Thanks for your Patronage!

A patronage dividend is a distribution of a cooperative's profits to its members based on the amount of business they do with the cooperative. Instead of being determined by the number of shares owned (as in traditional corporations), the dividend is allocated proportionally to each member's patronage — meaning the more you use the cooperative's services, the larger your share of the profit distribution.

For example, in a consumer cooperative, the more you shop at the co-op, the larger your share of the profits might be when the co-op distributes a patronage dividend. Similarly, credit unions use this concept to refund a portion of the interest earned on deposits back to their members. The Internal Revenue Code (26 USC §1388) even defines a patronage dividend as an amount paid to a patron based on the net earnings from business done with or for that patron.

The Technology ASSURANCE Cooperative (TAC-USA.com) activated patronage dividends in Q1 2025 and the results are.... nuts! Allow me to explain... 

You cannot do distance learning (or digital learning) without technology. So it made perfect sense that the Distance Learning Association would seek out and negotiate 'deals' on telecom and technology for its members. So, for many years, the members of the DLA could 'source' their hardware, software, connectivity, cybersecurity, platforms, books, courses, et.al. at volume contract pricing. Members Only Pricing. A simple 'strength in numbers' model. 

TAC 'was born' to be a value-added member benefit. It's purpose to exist was to service the membership of the DLA (since 1983). 

Here is what we learned - your mileage may vary!  

{ Nerdy legal and accounting stuff begins HERE } 

To offer patronage dividends, we needed to first structure the business as a cooperative and then embed the dividend mechanism into your cooperative’s operating rules. In practice, this involves several key steps:

Ensure your business is legally organized as a cooperative.

Draft or amend your bylaws to create a pre-existing obligation to pay patronage dividends. This means clearly stating that a portion of net earnings (usually determined on a taxable or book income basis) will be returned to members based on the volume or value of their transactions with the cooperative.

Define eligibility criteria (for example, whether only active, fully paid members qualify) and decide if acceptance of the dividend is a condition of membership. We made it automatic - all members of the TAC Co-Op automatically benefit. [ It’s wise to consult a legal professional to ensure your bylaws meet both IRS requirements under Subchapter T and state laws. ]

Develop an Accounting System for Patronage Tracking

Implement robust bookkeeping and point-of-sale systems that record each member’s transactions with the cooperative. [ We went with Intuit ENTERPRISE. ]

Use these records to calculate each member’s share of the net earnings, typically by applying a percentage based on each member’s purchases relative to the total. [ We decided that all members benefit equally. ]

Determine the Dividend Calculation and Distribution Method

Decide on the method for calculating net income eligible for patronage dividends. Many cooperatives use taxable net income or book income as a base. [ We decided to calculate patronage dividends as a share of overall net revenue. ]

Choose how the dividends will be paid out — this could be as cash, store credit, or even equity shares. (For example, some cooperatives distribute a minimum of 20% in cash to enable members to cover any associated tax obligations, with the remainder retained as equity.)

Set clear deadlines for members to claim their dividend benefits. For instance, the dividend should be available for claim within a defined period (often 8½ months after year-end), after which unclaimed amounts may be reallocated by the Board. [ Again, made it automatic and seamless. 'Hey, thanks for your patronage - here's your money!' ]

Member Education and Communication

Educate members about how the patronage dividend works, its benefits, and the claim process. Distribute the updated bylaws and regular statements or notices (often called “qualified written notices of allocation”) so that all members know the rules and see their individual allocations. [KISS: Keep it Simple Sam ] 

Tax and Regulatory Compliance

File the appropriate tax forms, such as the cooperative’s Form 1120-C and, if required, IRS Form 1099-PATR (or elect not to file it using Form 3491 if you meet the criteria).

Follow IRS Subchapter T guidelines so that the dividends remain deductible by the cooperative and potentially tax-free to members (depending on the nature of their purchases).

By following these steps — structuring your cooperative properly, setting clear policies in your bylaws, implementing accurate accounting systems, choosing the appropriate payout method, and ensuring member communication — you can successfully offer patronage dividends. This approach not only returns a portion of profits to your members in a fair and transparent way but also helps optimize tax benefits for both the cooperative and its members.

{ Nerdy legal and accounting stuff has now ended }

OK, land the plane Tom... what does this mean to ME? 

Well, let's use a real-life example. Let's say that 1% of the 174K+ DLA portfolio schools across North America are ready for a 'Technology Refresh' on their computers. Let's say that 1,740 schools want to purchase 1,000 Lenovo Laptops for $1,000. {could be any brand...} Well, that would be 1,740 x 1,000 x $1,000 or $1,740,000,000 in laptops. So, if even 5% of that transaction for Lenovo Laptops was applied as patronage dividends, then $87,000,000 would be distributed to all members of the TAC Co-Op. Feel free to play around with the numbers, but 'the math' is sound.  

AND SO... if there were 10,000 TAC Co-Op members - then each member of the TAC Co-Op would get $8,700 in patronage dividends. 

So, you tell me: would you pay $25 per month (or $250 per year) to access the volume contract pricing / wholesale cost pricing of the Technology ASSURANCE Cooperative - to also get an automatic patronage dividend of $8,700 because a bunch of schools decided to buy a bunch of new computers? 

And... what if we opened up access to the TAC-USA Cooperative to all of the alumni of the 174K+ portfolio schools? And... what if we did this with everything: all telecom, all technology, all hardware, all software, all professional services. Laptops, desktops, cameras, Internet. Everything in the world of telecom and technology that is needed to live, learn, work, play, teach, train, coach, mentor in the GLOBAL Cloud COMMUNITY? 

Hey, why not use the TAC patronage dividends to pay for school? To pay for (or offset) the tuition from one of the 174K+ portfolio schools of the GlobalDLA.org? Penn State World Campus has 775K+ alumni, Rutgers 600K+ and Purdue Online 400K+  It adds up fast. 

Say, where did YOU go to school? 

Yes indeed. The Technology ASSURANCE Cooperative (TAC-USA.com) activated patronage dividends in Q1 2025 and the results are... well, you tell me. 

If you want to learn more about membership in the GlobalDLA.org or TAC-USA.com 

you can email me directly anytime: CEO@TAC-USA.com