We offer reusable canvas book bags, which we check out with the books, do we count it?

Not everything that is tracked through the integrated library system's circulation module should be reported as circulation.  Remember that the reason you go through this exercise is to have fairly concrete numbers for advocacy and as this author often says "shameless money grubbing."  The essence of circulation is the library putting materials in the hands of patrons.  Is including book bags in your circulation total is something you'll proudly defend at a public meeting?  This author would blush.  It would be best to back that out.

In a related note, many libraries use the circulation module as a reserve system to control use of public access Internet terminals.  That circulation should also be backed out of total circulation.   The firmest basis for that decision would be the definition of circulation, which really counts items taken for use outside of the building.  A more self-serving reason is the following.  There are many factors which will influence circulation, even if everyone follows the same definition, so why add distortion to the data?   Think about what happens if City A, population 200,000 follows the definition and backs out computer use of 400+ terminals.   City B, population 100,000, leaves it in - and has 200+ public terminals in operation.  City B would appear to out-circulate City A while having a much smaller budget.  This would put downward pressure on City A's budget - and preempt City B from making a successful argument on improving their budget.