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/owners’ 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.
