When a cooperative operates at expense by distributing its annual margin, it pays no tax on these distributions. Rather, it is a transparent entity as far because the IRS is concerned. This supplies a direct tax benefit for the cooperative’s members. As opposed to a corporation, which gets its distributed earnings tax twice (the moment in the corporate level then once again in the shareholder level), cooperatives do not spend any earnings tax on their distributions of margins to members.
Members who get the distributions may possibly be taxed on the earnings, if they’re taxable entities. If they’re tax-exempt, any patronage dividend distributions they get normally aren’t taxable to them.
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