Cooperatives operate on a set of 7 ethical principles that include a self-supporting system of operations. This system calls for a portion of any funds left over at the end of the year after all expenses are covered to be allocated to those who used and paid for their services, the member-owners.
Capital credit allocations help a cooperative qualify for cooperative status under federal income tax law, which reduces cost to the member-owners. Furthermore, the capital credits system of allocations and refunds helps keep members’ rates lower by reducing the amount of the cooperative’s debt.