Patronage by Division Overview

Patronage is an annual determination of the amount of a co-ops net income for patronage for the previous fiscal year to be distributed to its members. When Patronage by Division is selected in Merchant Ag FIN, the ability to calculate patronage sales by units sold or dollar amounts becomes available by creating and assigning Divisions in Item Categories. The patronage a member is eligible for is calculated using the members patronage sales compared to the co-ops total patronage sales. Sales to non-members of items in Item Categories flagged for patronage is considered retained earnings for the co-op.

The co-ops bylaws dictate

  • The income figure used as net income for patronage, either booked or taxable income.
  • The amount of minimum member patronage
  • The minimum check amount

The Coop board decides the amount of the net income for patronage to be distributed as patronage. The board also decides the percent of patronage to pay as cash, if paying, and can be any amount at or above the 20% required minimum. Any remaining patronage due to a member will be retained on their account as either Qualified or Non-Qualified Reserve.

Prerequisites

Merchant Ag FIN

Enable Patronage by Division found in Admin > Installation > Access Parameters > Company.

The Backup Withholding Rate, typically 28%, is also set on the Company tab in Access Parameters.

If applicable, the Exempt Patronage checkbox may be selected if the location is exempt from paying taxes on paid patronage. In this instance, all net income for patronage is paid to customers, both members and non-members.

A default Patronage Retirement Age can be set in Access Parameters > AR > Customers > General by clicking into the field and enter an age or use the up or down arrow. This field can be left blank if not applicable.

Review the Patronage Entity ID in Access Parameters > AR > Customer > General which defaults to the Coop Name and populates on Customers Equity tab. This field can not be edited.

Access to all applicable users is set in Access User Profiles found in > Admin > System Security > Access User Profiles > select a User Profile > Security > Accounts Receivable > Main Menu > Patronage/Equity for all appropriate permissions.

Merchant Ag PM

Customers

In Customer detail, the Pay Patronage checkbox in the Billing Address of a customer account indicates the customer is eligible to receive patronage. This must be selected to set a customer as eligible.

Type is customarily set to Member Voting or Member Non Voting for the customers eligible to receive patronage.

Use the Patronage Group as a method of grouping customer accounts together when generating patronage checks.

Locations using Patronage by Division no longer require a SSN or EIN in the Tax Number and Type field on the Credit tab for the account. The Backup Withholding rate set in Access Parameters will be used to calculate tax when patronage is paid.

The checkbox for W-9 on File should also be selected.

Supply the 1099-PATR Name for the account on the Info-Settings tab. Use the group field to assign a Group which can be used on the Patronage Sales, Patronage Status, and Patronage Liability reports. Be aware that an end of year 1099 is needed if patronage is being paid. It is not needed if patronage is calculated for members but not paid.

Patronage Splits can be added to a Customer account to automatically split any Refund when Assign Patronage is selected. Navigate to customer detail > Equity > Patronage Splits to review or create Patronage Splits.

Access Patronage Divisions

Create Patronage Divisions to be added to Item Categories to calculate patronage by units sold or dollars. See Access Patronage Divisions for more information.

Equity Entities

Use Access Equity Entities to create Entities for any coop that merged or was acquired to allow payment of patronage according to individual by-laws, retirement ages or payout schedules. Patronage for Equity Entities is assigned to Customer accounts using the Add Patronage Record found in Customer detail > Equity. See Assign Patronage for Equity Entities for details.

Item Detail

Set a Conversion factor for items that have a different UOM than selected for the Patronage Division. Navigate to Item detail > Other and set a Patronage Conversion Operator, the default value is Multiply, and Patronage Conversion Factor which defaults to 1.

Item Categories

Select the checkbox for Patronage in Setup > Item Categories to track sales and enter a Patronage Division ID or search using F12.

Steps to Calculate, Assign and Pay Patronage

  1. Review Customers without W9s report
  2. Calculate Patronage Sales
  3. Review Patronage Sales report
  4. Assign Patronage or Assign Patronage (Enhanced)
  5. Run Patronage Liability report
  6. Write Patronage Checks
  7. Run a Patronage Status report

Additional Options

Create a Patronage Category List report to review all Item Categories flagged for Patronage.

Reset Patronage is available and should only be used if errors are found on the Patronage Liability report. This option re-sets the process and removes all information from member accounts for the current year. This option is not available if patronage checks have been generated.

Steps to Calculate, Assign and Pay Patronage

1. Run and Review the Customers Without W9s Report

Identify the Customers with Pay Patronage selected but the W9 checkbox is not selected. Customer accounts should be corrected before moving to the next step.

