Issue 2

DIVIDENDS AND CAPITAL CREDITS – Are they the same thing?

Not at all!

Profits earned by a publicly traded company are often paid as dividends to investors as a reward for the financial risk they took investing in that company. And these dividends are income taxable at both the state and federal levels.

Capital credit patronage dividends, such as those paid by a rural electric cooperative, are earned based upon the amount of money a customer spends buying products from that cooperative, much the same as Green Stamps were given away in years gone by.

Capital credit patronage dividends are awarded to customers by an action of a co-op’s board of directors. There is no financial risk associated with receiving patronage dividends, as co-op customers have not invested their money in the formation or operation of rural electric cooperatives. While co-op members do pay a small membership fee upon signing up for service, that fee cannot compare to investing personal savings in a publicly traded company.

Furthermore, capital credit patronage dividends are not income taxable at either the state or federal levels unless the cost of the electricity has first been deducted as a business expense.