35 Miss. Admin. Code Pt. III, Subpt. 10, Ch. 04 — Allocations by Cooperative Associations

100 Amounts allocated on the basis of the business done with or for a patron by a cooperative
association in cash, merchandise, capital stock, revolving fund certificates, retain
certificates, certificates of indebtedness, letters of advice or in some other manner
disclosing to the patron the dollar amount allocated, shall be included in the computation of
the gross income of such patron for the taxable year in which received to the extent
prescribed in the following paragraph of this Regulation. The determination of the extent of
taxability of such amounts is in no way dependent upon the method of accounting
employed by the patron or upon the method, cash, accrual or otherwise, upon which the
taxable income of such patron is computed.
101 Amounts allocated to a patron on a patronage basis by a cooperative association with
respect to products marketed for such patron, or with respect to supplies, equipment or
service, the cost of which was deductible by the patron, shall be included in the
computation of the gross income of such patron, as ordinary income to the following
extent:

# 1.

If the allocation is in cash, the amount of cash received.

# 2.

If the allocation is in merchandise, the amount of the fair market value of such
merchandise at the time of receipt by the patron.

# 3.

If the allocation is in the form of revolving fund certificates, retain certificates,
certificates of indebtedness, letters of advice or similar documents, the amount of
the fair market value of such document at the time of its receipt by the patron.
102 Mississippi Law does not conform with Section 1381 et seq., I.R.C. with respect to the tax
treatment of corporations operating on a cooperative basis. Patronage dividends, based
solely on patronage and not stock ownership, actually paid or distributed to a patron by a
corporation operating on a cooperative basis may be deducted by such corporation in
determining Mississippi taxable income. Patronage dividends which are retained by the
corporation in the form of "per -unit retain allocations" and identified on the books of the
corporation as "qualified allocation margins" are not deductible by the corporation and
must be included as an element of taxable income for Mississippi income tax purposes,
regardless of whether or not the patron signs his or her written notice of allocation (as
defined in 26 U.S.C. 1388). Such "per -unit retain allocations," taxable to the corporation,
are not taxable to the patron until such allocations are, by vote of the stockholders, actually
distributed, in whole or in part, to the patron. Corporations operating on a cooperative basis
are not, therefore, treated as "tax -option corporations" under Mississippi Law and no
authority for such presently exists.
103 Section 27-7-29(a)(7) provides that there shall be exempt from the tax imposed by this
article "farmers and fruit growers cooperatives or other like organizations organized and
operated as sales agents for the purpose of marketing the products of members and turning
back to them the proceeds of sales, less the necessary selling expenses and on the basis of
the quantity of produce furnished by them, and other nonprofit agricultural associations
organized and operated unde r the provisions of the cooperative marketing association is
organized and operated as a nonprofit association within the provisions of the cooperative
marketing laws of this state", such cooperative is exempt from income taxation under the
Mississippi Income Tax Law. Mississippi Law does not conform with Section 1381, IRC,
with respect to the levy of an income tax on nonprofit farmers cooperatives.
104 A corporation or other taxable entity not organized as a nonprofit cooperative marketing
association within the scope of the cooperative marketing laws of this state is subject to
taxation under the provisions of the Mississippi Income Tax Law in the same manner of
any other corporation doing business within the state. Mississippi Law does not conform
with Subchapter T of the Internal Revenue Code with respect to the taxation of
corporations operating on a cooperative basis. The entire net income of the corporation
derived from sources in Mississippi, with the exception of amounts paid in money as
patronage dividends to patrons on the basis of the business done with or for such patrons, is
subject to the measure of the Mississippi income tax levy. The net income of the
corporation (operating on a cooperative basis) shall not be reduced by amount representing
qualified written notices of allocation, nonqualified written notices of allocations, per-unit
retain allocations, qualified or nonqualified per -unit retain certificates, dividends or other
property. Only patronage dividends paid in cash (money) by the corporation to the patron
and based solely on business done with or for such patron may be deducted in determining
net taxable income of the corporation, other than, of course, ordinary and necessary trade of
business expenses.
105 The patronage dividend received in cash by the patron must be included in the gross
income of such patron. The patron may, however, exclude from Mississippi gross income
the value of qualified written notices of allocation and qualified per-unit retain certificates
to the extent that they represent non-cash items received. Dividends paid by the corporation
based on stock ownership rather than patronage are not deductible by the corporation and
are included in the gross income of the resident recipient.
106 (Reserved)
107 (Reserved)