In Fiscal Year 2013 (FY13), less than three years following expansion to two retail locations, Willy Street Co-op has returned to pre-expansion levels of profitability. Although our profits are modest by conventional measures, it allows us to operate on a sound financial basis including meeting current needs, planning for the future, reducing debt, and returning a portion of the surplus (a.k.a. profit) to Owners. 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 27th, all Owners who have purchased at least $371 worth of eligible goods from the Co-op between July 2nd, 2012 and June 30th, 2013 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 $184,150 (20%) will be returned to Owners as store credits and $736,598 (80%) will be retained as patronage equity in each owner’s name. That’s a total refund of $920,748, almost double last year’s refund. 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 like the Willy East 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 $371, 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 utilizes all the unallocated refunds under $2.
Those who are being issued a store credit will receive a letter in the mail the week of January 20th detailing your refund. Your store credit will be available at the registers starting on January 27th. You may apply the credit towards a purchase, request cash back, or donate it; 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. Because the Co-op will pay income taxes on any unclaimed patronage refunds, please, please, please use your store credit! All patronage store credits must be used by June 15th, 2014.
Didn’t get your credit?
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 FY13 (July 2nd, 2012–June 30th, 2013): (608) 251-0884 ext. 734 or .
Resources for learning more about about patronage refunds:
- See the Frequently Asked Questions (FAQ) below and on our website at www.willystreet.coop/owner-benefit/patronage-refund;
- Go to www.cooperativegrocer.coop/articles/2009-07-14/patronage-dividends-primer; or
- Contact me at firstname.lastname@example.org.
Patronage Refund FAQs
What is a patronage refund?
When co-ops have a surplus (a.k.a. profit) left over at the end of the fiscal year they may distribute the Owners’ share of the surplus back to the Owners in the form of a patronage refund. These profits are distributed in direct proportion to a co-op Owner’s patronage (purchases) and is made up of patronage equity and store credit.
How will I know that my purchases are being recorded?
In order to record your purchase the cashier asks, before each transaction, for your Owner number. They will then confirm your name on the account before ringing up your items. All merchandise rung through after that point is recorded by our register system.
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, Co-op branded merchandise (shirts, mugs, etc.), Community Room Classes, 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.
What happens if I don’t use my credit?
By law, if your credit isn’t used by June 15, 2014, the Co-op must record the amount of your store credit and retained patronage equity as income and pay the necessary taxes on that amount and your refund is officially forfeited.
Do I have to pay income taxes on the patronage refund?
No, patronage refunds are not taxable income unless your purchases were for purposes other than personal use; if this is the case for you, please consult your tax adviser.
Why did the Co-op decide on a $2 minimum for store credit distribution?
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:
- The costs associated with distributing a store credit as small as this would outweigh the benefits.
- 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.
What can I do to make sure I receive my refund in years when it’s distributed?
To be informed of your refund and all cooperative news, it is important to keep your current mailing information up-to-date with us. If you have a refund due, the register system will alert the cashier. They will ask if you’d like to use the credit with that transaction, or save it to be used a later date.
Is the patronage equity money something I can take out at some point in the future? What does it mean that it’s retained in my “name”?
The surplus (a.k.a. profit) we earn has always belonged to every Owner of the Co-op. However, previously 100% of that surplus was designated as “Unallocated” and we were required to pay federal income tax on the full amount.
In the past, when the Co-op earned a surplus we’ve put all of it back into the Co-op to expand operations, purchase new equipment, upgrade facilities or meet current operating needs.
The two main differences now are:
- Owners have the surplus that we put back into the business directly recorded in their name as equity (just like owners of most businesses).
- We will not pay income tax on any of the patronage refunds allocated to Owners (retained as patronage equity or returned as a store credit). This keeps more money at work in our community that the Co-op would have paid in taxes.
The only time that the retained 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 patronage equity from a given year. It is unlikely that retained patronage 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.
Owners’ Fair Share amounts ($56/$91) are a different class of equity and are available for refund upon request.
Most importantly, all businesses incorporated as cooperatives in Wisconsin are able to take advantage of significant tax savings by distributing surplus back to their 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. 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.