The Invoice

[Matt Townley]

Do you charge tax for services rendered? I’m not sure where you are, but most places you do not have to charge tax for intellectual and professional services where there is no sale or exchange of tangible goods. Of course, I am not an accountant, so consult your financial professional!

In most cases, I try to advocate selling a product and not time. We do a lot of specialized transfers and conversions, which often don’t take a lot of time on our part, but we are still providing a valuable service and using very expensive equipment and acquired skills that took us a lot of trial end error to master. The time we spend on something should not necessarily dictate the value of the end product.

Of course, we do have some clients where we bill them just like your example for time spent at our hourly rate. That’s just my thoughts. I’m sure there are people with much better arguments for one way or another than me!

[John Nelson]

Thanks. I’m not crazy about the idea of listing time on the invoice but, in a small town, there has to be something on there to justify the price. Maybe I could put: “Worked real hard for a long time!”…

We’re from the Government. We’re here to help.

[Bruce Bennett]

[John Nelson] “Is this the right or wrong way to go in letting the client know how much it costs to to their particular project?”

In my opinion, it is the wrong way. An invoice should list actual numbers that represent hours, units, etc. incurred – nothing obscure like “2+ hours.” To me, it looks kind of “hokey pokey” and is not a very professional practice. If I ever got such an invoice from one of my vendors, it would be the last invoice I’d get from that vendor. Also, I’d get rid of “Investment: $500.00” and just call it what it is: “Sub Total.”

If I need to discount a project in order to bring it on/under budget, I list all actual items and time spent and then create a discounted item line with “Discount courtesy of Bennett Marketing & Media Production” (i.e., -1 x 500.00 = -$500.00). This is also a very common practice from my vendors. I do group/add up some expenses, like travel expenses, as a single line item (i.e., taxis, parking, airfare, lodging, etc.).

I suggest investing a few bucks into purchasing invoicing software such as QuickBooks. It will prove very beneficial if you ever hire an accountant to do your quarterly and year end reports, or ever get audited (a very common occurrence in our world of professional production).

As far as differentiating a “good” from “service” in determining if it gets taxed or not, I tax everything. The government can be very obscure in what it defines as a “good or service.” For instance, for “transcription services,” one would think that it should not get taxed for the final client invoice. But, the government may see it as a service that renders a physical deliverable good of a Microsoft Word file that has a tangible value (and thus should be taxed). I have friends that have been burned on this and it has cost them thousands of dollars in back taxes.

Just my opinions…

Bruce

Bruce Bennett
Bennett Marketing & Media Production, LLC

[Chris Blair]

We use Quickbooks but we DO list services based on the amount of time spent, typically in hours, but some services ae based on half-day or full-day rates.

We also prepare bids and estimates this way rather than just throwing out a flat amount. We’ve actually had dozens of clients tell us they prefer our method, usually after having been burned by other production companies that just bill a set price that ends up higher than their estimate…explaining to the client that this or that took longer, or this service wasn’t specified etc.

Clients tell us, especially in this economy, that they want to see exactly what they’re getting for their money and they don’t want surprises.

It also allows a client to see how time is distributed on a project and we’ve had many corporate marketing people tell us it helps them plan future projects…since they’re often handling all sorts of projects from print to point of purchase to video etc., they’re often not as saavy about budgeting for video…so they pull out their previous estimates and invoices and can see exactly where they spent time and money before.

Chris Blair
Magnetic Image, Inc.
Evansville, IN
http://www.videomi.com

[John Nelson]

Great advice Bruce. I have Quickbooks and will look into learning it in depth. I usually print out the same thing as a ‘Proposal’ prior to the job and, once signed, use that as the final bill. Since the clients here in smallville aren’t much for spending money, I frequently have to ‘lower my britches’ a bit to get the job. So I like your idea of a ‘discount’ on projects.

Thanks again,
John

We’re from the Government. We’re here to help.

[John Nelson]

Thanks Chris. Not to be too nosey, but does anyone care to share a ‘sample’ estimate/invoice so I may join the ranks of the 21st century?

Thanks again,
John

We’re from the Government. We’re here to help.

[Richard Herd]

Here’s a good site to check out:

https://aicp.com/doingbusiness/index.html

[Todd Terry]

[Bruce Bennett] “I tax everything.”

Not that Bruce is wrong, but we go 180° here… we tax nothing.

When I started this company I was told by a colleague/competitor company that we should tax, that’s what they did, and was right.

My theory was that yes, we were selling the service, not the goods (and our CPA agreed). Even our dubs have a tiny fine print line on the label that says “This videotape remains property of Fantastic Plastic and must be returned upon request,” just to make it clear we were not selling the videotape (and invoices list it as dubbing service rather than just “dubs”). Of course, we never intend to get them back… although a television station in another state does ship us back a big box full of Betas about once or twice a year. I keep meaning to tell them they don’t have to… their dumpster is a lot closer and cheaper than our dumpster.

My colleague told me that we would eventually get bit doing it that that way, and that we should at minimum be taxing dubs.

However, a couple of years ago we went through city, county, and state audits. We did nothing to red flag them, just the luck of the draw. We did get hit for not paying enough sales tax on equipment and such that we bought out of state… but all three auditors agreed that we were providing a non-taxable service and did not have to be charging any sales tax to any of our clients.

Your milegage may vary depending on your local municipal and state laws… probably best to ask a CPA in your own area.

T2

__________________________________
Todd Terry
Creative Director
Fantastic Plastic Entertainment, Inc.
fantasticplastic.com

[John Nelson]

Good to know on the tax issue. Unfortunately, our boy Bill Richardson, would rather fight than switch. Hey, he has to pay off those campaign debts somehow, you know…

We’re from the Government. We’re here to help.

[Steve Wargo]

[Todd Terry] “Not that Bruce is wrong, but we go 180° here… we tax nothing.”

In Arizona, we have to tax “tangible” goods but there are two items in the state tax code that conflict with each other as to what “tangible” really is. And now, with internet delivery, the issue is clouded. “Tangible” means that you can hold it in your hand. After all, you can hold a computer in your hand.

Several years ago, we got a letter from a city telling us that we had to tax everything we did. Several of my associates started doing that. I instructed him to quote the law that he is using to make such a declaration. We never heard another word.

We invoice in sections because we invoice in sections on larger jobs. Normally, we invoice for all pre-production and production first and then for post. That way, we are not forced into taxing the entire job. There are some who claim that if we put everything on a single invloice and then hand the client a master tape, we need to tax the entire amount. Others disagree. However, they all agree to invoicing in sections.

Most often, if you talk to someone from your state revenue department, they will tell you to tax everything because they are too busy to really research it. Ask a CPA that is familiar with your industry.

Our advice is to thotoughly research your responsibility and obligation and do it right from the beginning. You do not want to find out five years from now that you under taxed anything or it will cost you big time.

There are on’line classes for Quickbooks for a $65 charge. Have a CPS set you up now. It will be the smartest money you ever spend. However, be advised that the IRS has special rules for the production industry.

Steve Wargo
Tempe, Arizona
It’s a dry heat!

Sony HDCAM F-900 & HDW-2000/1 deck
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