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University of Iowa looks for Hawk Shop, bookstore partner

A new operator would have to start charging sales tax

In Jan. 16, 2018, photo, student Samantha Savala takes her receipt from temp cashier Trevor Finely after purchasing text
In Jan. 16, 2018, photo, student Samantha Savala takes her receipt from temp cashier Trevor Finely after purchasing text books at the Hawk Shop in the Iowa Memorial Union in Iowa City. The UI is looking for a private partner to take over the Hawk Shop and University Bookstore. (The Gazette)

IOWA CITY — The University of Iowa is considering partnering with a private company to take over managing and operating its long-standing Iowa Hawk Shop and University Bookstore, which collectively have lost the campus hundreds of thousands over the last five years.

Where their gross revenue has averaged about $11.3 million since 2015, the average annual net loss for the shops — which don’t charge sales tax because of an “educational exemption” for state institutions — has topped $100,000 during the period, “not including many central support costs such as marketing, accounting, human resources, etc.,” according to UI spokeswoman Anne Bassett.

Should the UI find a suitable private partner to take over the Hawk Shop and University Bookstore, housed on the ground floor of the Iowa Memorial Union, that operator would have to start charging sales tax, Bassett said.

“A private vendor operating the bookstore would be obligated to collect and remit state and local sales taxes,” she said. “They would not fall under the university’s exemption.”

The UI issued a request for qualifications last week from prospective operators “who are driven by the same goals and objectives in providing learning and cultural experiences for its students, faculty, staff, and the community at-large” and making the shops “a vibrant destination.”

For generations, the shops have sold textbooks, UI apparel, accessories, trade books, souvenirs, merchandise and even commencement regalia, caps and gowns.

The UI request for a new operator asks that all respondents “demonstrate a visionary plan for the future.”

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IMU Executive Director Bill Nelson hinted that this time of unparalleled challenges across higher education — financial headwinds from demographic shifts, COVID-19 losses, state funding cuts and enrollment losses — is driving the investigation into privatizing the bookstore.

“As institutions of higher education across the country explore ways to enhance the quality of the student experience within an environment of limited financial resources, many have experienced success partnering with external entities,” Nelson said in a statement.

UI President Bruce Harreld last year privatized the campus’ utilities system in a blockbuster $1.165 billion deal.

‘Level playing field’

UI Bookstore and Hawk Shop revenue had been dropping for years, dipping as low as $10.1 million in the 2017 budget year, amounting to a net loss of $735,792.

That’s when UI stopped collecting sales tax there, giving it a price edge in its ability to pass on the advantage to customers — many of them students — and income ticked up in 2018 and 2019 although it wasn’t enough to put its average net revenue in the black for the five-year period.

Iowa State University and the University of Northern Iowa also don’t collect sales tax at their bookstores, which UI attorneys have said is justified under a portion of Iowa Code that applies sales tax exemptions to the public universities “where the entire proceeds from the sales, rental, or services are expended for any of the following purposes,” No. 1 being education.

The shaved-off tax is advertised on the Hawk Shop website, noting it sells “all of our products tax free. That’s right. Everything. Tax Free!”

But by partnering with a private operator, the University Bookstore and Hawk Shop would lose that edge, giving vendors like Iowa Book LLC in downtown Iowa City a glimmer of good news for their businesses during a tough pandemic period.

Iowa Book’s textbook manager Virgil “Scooter” Hare said his company’s attorneys and advocates have been urging lawmakers to craft rules everyone can play by.

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“We’re OK with not charging tax on text books, but we have issues just not charging taxes,” he said. “So if we can have a level playing field, we’re perfectly OK with that.”

His business has seen upheaval in recent years with the uptick in web-based text books and open source materials — well before this year’s pandemic forced all learning online for a period, where much of it still remains.

At the start of this semester, its competitor Hawk Shop was closed and promoting online ordering and free delivery. Iowa Book, too, promoted online sales and took advantage of recent cost-free shipping through the Iowa City Downtown District.

It also saw an uptick in virtual ordering and calls at the start of the semester from “kids who were having to quarantine because they had tested positive.”

Hare said privatizing the Hawk Shop could help his business. He’s seen others across the country do it.

“A lot of those college stores nationwide are in a situation of being owned by like Barnes & Noble … companies like that,” he said. “It indicates to me that they are definitely wanting to privatize that operation maybe because of the budget constraints, and the COVID, all of that stuff.”

‘Respect and care’

UI officials have confirmed the campus bookstore and Hawk Shop have struggled since the 2008 flood.

“The shop was relocated to the University Capitol Center until its return to the IMU in 2015 and has struggled to regain its financial footing since then due to competition in the online market from large retailers,” according to UI officials. “Many textbooks and course materials have also shifted from hard copy to digital, and students have far more options for gaining access to their required materials. The overall industry has changed, become more competitive, and profit margins have reduced.”

If UI finds a partner, the operator can’t make changes to the layout until “after the FEMA audit period has expired in the fall of 2021” — due to federal funding that allowed the UI to rebuild in the Union.

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A new operator also would have to keep the business names and show “respect and care” for current employees “both during and after the transition period.”

The Hawk Shop now employs 17 full-time staff, about 110 part-time student workers and another six temporary employees.

“The university would like to work closely with the supplier to provide continued employment opportunities to these valued individuals with a salary and benefits package commensurate with their current UI salary and benefits package, either with the university or the supplier,” according to UI bid documents.

UI officials said “no final decision has been made” about the partnership and “there will be no disruption of service for students, retail partners, and departments during this time.”

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