Show Tax lax Question Spotlights Spectacular Growth of Operative Co-Operative Movement in U. U S. S Recent in Years Private Business Complains of Disadvantage Ops' Ops Volume V oh me Tops Five rive Billion Million Dollars By AL JEDLICKA When congress ponders a new revenue bill this fall one of the major propositions under discussion will be the taxation of co Under pressure of established tax-paying tax en en- enterprises enterprises enterprises the solons salons can be expected to comb the situation thoroughly since the rapid growth of operatives co-operatives in the present century not only poses the question of tax equality but also of maintenance of revenue But though the question of taxation itself appears to head up the operative co-operative question now there are other and even more deeply rooted underlying causes principally the move move- ments ment's threat to the tradition tradition- traditional c al American business system In this respect the whole co co- cooperative cooperative co- co cooperative operative development may maywell maywell maywell well shape as an economic evolution though frequent cycles have robbed it of the consistency necessary for his his- historical historical historical reform At the tho present time how how- however however however ever American operatives co-operatives are on a rising tide with the strongly established farm organizations number number- numbering numbering numbering ing members being steadily complemented by ur ur- urban urban ur- ur urban ban consumer and manufacturing manufacturing manufacturing turing groups During the 1943 44 season rural marketing and pur pur- purchasing purchasing purchasing chasing operatives co s alone did over 8 II billion dollars worth of business i mostly on a tax free basis i As a result of the steady growth of ot operatives co-operatives spearheaded by the farmer associations and their fOX ex- extension tension Into various fields traditionally traditionally established American I busi busi- businessmen businessmen businessmen are stirring uneasily Whereas only the handler and sup sup- supplier supplier of agricultural products and material materia formerly had been pressed by the co operatives co-operatives lives competition now has been extended to manu man manufacturers manufacturers of farm machinery hard hard- hardware hardware hardware ware paints electric refrigerators washing machines toasters clocks cigars cigarettes lipstick tires and batteries ba t In addition co operatives now drill wells own pipe lines refine petroleum possess timber Umber tracts write insurance and operate banks telephone companies and electric power Installations From the beginning the opera co cooperative tive movement assumed the nature of 01 a joint enterprise for performing a non non non- service for each r hta Individual In welfare Though contemporary history traces the Ule real origin of the oper co cooperative cooperative cooperative movement back to Rochdale England where poor working peo pea people peaple pIe organized a grocery op co-op In 1844 to avail themselves of cheaper food some historians credit the birth of ot the movement to local ocal farm groups which banded together In Inthe Inthe inthe the U. U S S. S in the to reduce in in- insurance insurance insurance costs Following the establishment of the local fire tire insurance groups the co co- cooperative cooperative co- co cooperative operative movement assumed an an- another another other form In the U. U S. S S after the civil war in the national farm tarm Grange a social and educational or or- organization organization also bent upon relieving stringent economic conditions Even Even- Eventually Eventually turning to operative co-operative meth meth- methods methods to attain Its early objectives the Grange failed in promoting a purchasing op co-op because of the un un- scrupulosity of agents bogged In pushing consumer ops co-ops partly as lIS a result sult of ot the panic of 1873 and gave cave up a farm machinery manufacturing ing op co-op following overproduction and under servicing As the operative co movement ment be be- began began gan to take root here during World War Wor I and congress recognized It as asan asan an nn Instrument for aiding the farm producer legislation was enacted to afford tax relief to operators In 1916 congress stipulated that farm tarm farmers farmers ers ers fruit growers and like associations associations organized and operated on a operative co basis and acting as selling felling agents for their members should not be requested to pay an income tl tax on earnings In subsequent legislation the solons colons provided that operatives co could purchase as asEll well Ell as sell seU for tor producers deal with non members as well as liS members become cars cor cor- corporations corporations and pay interest on stock and not be bf prosecuted prose under the trust anti-trust laws The Th government also set up a fed federal eral era I agency to loan money mon y to co co- cooperatives cooperatives operatives in 1921 1821 1921 with the financial machinery expanded through the farm credit act of 1933 In 1933 th the securities act also abo permitted co op cooperatives cooperatives to sell U equities without prior approval of ot the he Securities and Exchange commission which exer exer- exercises exercises exercises that right over oer corporate is Is is- sues Though historians hl claim for the n U. U S. S the credit for the birth of ot the operative co-operative movement the Roch Roch- Rochdale Rochdale dale enterprise of 1844 still receives general recognition for lor establishing the three general principles under which operatives co-operatives widely function today These principles Include 1 One vote to each member re reo regardless re- re regardless gardess of at stock holdings 2 Distribution of ot net savings to topa patrons pa In proportion to their pur pur- purchases chases 3 Limited fixed Interest on cap cap- capital capital ital shares Instead of variable and unlimited dividends Organization of farm tarm ops co-ops Is III rel rel- relatively relatively simple with the pattern to give each member an equal controlling Interest In the operations Upon subscribing for tor capital stock or paying a member membership ship fee tee the local group then Ulen adopts laws by-laws and elects a board of directors tors A manager Is hired policies outlined and facilities secured Al Al- Although Although Although though in charge the manager re reo remains re- re remains mains under supervision of ot the di di- directing directing directing board In addition to observing the floor Roch Rochdale dale principles In voting savings distribution and stock payments lo lo- local local cal groups often confine ownership