August 12, 2016
Canine blood bank seeks sales-tax relief
Proposed California law would exempt only nonprofits
By: Edie Lau
For The VIN News Service
When Dr. W. Jean Dodds asked on Facebook for financial and political support for the blood bank she runs for dogs, more than 4,000 people shared the post. Some added messages such as, “All our animal lovers, can you help?” and in all-capital letters, “California is about to lose a major canine blood bank.”
Photo courtesy of Hemopet
Hemopet derives blood from greyhounds retired from racing, and adopts out the dogs after 12 to 18 months. One of the nation’s largest canine blood banks, Hemopet says it provides 40 percent of the total dog blood supply. Others in animal blood banking estimate its share at closer to 20 percent.
From the posts, the situation may seem like a clear case of injustice, but the problem is nuanced and the proposed solution, controversial.
Dodds, a veterinarian in Southern California, is the principal officer of Hemopet, a nonprofit organization that runs a greyhound rescue/adoption program, diagnostic laboratory and blood bank. A recent state audit of Hemopet determined the organization owed some $81,000 in unpaid sales taxes, according to information on Hemopet's website.
Hemopet did not collect sales tax, Dodds told the VIN News Service, because she believed animal blood is exempt like human blood. “It’s not a commodity. It’s a service,” she said.
Unless Hemopet is excused from the tax bill or receives enough donations to cover it, Dodds said, Hemopet cannot afford to keep the blood bank open.
State Sen. Janet Nguyen is trying to stop that. The Republican lawmaker, who represents Orange County, California, where Hemopet is a constituent, introduced legislation in January to exempt animal blood from sales and use taxes. Explaining the senator’s interest in the issue, Cameron Demetre, a legislative aide to Nguyen, told the VIN News Service: “The senator is an advocate of small business, and this is a small business that’s nonprofit. The senator had dogs all her life and is an advocate for animal rights.”
Most importantly, Demetre said, “Human blood is exempt from sales and use tax because it’s providing a valuable good and service. That was a critical argument for us. It’s the same thing, just applied to animals.”
The bill, SB 898, has passed the Senate and two Assembly committees. But it’s been amended along the way, and now the exemption would apply only to future sales taxes and only to animal blood products sold by nonprofit organizations.
The changes add wrinkles to already convoluted circumstances.
First, because the bill doesn’t eliminate the back taxes, its passage wouldn’t relieve Hemopet’s immediate financial difficulty.
Second, when the bill was amended to apply only to nonprofit blood banks, it lost the support of the largest veterinary blood bank in the state and possibly the nation, Animal Blood Resources International, a private corporation based in Northern California.
“To us, it just seems like discrimination,” said Pat Kaufman, who owns Animal Blood Resources International with her husband.
According to players in the industry, the majority of animal blood banks in the United States are for-profit businesses, unlike on the human side, where blood banks tend to be nonprofit. No clearinghouse on animal blood banks exists, but many in the community say the biggest entities are Animal Blood Resources International in Dixon, California; Hemopet in Garden Grove, California; and Blue Ridge Veterinary Blood Bank in Purcellville, Virginia. The total number of blood banks is unknown. Many veterinary practices maintain small banks for in-house and local use. Some university veterinary hospitals do the same.
The California bill that would grant a sales- and use-tax exemption to nonprofit animal blood banks would apply to one entity — Hemopet, which is one of only two licensed animal blood banks in the state and the only one operated by a nonprofit.
An analysis of the bill estimates the exemption would cost the state $24,193 a year.
Kaufman said the bill conflates two separate concepts: income-tax exemptions granted to charitable organizations, and sales-tax exemptions granted to human blood. “She’s mixing the two,” Kaufman said, referring to Dodds, “and now she’s got everyone confused.”
Nonprofit operations that are charities — known as 501(c)(3) organizations in reference to the relevant section of tax code — are exempt from federal income tax and often exempt from state income tax, as well. Sales taxes are another matter. The California Tax Service Center states, “Nonprofit or exempt operations do not have a blanket exemption from sales and use taxes.”
Separately, California exempts from taxation human blood and blood products and human body parts held in a bank for medical purposes.
Animal blood is regarded differently. Mike Kaufman, Pat’s husband and chief financial officer of Animal Blood Resources International, said most states consider animals to be property and tax animal products accordingly, even when the purpose relates to veterinary medicine.
