How do I become eligible to receive patronage?
All that is required is for you to establish an account to track your purchases along with completing and signing an IRS W-9 form. This form must be on file for patronage to be issued per IRS Guidelines.
How is patronage determined?
Patronage is based on a percentage of our net income and the percentage of your purchases against the total purchases of all customers for our fiscal year that begins October 1st and ends September 30th. After the end of each fiscal year, the board of directors may authorize the issuance of patronage. When approved, the patronage is issued in June of the following year. This patronage is issued as a check, as long as your account is in good standing. The check is combined with form 1099-PATR for income tax purposes.
What is a patronage refund?
Skagit Farmers Supply is a cooperative and as such, pays patronage refunds to its members. Patronage is a return of profits to our member customers, who have both signed the W-9 Form and who have met the minimum purchase requirements. These minimum purchases change from year to year, based on profitability, and do not include some items like sales tax, fuel taxes, and rentals.
Cooperatives are required to return a minimum of 20% of our patronage in cash and the remaining 80% is stock to be retired at a future date. Skagit Farmers Supply is proud that we have been able to pay out 30% patronage in cash and have also kept our stock retirement on a 10-year cycle rotation.
What is stock and how is it returned?
Stock that is issued by Skagit Farmers Supply is held in your account and no certificate is issued. The stock pays no interest and has no cash value until retired. Retiring stock is at the discretion of the Board of Directors. However, Skagit Farmers Supply is proud that we have been able to keep our stock retirement on a 10-year cycle. Each March the stock from 10 years prior is retired.
Example: Between October 1997 and September 1998 you purchased $5,000 in propane, gasoline and pet supplies, net of any taxes. That year, based on profitability, Skagit Farmers Supply was able to return 5% of the net purchases in patronage. In this case that would be $250. The Board of Directors in that year voted to issue patronage of 30%. In June 1999 Skagit Farmers Supply would then issue you a check for 30% of $250 or $75. The remaining stock of 70%, or $175 would be returned to you in March of 2009. Please check with your tax advisor regarding the taxability of your patronage allocation.
What is the minimum purchase amount?
The minimum purchase amount is the amount of your purchases from Skagit Farmers Supply during its fiscal year. These are for all purchases including everything from propane to gasoline to pet food. The minimum purchase amount, which changes from year to year is based on profitability, and does not include such things as sales tax or any fuel taxes. The last few years the minimum purchase requirement has averaged approximately $500. However, there is no guarantee that the minimum purchase requirement will remain that amount. Severe economic conditions and greatly reduced profits could increase that amount dramatically.
Where do I include patronage refunds on my income tax return?
You generally report patronage refunds as income on Schedule F or C for the tax year you receive them. Do not report as income any patronage refund that is for purchasing personal items. Only items used in farming or business are reported. Patronage dividends on personal item purchases are considered savings and therefore not taxable.