Santa Maria California Form 1120-S 2024-2025

Santa Maria California Form 1120-S: What You Should Know

A California cooperative may qualify as a nonmember for corporate purposes (including but not limited to California income tax purposes), but the nonmembers cannot use any deductions and special rules that the cooperative tax does. A cooperative may be a nonmember for corporate purposes when, among other things, it: • Is incorporated with the approval of the governing board and at least one member meets the membership requirements, including a minimum annual income of 40,000; or • Is a tax-exempt public benefit organization and is not operating under a common name or as a sole proprietor; or • Is an agricultural cooperative. The requirements are fairly high. It has been the standard to be a cooperative since 1986, when the California legislature enacted section 23701, the “cooperative business tax act” to permit cooperatives to have a lower tax rate than nonmembers. In fact: Nonmember cooperatives should consider themselves to be “eligible to be treated as the legal owners of the partnership for California purposes provided the cooperative is an agricultural cooperative” and “a nonmember cooperatives' income shall include the income of an agricultural cooperative or its profits, rents, or other distributions after any deductions pursuant to section 3707.” Nonmembers may be able to deduct their business-use expenses.   Nonmembers may also not deduct expenses paid by the cooperative in carrying out its charitable purposes, and may have to contribute a specific percentage of their income to the cooperative's charitable or noncharitable purposes. As an alternative to Form 1120-H filing, a nonmember may be able to file a Form 1120-S instead, with a lower California franchise tax. California business owners should be aware that there are some special rules for California agricultural cooperatives and cooperatives that are required to be licensed or regulated as a corporation for corporate purposes.

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