Volunteers bristle at California plan to expand taxes on food co-ops

By , Staff correspondent of The Christian Science Monitor

It sounds routine enough. California's state business tax board wants to levy a sales tax on a food cooperative's membership fees and volunteer labor. The board refers to the dispute simply as ''the matter of the Santa Monica Co-Opportunity Consumer's Cooperative Inc.''

But the case is believed to be the first of its kind in the country. Angry consumer activists argue that the State Board of Equalization (SBE) could be dealing cooperatives and, more broadly, the self-help movement a nasty blow. Ironically, they say, the proposal comes at a time when voluntarism and self-help are being pushed as an alternative to government spending.

''Co-ops are very much self-help organizations,'' says Howard Norman, board president of the Santa Monica cooperative now battling the SBE. ''Self-reliance on the part of individuals is being very much promoted by the government these days.''

Recommended: 10 best self-help books of all time

''To see them try to hinder a group's ability to help themselves is hypocritical,'' he concludes.

Like any grocery store, food cooperatives pay sales and income taxes, except for grocery items, which are exempt from sales tax. Unlike the average grocery store, however, cooperatives are owned by members who pay a fee to join and often become ''shareholders'' in the organization. Large co-ops generally sell their products at prices comparable to other stores, but share profits with their members in the form of year-end rebate checks. Smaller or new co-ops often offer lower shelf prices but also depend on small monthly membership fees or volunteer labor to survive financially.

The current case, now at the SBE hearing level, involves $3,000 in sales taxes being sought from a seven-year-old southern California food co-op with a membership of 1,300 households. The action has drawn protests from Gov. Edmund G. Brown Jr. and the state Department of Consumer Affairs.

According to the co-op's Mr. Norman, the tax would not force the store out of business, but it would mean wiping out the 1 percent profit margin the co-op budgets for each year. That profit that is invested back in the business.

The SBE argues that the tax is justifiable because the fees and free labor are in effect a subsidy that allows the co-op to charge lower prices for its products. Such a trade-off, argues SBE assistant chief counsel Gary Jugum, is nothing more than a barter - which is subject to sales tax under California's 1933 Sales and Use Tax Law.

Co-op activists, however, contend that bartering - an irksome activity to state and federal tax agencies because it is so hard to trace and tax - plays no part in co-ops.

According to attorney Lauren Poplack, who has been closely involved with the issue, bartering involves a specific trade-off - ''a given value for a given value.'' The monthly membership fee in question, she says, involves no such specifics. One member, for example, may pay his fee and buy only $100 worth of groceries per month, while another member may pay the same fee and buy $1,000 worth of food.

Co-op activists remain deeply concerned about the potential impact of the SBE's decision on the state's food co-ops. Such co-ops are estimated to serve some 500,000 Californians and generate approximately $150 million of business yearly, according to David Thompson, California regional director of the National Consumer Cooperative Bank.

SBE attorney Jugum scoffs, ''These people seem to think we're out to ruin the co-op movement. This matter just came to our attention in a routine audit.''

But those following the case - which is expected to be pursued in the courts if the SBE stands firm - note that the tax board already has moved to levy the same type of tax on two other small cooperatives. And they argue that the idea of taxing volunteer labor has far-reaching implications for any number of self-help community organizations.

''For the state to suddenly tax someone's volunteer time to a nonprofit organization is draconian,'' noted Robert L. Judd, director of the state's Offfice of Appropriate Technology, in a memo on the case. ''If this had always been an American tradition, there would be no Red Cross, no amateur theater groups, no barn-raising, and Tom Sawyer would never have had the fence whitewashed.''

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...