What is a Patronage Refund Allocation?
Patronage refunds are the portion of profits earned by the Cooperative that the Board of Directors declares to be given to the members in appreciation of their business and in accordance with the Cooperative's By-laws. This decision is made on an annual basis based upon that year's financial performance and the financial condition of the cooperative.
Distribution of Patronage Refunds
- If declared by the Board of Directors, distributions are made within nine months after the close of the fiscal year in which the declaration is made.
- No refunds are issued under $50.00.
- Refunds will be paid 40% in cash and 60% will remain in the member's account as a patronage refund allocation (PRA) until that year is revolved by the Board.
Eligibility Requirements
- Generally, you must be a member of the Cooperative or a patron eligible for membership in the Cooperative.
- The member must have purchased enough supplies or services to meet the minimum volume to qualify for a refund.
Contact your local Southern States location to complete a membership application. Or, you may click on the link to print an application. You may fill it out and submit it to your local store.
Tax Implications
By endorsing and cashing the 40% refund check, the member consents to treating 100% of the refund as income which may be taxable, depending on the end use of the supplies or services from which the patronage refund arose. Generally, if the patronage refund arose from the purchase of production supplies used in the business of farming, it would be taxable. If the patronage refund arose from the purchase of personal, living or family items, such as supplies, equipment, or services not used in the business of farming, it would not be taxable. When the 60% is redeemed, there will be no further tax implication.
If the check is not cashed and the funds roll back into the member's account, then the tax liability as 100% PRA is deferred. Upon redemption, the member will receive 100% of the refund and be liable for any tax implications at that time.
A 1099 Federal Tax form will be mailed to the member on January 31st following the payment (if a 40% check was endorsed and cashed) or redemption (if an earlier 40% check was not endorsed and cashed).
What is a revolvement of a PRA?
A patronage revolvement is the distribution of the 60% remaining patronage refund that was retained as capital (or 100% of a patronage refund when the 40% check was not endorsed and cashed in the year of issuance). Southern States' and the affiliated Managed Cooperatives' Boards of Directors decide when to revolve a year based upon their individual entities' financial condition. If the Board of Directors declares a revolvement, the oldest year will be paid out first.
Tax Implications
If the member has previously cashed the 40% check, then the 60% revolvement check is not taxable. However, if the 40% check was not cashed, then 100% of the revolvement is income which may be taxable, depending on the end use of the supplies or services from which the patronage refund arose. Generally, if the patronage refund arose from the purchase of production supplies used in the business of farming, it would be taxable. If the patronage refund arose from the purchase of personal, living or family items, such as supplies, equipment, or services not used in the business of farming, it would not be taxable.
A 1099 Federal Tax form will be mailed to the member on January 31st following revolvement of a 100% patronage refund when the 40% check was not endorsed and cashed in the year of issuance
This is an example hypothetical illustration of the process.
- Farmer Brown grows tobacco and cotton. He purchased seed and fertilizer from his local SSC store totaling $50,000 in 1970.
- Southern States' Board of Directors declared a patronage refund amounting to 4.7% of volume for the year ended June 30, 1970.
Refund Calculation:
