[ the tax tide ]
How the money comes home: shares in, patronage out
Members buy in with a share, which is the price of belonging rather than a bid for control. At the end of the year the surplus is divided by what each member actually did with the co-op, not by how much money they hold.
[ in one picture ]
Money in, then money out
Everyone puts in the same share to join, so nobody buys a bigger voice. Everyone gets back in proportion to their work or their trade with the co-op, so effort is what earns the return.
See it as a storybook[ what to settle early ]
Patronage, plainly, and where a friend would push you
No income tax, but a tax on revenue
Washington has no personal or corporate income tax. Instead the Business and Occupation tax is charged on gross receipts, with no deduction for payroll, rent, or cost of goods. Rates run by activity class, roughly from about half a percent to a couple of percent. Read that again if you are used to income-tax states: a thin-margin co-op can owe B and O tax in a year it made no profit at all. Price for it from month one.
Patronage is the co-op's real tax move
Under Subchapter T of the federal tax code, surplus a co-op allocates back to members as patronage is generally deducted by the co-op and taxed to the member instead of being taxed twice. To count, the allocation has to be made on the basis of business done with members and notified within the required window, and at least twenty percent of any allocation is typically paid in cash. Written notices of allocation are named in the Washington employee cooperative chapter for exactly this reason.
Where a friend would push you
Do patronage properly from year one rather than discovering it in year three. Keep member and non-member business separately in the books, because the deduction only reaches member business. If you are a worker co-op, decide early whether members are employees on payroll or self-employed, because that choice touches workers' comp, unemployment, and every tax form after it. And when the numbers get real, pay an accountant who has actually closed a co-op's books, not just a friendly generalist.
The honest disclaimer
This is a friend's read, written to make you dangerous in a conversation with a professional. It is not legal or tax advice, nobody here is your lawyer, and statutes and fees change every legislative session. Confirm anything that costs money at the agency's own page before you rely on it.
Checked September 2026. This is a friend's read, not legal or tax advice. Take the money side to an accountant who has worked with cooperatives before you file.