Davis Food Co-op Patronage Refunds
The Directors of the Davis Food Cooperative, Inc., for the fiscal year begun September 27, 2008 and ended on October 3, 2009, have voted to set aside profits attributable to sales to members in accordance with Article V, Section 4(B)(1) of our Bylaws for the purpose of restoring capital and as a reasonable reserve for necessary business purposes.
Patronage Refund Message from General Manager Eric Stromberg:
Fiscal Year 2009 ended on October 3, 2009 and each year the Board of Directors has 8 and 1/2 months from fiscal year end to make a decision whether or not to declare a patronage refund. Typically, our Board makes this decision in November.
A patronage refund, the return of net earnings to members based on patronage, is declared when on the Co-op’s net earnings and capital needs so allow. Cash reserves, cash flow, and tax implications also influence the decision. When declared, each member receives the same percentage refund but individual amounts vary based on each member’s total patronage (purchases) made during the fiscal year.
Fiscal year 09 had limited net earnings of approximately $100,000 or 0.50% of sales and the decision was made to not declare a refund based on the need to restore capital and ensure reasonable cash reserves.
Net earnings for the year were lower than historical averages due primarily to depreciation and amortization expense. Why did depreciation and amortization affect fiscal 09? Deprecation is a non-cash allowance for the reduction in the value of an asset overt time. Because the Co-op recently purchased a fair amount of new equipment over a short period of time, the depreciation line item in the income statement is high. Even though depreciation is a non-cash expense, it does reduce net earnings.
Amortization is the income statement line item that accounts for the payment of debt installments. Fiscal 09 reflects payment of interest incurred for renovation.
Amortization and Depreciation expenses over the next several years will continue to be high, and will influence future patronage decisions. We plan to make a capital investment in a new cash register system this year. The Co-op has the long-term goal of repaying debt ahead of schedule and this requires positive cash flow and strong cash reserves. We are also not issuing our incentive Gift Certificates to “Full Share Partners,” to contribute to the same goals.
A return to patronage refunds is also a long-term goal once debt repayment and depreciation expense so allow.
As always, your support helps keep the Co-op strong and healthy. Even with rough economic times, your Co-op is in good fiscal health. Thank you.
[Signed]
This is the third consecutive year we've not issued checks after an initial four consecutive years of cash patronage refunds to members. Thank you for shopping at the Co-op and identifying your purchases with your Co-op Card. (The following is information that still applies to past patronage refunds, and is of interest to those anticipating future ones.)
Any past patronage refund paid to you in the form of share investments belongs to you, not the Co-op; that is, should you withdraw from the Co-op, these shares can be converted to cash. You would not be relieved, in part or in whole, of your obligation to invest $20 in shares by March 31, 2010—unless it brings you to $300, the maximum dollar amount of shares invested allowed in one membership. You will receive the annual Notice of Share Assessment which will also provide your up-to-date equity investment balance.
Your patronage makes greater Co-op earnings possible and increases the portion that will be distributed to you. Please continue to let us know how we can meet your needs, and even surprise and delight you!
If you are a consumer shareholder buying for personal and household consumption your patronage refund is not taxable income for you. Please see the explanation below for details and exceptions. The refund truly is your money—as a cooperative owner—coming back to you. It is like a deferred discount, one that brings the Co-op closer to being not-for-profit in its service to member/owners.
Please consider the option of donating to local groups. One such group is the Davis Cooperative Community Fund. Monies contributed to the Fund increase the capital of the Twin Pines Cooperative Foundation, a tax exempt 501 (c) 3 charitable and educational group. Donations to DCCF do double duty by increasing the Foundation’s portfolio while simultaneously increasing annual donations to local groups. If you choose to donate to the DCCF, please endorse your check as “payable to DCCF,” sign it, and mail it to:
Davis Food Co-op, Attn: DCCF
620 G Street
Davis, CA 95616-3753
Thank you again for supporting your Co-op with your patronage, your participation, and your ideas.
A provision of the Davis Food Co-op Bylaws—Article V, Section 4(B) (7)—requires that persons who become or remain shareholders of the Co-op after the adoption of that provision thereby consent to include in their gross incomes for income tax purposes the amounts of any patronage refund paid to them by the Co-op, except to the extent that certain exceptions apply.
The first exception states that inclusion in taxable income is not required where a shareholder's purchases from the Co-op are attributable to “personal, living, or family items.” This exception would apply to “consumer shareholders” whose purchases were for personal or household consumption. It would not apply to consumer shareholders whose purchases were for use or resale in a trade or business, or for use in other income-producing activities, nor would it apply to business shareholders.
Thus, the Bylaw consent provision is of no significance to most consumer shareholders of the Co-op, and such shareholders are not required to include the patronage refund in their taxable incomes. Inclusion of the patronage refund in taxable income is required only of business shareholders and of consumer shareholders whose purchases were for business or income-producing purposes.
If you have more questions, please or telephone 758-2667 and leave a message for Doug at ext. 111.