contrary to the weight of authority19 and cooperatives in Arkansas are now, by statute, subject to tort liability.20

If an agent is not acting within the scope of his authority, an association is not liable for his acts.21

Taxes-State, Local and General

Taxes must be imposed pursuant to law. They must be in accordance with laws that are in harmony with the State and Federal constitutions. Broadly speaking, States and the Federal Government have relatively comprehensive powers with respect to classifying property for taxation.

The physical property of a cooperative, such as land, buildings, and office or other equipment is usually subject to State and local property taxes on the same basis as similar property owned by others.

Is an association liable for property taxes on products received from its members for marketing if it is in possession of such products at the time property taxes are assessed? This is a local question. Generally, if an association takes title to the products it is marketing, there is little doubt that it would be liable for the taxes. On the other hand, if an association simply acts as a marketing agent, it would ordinarily not be liable for such taxes. As a rule, taxes are imposed upon the owner of property or the person who occupies the position of principal, rather than upon the agent who may have custody of the property or who may be employed to sell it.

Referring to the Burley Tobacco Growers' Cooperative Association, a Kentucky court said: "Under its charter and the marketing agreement shown above, the association is authorized to incur all necessary expenses in holding and marketing, and this, together with the absolute legal title and full control of the article, certainly includes liability for taxation."

19 Lichty v. Carbon County Agricultural Association, 31 F. Supp. 809 (M.D. Pa. 1940). See also Keifer & Keifer v. Reconstruction Finance Corporation and Regional Agricultural Credit Corporation, 306 U.S. 381 (1939).

20 Ark. Stats. 1947 § 64-1525, Acts of 1947, No. 362.

21 Farmers' Co-op Shipping Association v. George A. Adams Grain Co., 84 Neb. 752, 122 N. W. 55 (1909); David Stott Flour Mills, Inc. v. Saginaw County Farm Bureau, 237 Mich. 657, 213 N. W. 147 (1927); Christian v. Rice Growers Association of California, 50 Cal. App. 2d 617, 123 P. 2d 534 (1942).

'Burley Tobacco Growers' Co-op Association v. City of Carrollton, 208 Ky. 270, 270 S. W. 749, 751 (1925).

A city was allowed to tax tobacco an association had stored within the city. The association had received the tobacco under a purchase-and-sale contract. The court found: "The tobacco on which the tax was levied was the property of the plaintiff." The association was a Connecticut corporation doing business in Massachusetts.2

In the Burley Tobacco Growers' case, a portion of the Kentucky cooperative act was declared unconstitutional because the practical effect of the provision was to exempt "all products held by the association from all taxation," thus violating the rule of uniformity required by the State constitution and adding to the exemptions it allowed.3

A result contrary to that in the Burley Tobacco Growers' case was reached in a later case involving the right of another Kentucky city to tax tobacco stored in the city by a tobacco growers' association. The cooperative in this case also received the tobacco under a purchase-and-sale contract. The court held that the city was not entitled to levy taxes on the tobacco because the State constitution authorized its general assembly "to determine what class or classes of property shall be subject to local taxation," and an act of the assembly declared that "agricultural products in the hands of the producer or in the hands of any agent or agency of the producer to which said products had been conveyed or assigned for the purpose of sale by the producer" were exempt from local taxes.

Although the marketing contract was a purchase-and-sale contract, the court found that, since the "central purpose in the contract was to create an agency with the absolute power in the designated agent to handle and market the tobacco of the grower," the exemption statute covered a situation of this kind.

2Connecticut Valley Tobacco Association, Inc. v. Inhabitants of Town of Agawam, 261 Mass. 110, 158 N.E. 506 (1928).

3 Burley Tobacco Growers' Co-op Association v. City of Carrollton, 208 Ky. 270, 270 S. W. 749 (1925). A property tax exemption for electric cooperatives in Kentucky was held unconstitutional in Inter-County Rural Electric Cooperative Corporation v. Reeves, 294 Ky. 458, 171 S. W. 2d 978 (1943); cf. Forrester v. North Georgia Electric Membership Corporation, 19 S.E. 2d 158 (Ga. App. 1942).

"City of Owensboro v. Dark Tobacco Growers' Association, 222 Ky. 164, 300 S.W. 350, 351, 352 (1927). But see Maryland & Virginia Milk Producers' Association, Inc. v. District of Columbia, 119 F. 2d 787 (D.C. Cir. 1941), certiorari denied, 314 U.S. 646 (1941), where the tax was on "accounts receivable" of the cooperative.

A wholesaler who furnished goods to a cooperative on consignment, and not the cooperative, was required to pay the retail sales tax on goods sold under this arrangement.5

An association-with about 20 percent of its stock held by nonproducers and which paid dividends of approximately 6 percent was held entitled to exemption from an occupation tax by a Washington court." Since the statute exempted individual farmers, the court concluded that the exemption continued even though the farmers acted through an incorporated cooperative. In this connection, it said:

The fact that they operate through a corporate entity in
which they own the stock and the corporation makes no
profit and distributes the proceeds after a sale and the
payment of the expenses on a pro rata per box basis does
not put them in a materially different situation than if
two or more of them cooperated simply as members of a
joint undertaking without corporate existence.

