dissenting.
Plaintiff cooperative received more money from the sale of plywood than it expended in producing this plywood. The cooperative paid a portion of this sur*10plus to its members. The remainder it retained for its own use. The issue is whether the cooperative must pay the corporate excise tax on this retained remainder.
Plaintiff’s bylaws refer to this surplus as “net proceeds.” The bylaws require that all net proceeds be allocated to the members on the basis of time ■worked. The allocation is in the form of a credit upon the cooperative’s books and payment thereof is made to workers in cash, “except as to any sums which may be retained by the Association as hereinafter provided for the Association’s contingent reserves, or capital reserves.” (Section 4(b), Bylaws) Section 4(c) further provides for a payment of the net proceeds to the members of amounts “not required by the Association for capital or reserve purposes.”
Section 5(c) provides:
“In order that the active working members of the Association will currently furnish money through their work for further capitalizing the Association and for revolving the patronage capital furnished by worldng members in earlier years, the Board of Directors as of the close of each fiscal year shall determine what sum reasonably should be added to the patronage capital of the Association * * *. Such capital contributions shall not bear interest and shall not constitute any debt by the Association, and the credits representing such patronage capital contributions shall be subordinate to all debts and liabilities of the Association.”
Cooperatives are an unusual type of business organization and have been treated as such by courts and legislatures. They have been considered as mere conduits for the passage of income through to their members, or merely as agents for their members, their *11principals. For some purposes they have not been considered as a separate entity, such as a corporation. The Oregon Legislature has accorded certain cooperatives special tax treatment by exempting farmer and fruit grower cooperatives from the payment of the corporate excise tax. That, however, is the only special treatment contained in the taxing laws. OES 317.080(9).
The courts, particularly the federal courts, have gone further in giving cooperatives income and excise tax advantages. Using the theory that the cooperative is only a conduit or agent for its members, the courts have quite uniformly held that the net profit made by a cooperative, and then paid to its members, was not a profit of the cooperative; the cooperative was merely a mechanism to funnel the money from the buyer to the members. This has been criticized: Magill and Merrill, The Taxable Income of Cooperatives, 49 Mich L Rev 167, 182 (1950). This, of course, is completely different than the tax treatment of the usual corporation. The usual corporation pays a tax on net profit and from the remainder, after taxes, pays dividends to ■stockholders and the stockholders pay personal income taxes on the dividends. However, in the present case, the Commission is not attempting to tax cooperative income paid to members; it is the income not paid to members but retained for reserves and capital which is sought to be taxed.
OES 317.105 provides: “ ‘Cross income’ as used in this chapter [Corporation Excise Tax] includes: (1) Cains, profits and income derived from the business, of whatever land and in whatever form received.” OES 317.155 provides: “ ‘Net income’ as used in this chapter means the gross income less the deductions allowed.”
*12The excess of income received by the cooperative over expense is net income as that is defined in the above statute. The Commission, however, is not claiming that the excess paid in cash to the members of plaintiff cooperative is taxable. We are only concerned with the excess not paid but used by the cooperative in conducting its business.
This excess retained by the cooperative may never be paid to the members. The bylaws recite that it is not a debt of the cooperative. The bylaws subordinate the members’ claims to this excess to all debts and liabilities of the cooperative. The bylaws state the purpose of retaining the excess is to provide working capital. The bylaws also state that when (and if) sufficient working capital is on hand, then the moneys retained from members in earlier years will be paid out.
The purpose of the retained amounts is well stated in the amicus curiae brief filed by the attorneys for the Agricultural Cooperative Council of Oregon which states: “It is believed that most Oregon agricultural cooperatives obtain a substantial part of their financing by reinvestment by their patrons of sums due such patrons in revolving funds of the cooperative in a manner somewhat similar to the allocations made by the plaintiff in the case before this Court.”
If the members were actually paid the moneys and then loaned them back to the cooperative, the Commission apparently would not contend the cooperative was taxable; the members, however, would be taxed. Under the plan followed by the cooperative, it has all the advantages of retaining earnings for working capital without the tax disadvantage. It makes a book entry allocating moneys to individual members; how*13ever, it retains these amounts, has complete control over such moneys, is not obligated to ever pay it, may never pay it; however, it contends it is really the property of the members because of the book entries of allocation. It has all of the attributes of ownership of money but it claims it is not its money.
There is nothing in the Oregon tax statutes expressly exempting these retained funds from taxation. Can this court reasonably imply such an exemption? To do so would run contrary to a long line of decisions of this court.
In Ore. Physicians’ Serv. v. State Tax Com., 220 Or 487, 349 P2d 831 (1960), the taxpayer also sought exemption from payment of the Oregon Corporate Excise Tax. The taxpayer was a nonprofit corporation providing medical services. In denying the exemption, the court stated:
“In determining whether or not the circuit court was correct in dismissing the complaint we start with the well settled rule that tax exemption statutes are strictly construed against the individual who claims their benefit. [Citing cases.] The reason underlying this rule of construction goes deeper than mere protection of the public fisc. Not uncommonly, charitable and other nonprofit associations compete actively with private business. To the extent that a charitable corporation is relieved of the tax burden it gains a competitive advantage. To the extent that such tax relief is not based on reasonable classification for sound public ends it is a denial of equal protection of the laws. Strict construction of exemption statutes thus with us has constitutional overtones. * * *” (220 Or at 493)①
*14This principle was recently reiterated in Bd. of Pub., Meth. Church v. Tax Com., 239 Or 65, 396 P2d 212 (1964).
No reason appears to accord judicial favor to worker cooperatives but not to churches, colleges, etc.
The issue here may not be one of “exemption” but the principle applies to all instances in which the claim is that income is not subject to tax.
In my opinion the retained earnings are subject to the excise tax.
Sloan and O’Connell, JJ., join in this dissent.A corporation engaged in the plywood business can only generate working capital out of what income remains after income and excise taxes have been paid.