deducted.

Do sale items count toward my patronage refund?
Yes, except for the few items listed above. Sale items are credited only at the sale price.

Do l have to pay income taxes on the patronage refund?
No, patronage refunds are not taxable income unless your purchases were for business purposes rather than personal use; if this is the case for you, please consult your tax adviser.

Is the patronage equity portion something I can take out at some point in the future? What does it mean that it’s retained in my “name”?
The only time that the retained portion of patronage equity is returned to Owners is if at some date in the future the Co-op Board is in a position to do so and returns all of the equity from a given year. It is unlikely that retained equity will be returned to Owners in this way. More likely is that there will be future years where we decide to retain a smaller percentage of the refund as equity and offer a larger percentage as store credit to Owners.

How is the patronage refund calculated?
At the end of our fiscal year (July–June), after determining the amount of Owner-generated profit (based on Owners’ percentage of total sales), the Board of Directors decides on a refund percentage to distribute as a store credit. According to the IRS, at least 20% of the Owners’ patronage refund must be distributed as cash or equivalent. The Board may choose to retain up to 80% of each Owner’s patronage refund (as equity in Owners’ names) for projected capital and other business needs.

Calculating your refund in three easy steps!
Step 1: The Co-op earns a profit.

  • In fiscal year 2012 (July 4, 2011 – July 1, 2012), the Co-op earned a taxable income before patronage refunds of $563,630.

Step 2: We make a few decisions.

Decision 1: The Board decides whether or not to declare a refund.

  • Cooperatives can declare 100% of surplus (aka profits) from Owners as refunds.
  • In FY2012, 94.6% of profits came from sales to Owners! This made $533,193 in surplus available for refunds.

Decision 2: The Board decides whether to enforce a minimum refund for Owner credits.

  • Unlike the 2010 refunds where Owners were sent a credit down to one penny, due to administrative costs of the store credit distribution, and the Co-op’s tax management strategy, the Board elected to enforce a $2.00 minimum for the store credit for FY2012.  By enforcing a minimum, $58,926 that could have been returned to Owners in patronage refunds is instead retained by the Co-op as taxable earnings.  That means of the $533,192 available, $474,267 is actually allocated back to Owners as a patronage refund.

Decision 3: The Board decides what percentage of the declared refunds to return to the Owners as store credit versus equity retained in each Owner’s name.

  • Cooperatives have to distribute at least 20% of declared refunds as cash (or equivalent).
Step 3: We do some math:
FY2012 Refund DistributionExample Owner #99999
÷Your Purchases for Year$1,000
÷ $32,663,512
Total Eligible Purchases by all Owners
xYour Share of the Refund.003%
x $533,193
Total Refunds
Your Total Refund$16.32
=Equity (80%) + Your Store Credit (20%)$13.06
(80%)
+$3.26
(20%)

For more FAQs, see www.willystreet.coop/owner-benefit/patronage-refund.