In a co-op, the owners own the business and in profitable years the co-op can return a portion of the profits back to owners based on their patronage (purchases). This is called a patronage refund and for the first time in our 35-year history, Willy Street Co-op will be issuing patronage refunds to our Owners with profit generated from fiscal year 2010.
Since cooperatives had a long history prior to the enactment of U.S. income tax laws, cooperatives were accommodated in the tax code. These rules treat a cooperative as having the option of operating as a pass-through entity where profits are considered an overcharge to be returned to patrons. We keep track of your purchases when you shop—which is why cashiers ask for your Owner number—so we can proportionately allocate profit derived from Owner purchases back to you. This refund is returned to you as a combination of cash and equity retained in your name. Individuals are NOT REQUIRED TO PAY TAXES on their patronage refunds.
For fiscal year 2010 that ended on June 27th, 2010, we had taxable income before patronage refunds of $550,896. Since 94.5% of our sales were to Owners(!), we had distributable patronage based income of $520,598—this is income derived from Owner purchases. The Board and management reviewed plans and obligations, and decided on how much of the profit to retain in the Co-op to meet current and future needs versus return to Owners in cash. Since we are about to open Willy West and anticipate a rough 2011 with Williamson Street reconstruction, the Board (as authorized by our bylaws) opted to distribute 20% ($104,120) as a store credit and retain 80% ($416,478) as equity in each Owner’s name. We will not be distributing checks, but rather issuing credits to Owners to be used at the registers. Owners may apply the credit towards a purchase, request cash back, or donate it via CHIP. Letters to Owners will be sent in January 2011 to inform you what amount your patronage refund will be. To use that credit, cashiers will be asking Owners to present photo identification. Owners can opt to take the credit when they’d prefer, but credits must be taken by June 15th, 2011. The Co-op will pay income taxes on any unused credits. So, please use them!
In many ways, co-ops are the original “community reinvestment” programs, locally owned economic engines that keep profits circulating locally. Owners’ retained equity (the portion that is not distributed) builds Owner equity in the Co-op, and as Owner equity grows, the Co-op is strengthened. This equity doesn’t enrich any of you personally; your retained equity doesn’t increase in value, it can’t be traded or sold, and it doesn’t increase your voting power in the Co-op. It is your “reinvestment” in the Co-op; it is our joint legacy to future generations.
Willy Street Co-op Owners have over $1,200,000 of Fair Share equity invested in their co-op. This isn’t a pile of cash sitting around—the money is circulated and is put to use as we make improvements to better meet Owner needs. In a co-op, we are truly stronger together. Since 1974, we have provided Owners and our neighborhoods with wonderful food and friendly service, while operating responsibly and sustainably to help strengthen our local food system. We have earned our Owners’ loyalty and patronage, and this has created profits. Reinvesting those profits into the Co-op is an investment in a brighter future for all of us. So the next time you shop, walk right in like you own the place—because you do!