United Grocers, Ltd. v. United States

This is a suit for refund of corporation income tax for the year 1954. Appellant is a cooperative nonprofit, membership California corporation, formed as a buying, marketing and service organization for its members. The question presented is whether monthly payments by taxpayer’s members, together with initiation, transfer and withdrawal fees, are contributions to capital under section 118(a) of the Internal Revenue Code of 1954 and Treasury Regulations issued pursuant thereto, as appellant contends, or payments for services and therefore includable within taxpayer’s gross income under section 61(a), as ap-pellee contends and as found by the trial court. The facts are set forth in detail in the district court’s opinion reported at 186 F.Supp. 724 .

Appellant’s members are independent retail grocers. The excess of receipts over expenses from sales to members is returned to the members as patronage dividends at the close of each year. Groceries and services are sold to members and nonmembers at the same billing price, but nonmembers do not receive patronage dividends. Profits from sales to nonmembers and from investments are retained, do not enter into the computation of patronage…