Copper Valley Telecom is a member-owned telecommunications cooperative, and as such, provides an annual allocation of earnings to its members. While wireless, internet, and landline services all accrue capital credits, customers must have landline service with CVT to become members and be eligible to receive allotments.
Every year, we allocate a portion of that margin to each member’s account, based upon their use of services. CVT uses funds not paid directly back to members to build facilities, repair the network, and make project improvements.
CVT measures each member’s capital credits by subtracting expenses from revenue totals to determine the margin. When the co-op’s finances permit, the Board of Directors may vote to refund or retire capital credits. This year, Copper Valley Telecom is excited to announce that CVTC will be paying out a total of $950,000 to its members! These funds result from retiring the remaining part of allocations from 2002, 16% of retired allocations from 2003, and 5% from 2020.
If you have any questions regarding your capital credit check or need to make changes to your mailing address, please email us at email@example.com.
As opposed to a typical corporation that is owned by shareholders and exists to generate profits for them, a cooperative is an organization established to provide certain goods or services to its members. Shareholders exercise control over the corporation based on the number of shares they own. Unlike a corporation, a cooperative is owned by those it provides service to, the members, and operates at cost. A cooperative principle is that each cooperative member’s vote is of equal value regardless of how long the member has been a member, or how much business they do with the cooperative.
Capital credits represent the economic participation of the members of the cooperative. Rather than seeking capital funding through investors, a cooperative funds its operations through the business the member does with the cooperative. The excess of the member’s payments for services over the expenses and costs of providing those services are received as capital for the ongoing operations of the cooperative.
Capital credits should not be confused with profits. Cooperatives exist not to make a profit but to provide reliable and high-quality services to its members. Instead of generating profits to give to shareholders, cooperatives reinvest any excess earning to improve and continue its operations for members.
A fundamental tenet of cooperative operation is that the earnings of a cooperative are allocated to its members based on the amount of business the member does with the cooperative in excess of the cooperative’s costs and expenses. A cooperative satisfies this requirement by making periodic allocation of capital credits to its members. An allocation is made annually for each member based on the amount of business the member did with the cooperative during the previous year. The cooperative is required to track the balance of these allocations for each member until they are eventually returned to the member.
A retirement is the eventual return of the allocated capital credit to the member. The retirement of capital credits is a return of the member-furnished capital. Retirements are governed by the bylaws of the cooperative, which state that retirements are made at the discretion of the board if it is determined that the financial conditions of the cooperative will not be impaired by the return of capital.
Telecommunications is a capital-intensive industry. In order to avoid taking on too much debt to maintain and improve service the cooperative retains revenues that are in excess of expenses and costs, also known as margins. The margins are assigned to members as capital credits and used by the cooperative for continued operations and long-term investments in equipment and telecommunications facilities. If all capital credits were retired at once, the cooperative would have to incur excessive debt to continue operations. This would greatly increase the cost of the services provided to members.
After being approved by the board of directors, a statement is mailed to the member’s address of record disclosing their share of the cooperative’s total capital credit allocation. These statements are usually mailed in September and disclose the allocation of the previous year’s allocation.
The cooperative’s board of directors is permitted by the bylaws to return capital credits if a member moves outside of the cooperative’s service area and terminates service or if they pass away, provided that the financial condition of the cooperative would not be impaired. Capital credits that are paid back in these situations are subject to discounting when returned.
If a member’s capital credits are not returned when service is terminated, it is important for the member to send updated contact information to the cooperative. That way when capital credits are returned the checks will be mailed to the correct address for the member.
Each summer the co-op publishes a list of unclaimed capital credits on its website. You can also give us a call at 800.235.5414.
If the services purchased from the cooperative were strictly for personal use, then capital credit retirements are generally tax-free. If the services were utilized for any business purposes the member should contact their tax advisor regarding taxability of their capital credit retirements.
If the cooperative has reason to believe its services are used by a member for business purposes, and the capital credit retirement for a year exceeds $600, the cooperative is required to issue a 1099-MISC to the member. The member should consult with their tax advisor regarding the reporting and taxability of their capital credit retirements.