Dodds maintains that when the California law exempting human blood from taxes was enacted in 1965, it did not specify “human” blood, and that the word was added later.
That’s not the case, according to the state Board of Equalization, the California agency that administers and collects taxes and fees, and which audited Hemopet. “The statute (Section 33) has never been amended since its enactment in 1965,” BOE spokesman Paul Cambra said by email.
Dodds also maintains that she obtained confirmation about Hemopet’s tax-exempt status during a meeting with the BOE in January 1993.
“In 1991, after we had opened our blood bank, the local Board of Equalization said, ‘You have to pay property tax,’ ” she recounted by telephone. “I said, ‘No, we’re tax-exempt.’ ”
Dodds recalled traveling to Sacramento “in the soaking rain” to plead Hemopet’s case. She said the board agreed that Hemopet qualified for a “welfare exemption” and provided a document to that effect. She said the document referred to exemption from property tax, but she believed the board agreed with her that “Hemopet as a nonprofit should be treated tax-wise exactly as other human entities [that operate blood banks], such as the Red Cross, are treated.”
Minutes from the 1993 meeting show that the board granted Dodds’ claim that her “personal property, laboratory fixtures, equipment and supplies, used in its animal blood bank is used exclusively for charitable purposes and activities within the meaning of” the tax code. The minutes refer to property tax, but do not mention sales tax.
Pat Kaufman at Animal Blood Resources International noted that sales taxes aren’t paid by businesses but rather, collected by businesses from their customers. If Dodds “had collected the taxes to begin with like she should have, it wouldn’t have cost her a dime,” she said.
Kaufman also noted that because Hemopet supplies only canine blood, any tax advantage it receives would accrue only to dogs, and a select group at that — those receiving blood from Hemopet. Cats would enjoy no such benefit. “All cat owners are going to have to pay sales tax, 100 percent,” she said.
Dodds said that although her organization never asked for an exemption that applies only to nonprofit animal blood banks, Hemopet is “modeled after the Red Cross human model that offers community services as well as blood products,” and as such, exempting Hemopet “is clearly socially correct and common sense.”
The bill exposes a strain between California’s nonprofit and for-profit animal blood banks that recalls tensions between nonprofit and for-profit veterinary practices around the country. A spreading concern among for-profit practitioners is that nonprofit practices, with their access to volunteers, donors and tax benefits, pose unfair competition. Nonprofit practices say that they don’t aim to take business from private practices but provide veterinary services as a means of supporting animal-welfare missions, such as in rescuing, caring for and adopting out homeless animals.
As for sales tax on animal blood products, Hemopet is not the first animal blood bank to find itself in arrears.
Jim Thompson, hospital administrator at a Bloomfield Hills, Michigan, for-profit veterinary referral practice that runs a local canine blood bank, said his hospital discovered during an audit about seven years ago that it was supposed to collect sales tax on blood products.
“We thought it was the weirdest thing, because the product is donated. … I didn’t think it was taxable,” Thompson said.
He said the bill was not big — nothing on the order of Hemopet’s — because most of the blood his hospital banks is used in-house. Mostly, the information just took him by surprise because he thought of dog blood in the same vein as human blood. “We learned from [the experience],” he said.
Rick Johnson, executive director of the Association of Veterinary Hematology and Transfusion Medicine and vice president of a small nonprofit in Arizona called Sun States Animal Blood Bank, said human and animal blood banks by and large are not comparable.
“I don’t know of any human blood bank that is not nonprofit, which is very, very different from the animal blood banks,” Johnson said. “ … There’s not a good model for us to follow. It’s just that veterinary medicine is a very different animal.”
Editor’s note: This article was changed from the original to cite an updated legislative analysis that calculated revenue loss to the state at $24,193. An earlier analysis by the state Board of Equalization estimated revenue loss at $78,980. The higher figure appears to have been based on total estimated annual sales of blood, whereas the revised figure is based upon estimated annual sales of blood to California buyers.
VIN News Service commentaries are opinion pieces presenting insights, personal experiences and/or perspectives on topical issues by members of the veterinary community. To submit a commentary for consideration, email firstname.lastname@example.org.
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