c Figures Not Include, 2,27,1947 d Note that "retail" It's a red herring in whose making the Cooperative Re- search and Service Section of the Farm Credit Administr ation is deeply in- volved In estimating co-op business imes C. R. and S. includes no figures of wholesale business, no figures of manu+ facturing and financial business, both d of which are becoming tremendous in Cooperatives and Income Tax cooperation. And the business done by ot commission co-ops, which is also sub- Preferential Treatment Is Opposed in stantial, is reported by the total of View of Their Ability to Pay commissions paid and not by the total of business done. To THE EDITOR OF THE NEW YORK TIMEST I imagine that taxpaying manufac- The four major points made by turers who have wholesale and retail George H. Tichenor in his defense of outlets would like to figure their in- come tax liability by the same formula, the legal income tax dodging of CO- al but only the co-ops can get away with operatives, as printed in Letters to Le that. Twelve billion is actually a quite THE TIMES on Jan. 11, require further IS conservative figure. clarification for the benefit of business S Mr. Tichenor is resting his case on men who fail to recognize the full im- r patronage dividends solely by theory, plications of cooperative terminology. X with no reference to cooperative prac- Mr. Tichenor goes to considerable o tice and performance. Theory says length to separate the types of co- that the patronage dividends of a mar- operatives and to deny that all cooper- d keting cooperative are an added pay- atives are exempt from all taxation. S ment for products sold, and that the The point has never been disputed that patronage dividends of a purchasing most cooperatives pay property taxes, n cooperative are a refund of an overpay- real estate taxes, excise taxes, gasoline n ment for goods bought. taxes and other levies of this sort. - That is only partly true. In the It is Federal and State income taxes e eighth annual report of the Farmers that are under discussion. At these e Union Grain Terminal Association of e levels all cooperatives are legal tax St. Paul the general manager tells dodgers. - clearly that the money for patronage Tax Avoidance t dividends comes out of over-all profits t It must be understood that when a that should be taxed. e Other co-ops include in the patronage cooperative says "we pay Federal in- 5 dividend account profits from rents, come taxes" it does not mean what other businesses mean. Let me illus- services, transportation, printing, mar- e ket speculation and other operations trate: o which by no stretch of the imagination Midland Cooperative Wholesale of can be called "a return to the farmer Minneapolis, a non-exempt co-op, made of the overpayment made by him in the profits of $837,984 on sales of $10,176,- first instance." 462 in 1944. On that amount of earn- ings a taxpaying corporation would Advantages Over Competitors have paid $544,689 to the Federal Gov- Besides dodging taxes on patronage ernment at the average wartime cor- dividend profits, a cooperative is able porate rate of 65 per cent. Midland to pyramid its "refunds to patrons" paid, according to its own financial into capital, and thus to finance expan- statement, $20,300 in both Federal and sion of facilities and working capital at State income taxes. a rate which is utterly impossible to a 1 In accordance with the Treasury's taxpaying competitor. 3 liberal acceptance of cooperative Mr. Tichenor is bothered also by 1 theory, $706,544 of patronage dividends the charge that co-ops want preferen- $ -not in cash, but in stock-and $84,256 tial treatment. In that connection, look 7 of allocated surplus paid no tax. Only at the Capper-Volstead Act of 1922, the very small amount that was paid which absolves co-ops from monopoly t as interest or dividends on outstanding prosecution; the Securities Act of 1933, shares of stock was considered taxable. under which farmer cooperatives may S This same sort of tax dodging-not issue stock without reference to SEC: e complete exemption, but almost-is the Robinson-Patman Act which per- available to all of those that do not mits them to give rebates and dis- S comply with Section 101 (12), and that counts; the AAA Act, which provides y includes city-consumer co-ops, CIO- special recognition and encouragement owned co-ops of the kind that Walter for co-ops, and many others. t Reuther is now setting up, service The co-ops not only want preference e co-ops, REA's and all the rest. The tial treatment; they have had it for difference is by no means so important years, and not on Federal income tax as Mr. Tichenor would like to have you alone. believe. As for Mr. Tichenor's final worry Mr. Tichenor worries about NTEA's that the effort to make co-ops pay S $12,000,000,000 figure of co-op business Federal income taxes on their earnings volume, and says that co-op statisti- will "destroy" them, that comes down cians can't find more than $5,000,000,- wholly to a question of management. 000 of retail business done by all types Other companies paid war-high taxes of co-ops. and survived. Surely the co-ops can pay at present rates, and any manager who says they can't must be too inef ficient to have the handling of other people's money. HOMER E. MARSH, Research Director, National Tax Equal ity Association. Chicago, Feb. 10, 1947.