These dividends are considered overcharges by tax rules, allowing them to be returned to members and deducted from the cooperative's taxable income. This means that patronage dividends are tied to the co-op's profit and the extent to which each member uses its services, thereby potentially reducing the cooperative's taxable income if certain criteria are met.
Glossary
Patronage Dividend
Definition
A distribution of profits from a cooperative to its members or investors, based on their use of the co-op's services or product purchases.