- -   AGRICULTURE CORE CURRICULUM   - -

(CLF1000)  Advanced Core Cluster:  AGRICULTURAL BUSINESS MANAGEMENT

    (CLF1500)  Unit Title:  COOPERATIVES

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    (CLF1507)  Topic:  LAWS AND TAXES                     Time        Year(s)
                       AFFECTING COOPERATIVES           1 Hour          3 / 4
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           Topic Objectives:  Upon completion of this lesson the student
                              will be able to:

           Learning Outcome #:

                (M-3) - Explain how local and regional cooperatives are 
                        organized to serve members.

           Special Materials and Equipment:

           References:  Agricultural Council of California.  EXPLORING 
                          FARMER COOPERATIVES (Chapters 9 and 10).

           Evaluation:  Unit Exam

TOPIC PRESENTATION:  LAWS AND TAXES AFFECTING COOPERATIVES

A.  Federal Legislation

    1.  The Capper-Volstead Act (1922) clarified the right of farmers to 
        process and market their products collectively without violating 
        antitrust laws.

        a.  Only the marketing functions of agricultural cooperatives are 
            addressed by the Capper-Volstead Act.

        b.  In order to qualify under this act, a cooperative must meet two 
            requirements:

            1)  No member may have more than one vote.

            2)  The cooperative may not pay more than 8% per year on member 
                investment.

    2.  The Cooperative Marketing Act (1926) provides the legislative 
        authority for the Agricultural Cooperative Service of USDA.

    3.  The Agricultural Marketing Act (1929) defines cooperatives for the 
        purpose of borrowing from a bank for cooperatives.

    4.  The Robinson-Patman Act (1936) exempts cooperatives' patronage refunds 
        from its provisions against price discrimination.

B.  State Laws

    1.  The California Food and Agricultural Code authorizes the formation of 
        agricultural cooperatives and regulates their operation in various 
        ways.

    2.  The California Revenue and Taxation Code states how cooperatives 
        should compute their state franchise tax.

    3.  The California Marketing Act of 1937 regulates how commodity groups 
        can regulate marketing under State Marketing Orders.

        a.  Marketing orders apply equally to both cooperatives and ordinary 
            corporations.

C.  Federal Taxation of Agricultural Cooperatives

    1.  Agricultural cooperatives are subject to most taxes just as any other 
        type of business.

        a.  Cooperatives pay state franchise taxes on real estate, personal 
            property, sales, utilities, gasoline, and payroll.

    2.  Chapter T of the Internal Revenue Code exempts certain transactions 
        between cooperatives and members from income tax.

        a.  The cooperative pays no taxes on income distributed to the 
            members as patronage refunds because the cooperative is viewed as 
            a vertical extension of the farm firm.

        b.  The cooperative member pays taxes on income distributed to him/her 
            as patronage refunds.

    3.  The Internal Revenue Code allows additional exemptions from income 
        taxes to cooperatives that meet certain requirements.  These include:

        a.  Interest on member investment is limited to 8%.

        b.  Most of the cooperative's business is with members.

        c.  Little business is done with non-farmers.

        d.  Members and nonmembers receive equal treatment.



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