The occupation tax statute involved in this case was subsequently amended to include specifically "nonprofit" associations and the word "business" was defined to include "all acitivities engaged in with the object of gain, benefit or advantage to the taxpayer or to another person or class, directly or indirectly." Thereafter, certain cooperatives were held subject to the tax "as to their activities of warehousing, cold storage, and the sale of fruit."7

A corporation chartered as an ordinary business corporation did most of its business on a cooperative basis. The Supreme Court of Pennsylvania held that, with respect to such business, the corporation was not subject to a gross receipts tax levied on "every person engaged in business." "Business" was defined in the statute as an activity carried on for "gain or profit." The lower court had viewed the cooperative's activities as only auxiliary to the retail

5 State Tax Commission of Arizona v. Martin, 57 Ariz. 283, 113 P. 2d 640 (1941).

"Yakima Fruit Growers' Association v. Henneford, 182 Wash. 437, 47 P. 2d 831, 833, 100 A.L.R. 435 (1935). See also Brady Irrigation Co. v. Teton County, 107 Mont. 330, 85 P. 2d 350 (1938).

"Yakima Fruit Growers' Association v. Henneford, 187 Wash. 429, 60 P. 2d 62, 65 (1936).

School Dis't of Philadelphia v. Frankford Grocery Co., 376 Pa. 542, 103 A. 2d 738 (1954).

grocery trade of its members and concluded that it would be unfair to tax the cooperative on its gross receipts and also the retail grocers on their gross receipts. The Supreme Court found that the cooperative acted as an agent and that it was not carrying on business for gain or profit. Its opinion includes this statement:

While it is true that the defendant conducts its opera-
tions as a corporation, which is the tendency of most co-
operative associations today, it possesses all of the
attributes of a purchasing cooperative. In their present
form and mode of operation, purchasing cooperatives
are of comparatively recent origin and, like all coopera-
tives, they are somewhat of a hybrid, partaking both of
the nature of a corporation and of a partnership. But
basically a purchasing cooperative acts as the joint agent
of all its member principals in purchasing in bulk and
distributing at cost the products sold by its members.
That it also acts as such agent in supplying at cost
equipment and services incidental to and in furtherance
of the economic objectives of its principals, does not
change its character. By means of this principle of
unified action the merchants secure the advantages of
quantity buying, eliminate wholesalers' profits and
attain a position where they can compete on even terms
with the giant grocery chains. Viewing the defendant as
an enterprise separate and distinct from its members, it
has what superficially resembles a profit, that is, an
excess of receipts over cost of operation. Realistically,
however, the apparent profit is due entirely to the fact
that each cooperator has paid in more than enough to
cover the cost of the products he obtains for himself. By
reason of the contract between the organization and
each cooperator, this money belongs to the latter. When
a group of individuals enter into an agreement to pool
their resources for a common purpose and state therein
that their contributions to the extent not required for
that purpose shall be repaid to them, it is hard to
conceive how the contributions returned to them should
be regarded as a gain or profit to the entity acting as their
mutual agent. The activities of the agent are the activities
of its principals with the result that it is the retail grocer
members who are purchasing the merchandise, storing

it, distributing and selling it at retail, and they are the
parties who realize the profit from the sale to the ulti-
mate consumer. They owe and pay the tax on their gross
receipts. Surely reimbursements or advancements made
by them as principals to their agent for merchandise pur-
chased by the agent for them is not subject to the tax.

In Georgia, it has been held that an "association occupied the status of its individual members as to production and sales," and that "An attempted levy by a municipal corporation of an ad valorem tax on accounts receivable for money, due to a cooperative marketing agency *** from the sales of the dairy

is in effect a tax on the gross sales of such

products." The tax was prohibited.

Under the Employment Compensation Act of Colorado, "agricultural labor" was specifically excepted. A cooperative was incorporated in the State under a statute which provided that any exemptions applicable to agricultural products in the possession or under the control of the individual producer should be applicable to such products after their delivery to a cooperative by its members. The cooperative was held not to be required "to pay contributions on the wages of individuals employed by it." The court said:

** because of the peculiar relationship between the cooperative association and its members, it would seem evident that such of the purely agricultural activities of the producer members as are incidental to his ordinary farming operations remain so whether they are performed by him on his farm or for him through the medium of his cooperative marketing association. By the circumstance that the expense of marketing is apportioned on a pro-rata basis among the members of the cooperative, the farmer member just as directly pays the wages for all labor involved in the marketing service as if he had paid his individual employees for doing the same work. In either case the labor incident thereto is "agricultural labor" and that is what the statute exempts. 10

"Georgia Milk Producers Confederation v. City of Atlanta, 185 Ga. 192, 194 S.E. 181 (1937).

10 Industrial Commission v. United Fruit Growers Association, 106 Colo. 223, 103 P. 2d 15, 18 (1940). See as bearing upon this matter: Great Western