Patronage Refund 101

Photo credit: Montgomery Productions

Although the general idea of a cooperative business or enterprise had been around for a while, it was in the 1840s in Rochdale, England that a group of citizens created the first modern-day cooperative. Known as the Rochdale Equitable Pioneers Society, their goal was to improve working conditions, low wages and the affordability of food and other goods.

The 28 artisans, called the Rochdale Pioneers, created a set of principles and values which remain the backbone of our familiar co-ops, whether grocer or otherwise. The Rochdale Principles include the following: That profits should be divided pro rata upon the amount of purchases made by each member. Put another way, one of the foundational values of a cooperative business is that a portion of the cooperative’s earnings will be returned to its members in proportion to the amount of money they spend or goods they purchase at the co-op.

What does that mean for you, a member-owner at Hunger Mountain Co-op? It means if you shopped here last year, you are receiving a patronage refund.

The Co-op’s council determines the patronage refund based on the portion of profit associated with purchases by member-owners during a fiscal year (in our case, early July to late June). Then the Council determines how much of the refund to distribute to members and how much to retain as collective capital to strengthen the Co-op. The proportion depends on what the council determines is most beneficial for both the Co-op and its members, and factors can include cash needs, capital investment needs, building capital needs, etc. Legally, a co-op must return at least 20% of the total refund amount. Because we are a consumer co-op that sells products for personal use, neither the Co-op nor its members are required to pay taxes on a patronage refund. 

As defined by Cooperative Grocer Network, “Patronage refunds are a return of surplus profit, the extra the co-op does not need to retain while still effectively meeting member needs. Distribution is based on each member’s patronage of the business. Effectively, members get back any excess profit generated by their own purchases.”

At Hunger Mountain Co-op, we are proud to share our profits by returning a portion of our annual net income to our member-owners when possible through a patronage refund. In fiscal year 2018, our cooperative earned $171,580 (or 0.70% of net sales) in net income before determining a patronage refund and income taxes. The Co-op’s council declared a patronage refund of $133,649, of which $66,824 will be distributed to member-owners. The Co-op will retain the other $66,825 to invest back into capital improvements and debt repayment.

Individual patronage refund amounts will be based on a member-owners’ purchases from July 3, 2017 through July 1, 2018. As long as those purchases were for personal use, the IRS does not consider patronage refunds as taxable. Your patronage helps our co-op accomplish its mission to create and sustain a vibrant community of healthy individuals, sustainable local food systems, and thriving cooperative commerce. Read about the ways we accomplished that mission and some of the financial highlights from 2018 here.

Patronage refund letters will begin appearing in member-owners’ mailboxes on March 4. If you receive a letter in the mail, return the bottom of the form to the Co-op for one of three options:

1. Apply your refund to your purchase.

2. Ask for your refund in cash at any register.

3. Donate your patronage to our Give Change recipient organization of the month.

Our Give Change program allows you to support a local nonprofit organization or community partner by rounding up your purchase at the register. By doing so, you are participating in a collective effort to support organizations and programs that have a direct impact on our local community. By giving your spare change, you are creating the change you want to see in our region and the world. You can find out more about the program and opt into being asked at checkout to round up your purchase to the next dollar at our website here.

In March, the Give Change recipient will be the Hunger Mountain Cooperative Community Fund (HMCCF). This fund provides grants to local organizations whose work aligns with our mission to support healthy communities and sustainable local food systems. Find out more about HMCCF here. In April, your patronage and give change donations will benefit the North Branch Nature Center.

As per tax code and the Co-op’s bylaws, you must use or donate your patronage refund within 90 days. Contact us at info@hungermountain.coop if you cannot make it to the Co-op within that time frame. Outstanding patronage refunds will be void 90 days from the date issued and donated to the Hunger Mountain Cooperative Community Fund (HMCCF).

If you have any questions about patronage refunds, please contact us at info@hungermountain.coop or 802-262-3202.

Although patronage refund availability and distribution is not a guarantee each year, and the amount from year to year will vary, it is a benefit for our members, a return on a percentage of their patronage of the Co-op. If you are not a member, join today for only $15 by visiting customer service or using our online form here.