Cooperatives and the Income Tax

Landmarks in growing fields of law frequently receive only passing contemporary attention. A recent income tax decision of the Third Circuit Court of Appeals, Keystone Automobile Club Casualty Company v. Commissioner, 1 may or may not become a landmark in the law of cooperatives, but its relationship to the timely subject of democracy certainly makes it of more than passing concern. The case presents very strikingly the democracy of true cooperatives. The court, notwithstanding a statutory tax exemption in favor of cooperatives, refused to free two alleged mutual insurance companies from an assessment of 167, 331. o6because of its conclusion that they were not mutuals or cooperatives in view of the absence of democratic ownership and control. This is by no means the first time that a spot-light has been thrown upon the democratic aspects of cooperatives. The late Mr. Justice Brandeis had occasion long ago to say that the aim of cooperatives is "economic democracy on lines of liberty, equality and fraternity. " 2 In fact, in conjunction with emphasis upon the present day importance of a clear conception of the meaning of democracy, the former Senator George Wharton Pepper has defined democracy in terms of a cooperative institution as follows: "As I use the term 'democracy' it means a society in which the people who compose it are their own governors, much as the policy-holders in a mutual life insurance company are their own insurers. "3 Claude R. Wickard, the Secretary of Agriculture, has said: "Ever so often a democracy has to make certain that it is still a democracy. This test is a simple one-do the people still rule? And ever so often, a cooperative has to make certain that it is still a cooperative. This test also is a simple one-do the members rule? " 4