Cooperatives are subject to pass-through income taxation. Income is taxed either at the corporate level or at the member level, rather than both. This ensures income is only taxed once, as opposed to traditional corporations, where the company is taxed on its earnings and the shareholders are taxed on dividends received from earnings.
Dr. Dave Hahn, the Ohio State University Professor Emeritus, shares insights to pass-through taxation.
Smith, S. & Chesnick, D. (2013). “Income Tax Treatment of Cooperatives: Background” (U.S. Department of Agriculture Rural Development Cooperative Information Report 44, Part 1). Washington, D.C.: U.S. Government Printing Office.