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Iowa lawmakers look to fix tax law hurting blood centers

January 19, 2019

DES MOINES, Iowa (AP) — When Iowa Republicans approved major tax cuts last spring, they celebrated the legislation as historic and beneficial for Iowans and businesses.

The state’s only two nonprofit blood centers, where at least 210,000 units of blood are donated annually, look at the massive law another way: a financial headache of more than $1 million in new taxes.

The organizations — LifeServe Blood Center in Des Moines and Mississippi Valley Regional Blood Center in Davenport — said the Republican-led law will force them to pay new taxes on most of the items they use to collect, test and distribute blood, which ends up in nearly all of Iowa’s hospitals.

Key lawmakers and Gov. Kim Reynolds said they are aware of the problem and vow to fix it.

Jim Rohden, a volunteer at LifeServe who transports blood and other supplies weekly, is frustrated.

“It’s ridiculous as a taxpaying person in Iowa,” said the 81-year-old retiree. “For me, it doesn’t make sense for a not-for-profit organization to be taxed.”

Staff for the centers say until then, the price tag could have a range of ramifications. Hospitals may end up facing higher processing fees for getting blood, which could trickle back to patients.

Stacy Sime, president and CEO of LifeServe, said operational what-ifs have weighed on her since the tax bill was signed into law: Would they cut back on available drivers to transport blood? Or would it mean fewer staffers tracking blood orders back to hospitals? Sime hopes it doesn’t come to that.

“As we figured out that the tax code had changed so dramatically, it was pretty devastating,” she told the Des Moines Register .

Iowa’s new tax law shifted the definition of nonprofit blood centers in a way that made them subject to a new sales and use tax on their equipment, technology and supplies.

That means anything used at the centers and their various branches around the state — from the needles that draw blood to the coolers used to transport the blood — must now be taxed.

Iowa’s hospitals, hospices and organ procurement organizations are all exempt from such taxation, putting the two nonprofit blood centers in a unique dilemma. Iowa is one of just three states that tax nonprofit blood centers.

“I think the Legislature understands this and is finding a way to fix it. ... The question is why were we even wrapped into this in the first place?” said Mike Parejko, CEO of Mississippi Valley Regional Blood Center.

Since Iowa’s blood centers handle transfusions, which are considered drugs, the organizations are defined as drug manufacturers that must be federally regulated. Iowa’s new law stipulates manufacturers can’t be nonprofits. The conundrum means new taxes: LifeServe estimates it would have to pay $750,000 in new taxes this year, and Mississippi Valley estimates it would be on the hook for at least $400,000 in new taxes.

The new sales and tax language was tucked into a roughly 130-page bill that the Republican-controlled Legislature passed in the final days of the legislative session. No Democrat voted for it, and Reynolds signed the measure into law a few weeks later.

Republicans, who continued their trifecta of controlling the House, Senate and governor’s office after the Nov. 6 election, have indicated they support additional legislation aimed at more changes to Iowa’s tax policy. Republicans have zeroed in on property taxes in recent weeks, though the scope of any tax legislation and the timeline for it remain unclear.

Pat Garrett, a spokesman for Reynolds, said in a statement: “Gov. Reynolds appreciates the work of the LifeServe Blood Center, the Mississippi Valley Regional Blood Center, and wants to see this issue resolved during this legislative session.”

The LifeServe building in Des Moines is just a few blocks from the Iowa Capitol, in a former bank with two old vaults that are too expensive to remove. The safes are used as an employee break room and a supply storage room.

Sime, the president and CEO, said she’s spent a lot of time looking at everything through the lens of what must be taxed: the beige chairs used by blood donors; the needles handled by staff; the clear bags where blood is stored; the computer monitors where critical data is kept to track where the blood is headed. Even the cookies and water bottles given to donors will become part of a new spreadsheet.

The laboratory on one side of the building, where donated blood is tested to make sure it’s healthy, adds to the list: the tubes, the trays, the gloves used by staff.

Down the hall, a 24/7 crew of employees takes orders from hospitals. The employees use barcode scanners to tag blood bags for distribution. A large nearby monitor keeps track of volunteer and paid drivers heading in every direction of the state.

“We have to be viable,” said Christine Hayes, vice president of operations at LifeServe. “We have to be able to collect the same amount of blood that we have been collecting to provide for all these hospitals. The more pressure we have with that financial constraint will make us consider the scope of what we’re doing and how we do it.”

Lawmakers are now considering a new bill to undo the impact on blood centers. There’s support from at least one key legislator who said the whole situation was unintended.

“We definitely plan to look at that this year and remedy that situation,” said Sen. Randy Feenstra, the Hull Republican who chairs the tax-writing Senate Ways and Means Committee and helped steer the tax legislation. “We’re big proponents of the blood centers. They do great things for Iowans, and we want to try to alleviate that problem that was created inadvertently.”

Feenstra also mentioned another possibility: passing a separate “cleanup” tax bill aimed at other unintended consequences of the massive law, which is expected to cut Iowans’ taxes by more than $2 billion over the next six years.

“When you do such a massive bill, there are different entities that get affected inadvertently, and we will be looking at that,” he said.

Feenstra, who announced a bid for U.S. Rep. Steve King’s seat, said his focus would be on internet sales taxes.

“There’s certain things we caught, that we didn’t mean to, and other things that we didn’t catch that we should catch,” he said.

Rep. Lee Hein, the new chair of the House Ways and Means Committee, said he learned about the problem with the blood centers just a few weeks ago and is still sorting out what comes next.

“At this point I haven’t talked to everybody, haven’t talked to all the members even in the Ways and Means (Committee),” he said. “I think it probably will move, but I’m not sure yet.”

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Information from: The Des Moines Register, http://www.desmoinesregister.com

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