WHEATSVILLE CO-OP PATRONAGE REBATE FAQ

Fiscal Year Ending May 31, 2011

Patronage rebates are an allocation back to our owners of part of the co-opπs earnings based on our profitability during the fiscal year. Rebate amounts are calculated as a percentage of the ownerπs purchases during the fiscal year, which ended May 31, 2011. We are now distributing vouchers in the store that can be redeemed for cash or merchandise. (Due to postage expense and the number of uncashed checks in the past, we are not mailing out checks this year.) Your rebate is not only a nice benefit to co-op owners, but it also allows the co-op to retain a portion of our earnings as tax-free income.

The following has been prepared to answer any questions that you may have about this exciting Wheatsville owner benefit!

What is a patronage rebate?
The Internal Revenue Code provides a special opportunity for member-owned cooperatives to reduce their taxable income by declaring a patronage dividend, or rebate, allocating a portion of the member/ownersπ purchases back to them at the end of the year. This potentially benefits both the individual owners and the co-op as a whole. Each year the board of directors determines whether a rebate is appropriate and, if so, the amount of the patronage allocation. Typically, 20% of the total allocation is paid out to fully invested owners based on their patronage during the fiscal year and 80% of the allocation is retained by the co-op as additional equity, to be used to enhance its ability to provide member services. This year, however, our directors decided to pay out 30% as rebates to owners and retain only 70%.

Does Wheatsville do a rebate every year?
Our board of directors determines each year how much of our earnings should be retained for ongoing capital needs and how much, if any, should be allocated to patronage rebates. Wheatsville has had rebates in 2005, 2006, 2007, 2008, 2010, and 2011. There was no rebate in 2009 because all our savings were retained to help fund the store renovation project.

Who is eligible to receive a rebate?
Under our Membership Administration Guidelines, rebates are restricted to fully invested owners in good standing who have sufficient patronage to justify the expense of distributing their portion. Annual memberships (which have now been discontinued) and investing accounts that were not fully paid by August 8, 2011, the date when we calculated rebate amounts, are not eligible to receive a rebate. In addition to the capital investment requirement, a cut-off of $500 minimum patronage during the fiscal year was established. Any accounts with less than this amount of purchases recorded on our point-of-sale system between June 1, 2010 and May 31, 2011 would have received rebates of less than $2.69, and they were excluded to avoid spending more on preparation and distribution of payments than the benefit to members would justify. A third requirement for eligibility is that our membership records must reflect a valid mailing address as required by your owner agreement. If mail addressed to you has ever been returned to us as undeliverable and we did not receive an address update before August 8, 2011, your account was probably excluded from the eligible list.

How much will my rebate be?
If you are eligible for a rebate, your check amount will be just over one-half percent (0.539%) of the total purchases rung up on your account between June 1, 2010 and May 31, 2011.

What if I joined during the fiscal year?
Rebates are calculated on patronage associated with your ownership account, so any purchases before you started using your ownership card, and any purchases made after joining if you didnπt provide your account number, were not included. If you had purchases on an annual or investing membership, those purchases were included if you became fully invested on that account by August 8, 2011.

What if I closed my account after the end of the fiscal year?
Rebates were not issued for any accounts that were not active and in good standing on August 8, 2011, but eligible accounts closed after that date did get rebates.

What if I think that there has been a mistake with my patronage rebate?
While we have gone to great lengths to make sure that the rebate accurately reflects owner purchases and to include all eligible individuals, mistakes are possible. If you feel there may be an error, please contact our finance manager, John Perkins (john@wheatsville.coop), and the accounting team will investigate your patronage status.

Can I donate my rebate to the co-op?
Many owners ask this and we appreciate the desire to help us out! Shopping in the store with your rebate voucher is an excellent way to help your co-op and help yourself. It is very important, however, that you endorse and redeem your voucher. Unredeemed rebate vouchers will cause us to lose the substantial income tax benefit that Wheatsville receives from the rebate! If you would like to donate your rebate to our current Community Action group, just endorse your voucher and present it to a cashier and we will make the donation for you. If you donate your rebate, Wheatsville will still get the tax benefit for both the rebate amount and the retained patronage associated with it.

What was the total amount of the patronage rebate?
The board allocated $155,598 of our net savings back to owners this year. Seventy percent of this was retained by the co-op to help finance our growth and fund programs for the benefit of the owners, and thirty percent ($46,679) was distributed in the form of rebate vouchers.

How does Wheatsville account for the retained portion of patronage allocations?
An entry of $108,918 in member equity on our balance sheet represents the retained patronage amount for this year. In a subsidiary ledger, this $108,918 is allocated to individual owner accounts in the proportion their patronage bears to the total qualifying patronage. This retained-patronage equity will remain on the books until the co-op is dissolved as an organization or until such time as the board of directors may decide to distribute all or part of it back to the owner accountholders or otherwise allocate it in accordance with legal procedures. (Because we are required to pay tax on any allocations that are not redeemed by owners, however, we make an adjustment to retained patronage each year, cancelling any retained patronage associated with unredeemed rebates from the prior year and reducing the balance in our retained patronage account. This money, which was reported as nontaxable earnings in the prior year, is then recognized as taxable income in the current year.)

Why is it so important for members to maintain a current address in our files?
The ownership agreement that you signed upon joining requires that you keep Wheatsville informed of any change in your address. This requirement is stipulated in our bylaws and is necessary to assure our compliance with state laws. As an owner, you have the legal right and duty to be informed of certain governance activities of your co-op such as board elections. There is also the practical consideration that without a good address on file, we may be unable to include you in benefits such as these patronage rebate distributions.

Are the rebates taxable as income to recipients?
Under Internal Revenue Code section 1385 (b) (2), dividends received for purchases made for personal, living, or family purposes are exempt from taxable income. If you made purchases for business purposes, however, you might want to consult your tax advisor about whether your allocation should be reported as income or if your expense deduction or property basis should be adjusted. Because more than 85% of our patronage is for personal, living, and family purposes, Wheatsville has an exemption from filing 1099-PATR forms reporting our patronage dividends to the IRS.

When will the rebate vouchers be distributed?
Vouchers are currently available in the store, and all vouchers must be redeemed by the deadline of February 15, 2012 or they will be forfeited. As noted above in the question about retained patronage, Wheatsville will have to recognize 100% of the allocation associated with unredeemed rebates as taxable income, so we want everyone to be sure to pick up their rebates and redeem them for cash or merchandise or donate them to our Community Action group before the deadline!

 

FYE11 Patronage Rebate Statistics
Total Patronage Allocation	$155,598	100.00%
Retained Portion of Patronage Allocation	$108,918	70.00%
Cash Return Portion of Patronage Allocation	$46,679	30.00%
Rebate Distribution	Last Year	This Year
Number of Owner Accounts Included	3,547	4,115
Maximum Rebate Amount	$101.13	$107.33
Minimum Rebate Amount	$2.50	$2.69
Average Rebate Amount	$11.28	$11.35
Median Rebate Amount	$7.41	$7.91