History of Co-op Taxation

Dr. Dave Hahn, The Ohio State University, shares the history of cooperative taxation.

Cooperatives are subject to the same special taxes as other business types‐including employment, real estate, sales, personal property, excise, and franchise taxes. Cooperatives, partnerships and other business entities, are subject to single taxation on margins for the purposes of  federal income taxes. The cooperative principles, operating at cost, limited returns on equity capital, and member ownership suggest a different tax treatment.

The Revenue Act of 1913

Federal income taxes were enabled by the 16th amendment (1913). During the time frame from 1913 to 1951, all revenue acts asserted that “cooperatives were not required to pay income taxes on net margins that they distributed as patronage refund allocations (PRA’s).

The Revenue Act of 1951

The Revenue Act of 1951 had provisions intended to insure that all net margins of cooperatives would be subject to a single income tax, either at the cooperative level or patron level.

The Revenue Act of 1962

Finally, the Revenue Act of 1962 with its sub‐chapter “T” authority was put in place. The Internal Revenue Title (Title 26 of the U.S. Code) Title 26‐IR; Sub‐Title “A” – Income Taxes (8 sub‐titles); Chapter 1 –Normal Taxes and Sur‐Taxes (6 chapters); Sub‐Chapter “T” ‐ Cooperatives and their Patrons. There are 21 Sub‐Chapters, A‐U. We are most familiar with Corporations Sub‐Chapter C and Sub‐Chapter S in addition to Sub‐Chapter “T” which addresses cooperatives and their patrons.



Hahn, D. (n.d.). “Taxes- Cooperatives and the Internal Revenue Service.” Columbus, OH. The Ohio State University.

Frederick, D. (1995). “Tax Treatment of Cooperatives.” U.S. Department of Agriculture Rural Business and Cooperative Development Service Cooperative Information Report 23. Washington, D.C.: U.S. Government Printing Office.