2. Calculate Patronage Sales

Determine the total Patronage sales totals of patronage sales dollars and units sold for items for all members of Co-op for the stated fiscal year. These totals appear in Customer detail > Equity and are used to determine the patronage/refund the member is eligible for by using the members patronage sales compared to the co-ops total member patronage sales. Pre-defined Patronage Splits set on accounts are automatically applied.

Split Patronage

After Patronage sales have been calculated, for customers who have more than one account, want patronage paid to a single account, and have not created a pre-defined Split can use found on the Equity grid. See the example for Coop ABC below.

Transfer Patronage

Use the button to transfer found on the Equity tab in Customer accounts to transfer either Qualified, Non Qualified Reserve Patronage or both to another customer or the Customers Accounts Receivable.

3. Run the Patronage Sales Report

This report displays the total sales of all item categories marked Patronage for all customers. Columns on the report define

  • Member
  • Non-member Producer
  • Non-member Voting
  • Non-member Non-Producer

and the total sales of item categories appears in each. This provides confirmation of the Type set on customer accounts and their patronage sales.

Select Group by Division to organize the report by each Division. This option allows the report to list the customers and their sales by division and total patronage sales by division on the last page of the report.

When running this report, the Patronage and Non-patronage Sales column found in AR > Customer detail > Equity is populated with their total sales.

4. Choose Assign Patronage or Assign Patronage (Enhanced)

Assign Patronage

This process will assign Patronage by Division for Divisions individually for a specified Adjusted Net Income.

Assign Patronage for all Divisions to members by setting

  • Percent to Pay - how much of the member refund/patronage will be paid. This percentage will be a minimum of 20%.
  • Minimum Check Amount- the minimum check amount to be issued
  • Minimum Member Patronage - the lowest amount of refund/patronage calculated for a member eligible to receive a patronage check.

The amount of patronage/refund due the member appears in the Refund column found in customer detail > Equity. Any pre-defined patronage split on customer accounts are applied during this process.

Assign Patronage (Enhanced)

Use the new Assign Patronage (Enhanced) to specify

Percent to Pay of the Adjusted Net Income by Patronage Division

  • The refund for Patronage Divisions with the Calculation Type set to dollars is calculated by percentage
  • The refund for Patronage Divisions with the Calculation Type set to Units is by rate

Default Percentage Qualified indicates the percentage of member refund allocated to Qualified Allocated Reserve

Default Percentage Non-Qualified indicates the percentage of member refund allocated to Non-Qualified Allocated Reserve.

Minimum Check Amount will be the minimum check amount to be issued.

Minimum Total Refund is the lowest amount of refund/patronage calculated for a member eligible to receive a patronage check.

 

How Patronage Appears in Customer Accounts

If the calculated patronage for a member is below the amount of minimum member patronage as set by the co-ops bylaws, it is considered Retained Earnings for the co-op as taxable income. This amount is not paid to the member but is notated on the customer account on the Equity tab.

When the calculated Patronage amount is above the minimum member patronage and above the minimum check amount, the balance remaining appears on the members account as Qualified Allocated Reserve to be paid at a later time. This is taxable income for the member when calculated but is not taxed when paid. Qualified Allocated Reserves can be retired either by year, for a specific year or by percentage, where a percentage of every years Qualified Allocated Reserve is retired. This can be combined with the patronage paid in the current year.

When a members patronage amount is above the minimum member patronage but below the minimum check amount, it appears on the members account as Non-Qualified Allocated Reserve to be paid at a later time. This amount is considered taxable income for the co-op when calculated and is taxable for the member when paid.

Expand the year on the Equity tab using the plus sign to the left of the Site name to view each Division the customer had sales and Division Type,

Merchant Ag does not automatically create a General Ledger entry for recording either Qualified or Non-Qualified Allocated Reserves, a manual entry must be entered if one is needed.

5. Run Patronage Liability report

Use the Patronage Liability report to view the Retained Earnings, Refund, Total Paid and amounts of Qualified and Non-Qualified Allocated Reserve for all members. Include All, one or multiple Equity Entities.

6. Write Patronage Checks by Division

Create Patronage checks for members. Be aware that no additional corrections or adjustments can be entered once patronage checks are written.

After checks are created, the Total Paid column on the customer account displays the amount issued to the member. The Checks Written tab includes additional details about the check included the TTR and if the check included Qualified or Non-Qualified Allocated Reserve.

General Ledger Entry

As Patronage checks are written, the GL entry in Merchant Ag is below.

Credit - Bank Account

Debit - Patronage Payable

7. Run a Patronage Status report

Create a Patronage Status report to review all member patronage information for the selected year.