to farmers raising products handled by the coop op restrict securities transfers and limit the amount of shares a member may hold While operatives co-operatives are generally organized on the local level evel they k fit n nM nu M r rt u t t a e a usually affiliate with regional groups to obtain maximum effi em- efficiency of operation with the region region- regional al bodies in turn sometimes combining combining ing with national associations But Dut In any case the local group retains a voice In the broadened organization tion Uon through the selection of dele dee gates While membership fees stock sales and reserves provide working capital operatives co borrow on a large scale to finance operations a study of the Farm Credit adminis administration administration In 1939 1039 revealing that ap ap- approximately approximately ap- ap approximately proximately one half of the ops co-ops then existent resorted to loans While figures show mem memo members members bers b rs of farm marketing and purchasing ops co-ops the actual num num- number number ber of individuals participating In Inthe Inthe inthe the movement may be considerably less since a person may belong to more than one organization With units and members the farm marketing co co- cooperatives cooperatives co- co cooperatives operatives do by far the largest bus business iness mess with 1943 44 1943 44 activities total totaling ing mg almost Handling of dairy dalr products accounted for livestock grain dry beans and rice cotton and its products fruits and vegetables poultry and eggs tobacco wool and mohair nuts 49 and miscellaneous For the 2778 purchasing ops co-ops with members total bust busi business ness nus for the 44 1943 season was placed at Seventeen major regional r procurement organ organizations alone secured of ot feed of e gas s oil and grease of ot fertilizer and of seed Never is as successful stu in the U U. S. S as asin asIn asin in Britain American urban or con con- consumer consumer sumer co ops are insignificant alongside of the farm organizations It has been figured that there are no II Facts on Farm Purchasing and Marketing Ops Co-Ops 44 1943 Geographic Division Associations Membership Business Number Number S 1000 West North Central I East North Central 2451 Pacific 8 8 80 56 I Middle Atlantic 59 91 86 i South Atlantic 46 91 73 i West Vest South Central 77 60 56 Mountain 55 48 48 New England 16 32 34 East South Central 27 2 7 90 61 25 I I Total 1000 1000 1000 I more than units at the most with with members doing about I business annually Though consumer con con- consumer sumer labor ops co-ops have failed In Inthe Inthe I the past the CIOs CIO's entrance Into the field on a 8 limited basis bears watch watch- watching watching ing anew with the union tactics ap ap- apparently apparently aimed at making up future futuro tighter wage rates by reducing staple living costs I In singing the praises of at farm tarm co COO coops coops ops advocates describe the move move- movement movement ment as a 8 means of putting the country's gigantic rural plant on a amore amore amore more efficient basis with resultant I profits to the producer I This increased efficiency can be bea attributed a to both the size of at oper co cooperatives cooperatives I and the nature of their own own- By Dy banding together farm farm- farmers I ers era are arc able to purchase goods at lower prices and group distribution results In smaller overhead and de decreased de- de decreased I creased handling charges By Dy own own- ownIng Ing tag the tile business of at course co oper cooperators cooperators cooperators oper avert dealers' dealers margins I Though tax exempt operatives co-operatives have been the target of competitive I businesses complaining of their tax preferment R R. Wayne Newton I manager of ot the National Association of ot operatives Co-operatives declares that the Increased return of ot farmers results in payments of higher individual 1 income taxes At the same time Newton says the larger profits en en- enable enable able operators open tors to spend more on merchandise In the Ule local ecal ties Charges that ops co-ops are making huge profits on their operations only serves to emphasize the size of ot mar mar- margins margins margins gins formerly enjoyed by private dealers Newton avers By banding together for operative co-operative operations farmers have tended to offset their i. i s. s a t 3 r vR t EC Successful ops co-ops include refinery at McPherson I Iran Kan top and grain elevator of Indiana Farm bureau at Indianapolis Ind had previous disadvantage of being com com- compelled compelled to sell their products on a flexible open market and buy on a amore amore amore more or less rigid retail retal price level he further states In spearheading the opposition 10 to tax-exempt tax operatives co-operatives the National Na National Tax Equality association points to the fact that op co-op reserves retained after patronage refunds re re- remain remain re- re remain main untaxed thus enabling them to do business at lower cost while also permitting continuing sion slon As a result the asserts operatives co s are growing at a rate of ot 10 times that possible for tax tax- taxpaying taxpaying paying enterprises Not only that but many Lax pay ing lag corporations have shifted to a tax exempt status either through ac acquisition ac- ac acquisition by operatives co-operatives or by the voluntary action of stockholders declares As examples president Ben Den McCabe cites the northern Cali Call California California fornia tomba holdings of ot the Red River Lumber company bought by the Fruit Growers Growers' Grow rs' rs Supply company a subsidiary of the California Fruit Growers' Growers exchange with a loss to the U. U S. S treasury of ot nearly 1000 a year In tax revenues the Ohio Cultivator company of Belle Belle- Bellevue Bellevue vue Ohio Ohio purchased by the Na Na- National National Farm Machinery Cooperative Co oper Cooperative Inc with a Bloss loss of ot about annually to Uncle Sams Sam's coffers and the th Globe Refining company of McPherson Kans taken over by bythe bythe bythe the National operative Co-operative Refinery association Against the background of at al already al- al already ready established operatives co and the shift of some tax paying ng enter enter- enterprises e enterprises to a paying non op co-op basis McCabe also cites the possibility of the growth of sponsored labor con con- consumer consumer sumer organizations which would remain tax tree ta on two counts one because b cause ownership would be vested In tax exempt unions and two be be- because because cause cau e they would distribute earn earn- earnings earnings earnings ings before computing their levies ies |