What's new
What's new

Itemized Billing to Customer

ewlsey

Diamond
Joined
Jul 14, 2009
Location
Peoria, IL
I'm not very good or organized with my billing practices. Let's get that out of the way first.

To date, my work has mostly been making parts to print, or making parts to fit some existing need. So, I buy a hunk of metal and cut it or weld it or whatever until it's deliverable to the customer.

The bill more or less says:

Item --- Price --- Total
2) Widget --- $100 --- $200


Now, I'm doing a lot more repair type work. Generally, I have the customer buy all of the parts. My bill looks like this:

Item --- Price --- Total
8) Labor --- $8.25 --- $66

But, I'm unsure what to do when I buy the parts and the have to bill for a repair and for parts. Do I need to itemize all of the parts on the bill?

For example, last week I rebuilt a switch mode power supply. I bought a few diodes and about a dozen different values of capacitors. Total parts cost was maybe $20 with shipping. Do I list out every last cap or can I just say "parts" and give a total?

Sorry for the rookie question.
 
I would normally just say "parts" and give the price. But I would keep my own record of what the parts were. If it's not a bunch of extra work I would list the parts on the invoice without pricing.

Reason being, I wouldn't want confusion in the future if something else fails, and the customer claims warranty on something I didn't replace.
 
In your case I'd bill for labor + parts, and maybe have a 2nd line that stated parts were qty x caps, qty Y resistors and leave it at that.

If I supply material and labor then I ussualy have a line item that has the itemized cost for the part including material and labor.

The line (or line underneath) will explicitely state material supplied by XXXX Engineering (me)

I have a material factor of 1.15-1.30 I add to material, depending on how much effort is req'd to get the material, whether the customer is annoying/not paying quickly etc etc.

The reason I include labor and material in one cost is if the customer decides to supply the material, then I can subtract the actual cost of the material of the total cost, and not the cost+mat'l factor.

the danger is if the material is a seperate line item, and they want to supply the material, then they'll want to subtract mat'l+mat'l factor from your labour cost line item. That happened to me once, and when I told the customer the material line item included a mat'l factor, they objected to having to pay any mat'l factor at all.
 
I'm not very good or organized with my billing practices. Let's get that out of the way first.

To date, my work has mostly been making parts to print, or making parts to fit some existing need. So, I buy a hunk of metal and cut it or weld it or whatever until it's deliverable to the customer.

The bill more or less says:

Item --- Price --- Total
2) Widget --- $100 --- $200


Now, I'm doing a lot more repair type work. Generally, I have the customer buy all of the parts. My bill looks like this:

Item --- Price --- Total
8) Labor --- $8.25 --- $66

But, I'm unsure what to do when I buy the parts and the have to bill for a repair and for parts. Do I need to itemize all of the parts on the bill?

For example, last week I rebuilt a switch mode power supply. I bought a few diodes and about a dozen different values of capacitors. Total parts cost was maybe $20 with shipping. Do I list out every last cap or can I just say "parts" and give a total?

Sorry for the rookie question.

Why not just stick with:

Item --- Price --- Total

unless the customer states what more he wants?

If it's several different items to the same customer then probably a price for each item type. That'd give:

Items --- Prices --- Total
 
I've seen it done two ways. Just a single parts line, and breaking it out into general items. For your example, they'd write "small electronics components: $20" as a line item.
 
Correct. Here in my state, labor is not taxed, but parts are. However, most of my customers are going to be exempt due to a manufacturing loop hole that we enjoy...
 
In some states parts are taxable, labor and/or shipping is not. If you put it as one line item, it's raises the tax bill.

Some types of manufacturing Labor are subject to sales tax in California.

If I sell to the end user I charge tax on the labor.
If I sell to somebody who then sells to the end user I don't charge sales tax on the labor.

In ewlsey's case here in CA, assuming the customer was the end user, tax on the labor would apply.(although that wasn't the original question)
 
If this is a business you pay income tax on

There is a reason to split out parts and labour


Some portion of the parts cost is your cost.

If you just have one line-
If the IRS ever comes for a visit, they will add up all your bills, they will assume the totals are all labour = income.

That will artificially inflate your income and you will have to pay more tax than you should have.
 
If you just have one line-
If the IRS ever comes for a visit, they will add up all your bills, they will assume the totals are all labour = income.

That will artificially inflate your income and you will have to pay more tax than you should have.

Not if you keep good records, if the IRS does audit then you pull out recipts for parts etc, so you can show (hopefully) for a particular line item what was labor, and what was parts.
 
If this is a business you pay income tax on

There is a reason to split out parts and labour


Some portion of the parts cost is your cost.

If you just have one line-
If the IRS ever comes for a visit, they will add up all your bills, they will assume the totals are all labour = income.

That will artificially inflate your income and you will have to pay more tax than you should have.

The total amount you charge the customer is your income. Whether or not you itemize the bill, does not affect (at least in the US) whether or not a given expense (e.g. the parts you purchased for the repair) is deductible.
 
OK. That's not the case here. That sounds like a helluva lot red tape.

My understanding is that it ends up being less work that dealing with VAT, especially if you mostly do B2B sales. Like VAT, most things are taxed at one rate, but there are some things at a different or zero rate. As a machine shop, most of your customers are tax exempt, as they are buying your product for either resale or to use in a production environment, so you don't need to collect tax. As most of my purchases are for production purposes, I don't have to pay tax on them either. Sales tax takes me about 15 minutes a year, and I hate my accounting software so I do it by hand.
 
Why not just ask the customer, otherwise just give them a piece price. Materials will be separated out later in your accounting with the receipts for the actual material costs.
 
It depends if you gave a price at the start or time and materials. Some places don’t like “ fixed a widget “- $6.543.00, some are fine with it. If in doubt seek customer guidance
 
A repair invoice would be accompanied by a service report that details what I actually did. The Invoice is just the money side of it.
 
I agree that you need to keep track of the actual part used in the repair. Whether that is in your inventory tracking or your invoices. You need to be able to have that information available, in case there is an issue later or if you have another customer with a similar need in the future.
 
The customer may be concerned with parts markup, it is customary for shops to markup purchased things to cover overhead by a percentage (mileage really varies). Feds allow deductions for the parts cost only (your supposed to have the overhead figured out).

State income tax is the minefield for the buyer and the seller because many states want to tax anything value added & even manufacturers aren’t exempt for all things in a production environment.

Easiest way I can explain value added is getting your lawnmower fixed up. The shop sharpens your blade, cleans the carb, gas tank, does some tin bending maybe & CLEANS your spark plug. The former is all labor & is sales tax exempt.

If the shop puts a new plug in the mower it’s value added (in IL and prolly other states). Then the labor to change the plug, plus the price of the plug AND the time overhead of buying, stocking and paying for the plug are all subject to sales tax.

Then there’s the production run in IL… If CAT sends you 50 shafts to straighten, somebody is coughing up the sales tax on your labor (passes through to end customer ending up in the poor sap paying tax on tax). If the vendor or CAT doesn’t catch this before the sales tax auditor does then one or the other has to cough it up. If it’s too late to pass it on tough titties.

BTW, many shops really underestimate the little things that go into purchase, handle & ship things and focus on the skill things. It’s a good way to get yourself upside down (real money pit if you track it).

Good luck,
Matt
 
The customer may be concerned with parts markup, it is customary for shops to markup purchased things to cover overhead by a percentage (mileage really varies). Feds allow deductions for the parts cost only (your supposed to have the overhead figured out).

State income tax is the minefield for the buyer and the seller because many states want to tax anything value added & even manufacturers aren’t exempt for all things in a production environment.

Easiest way I can explain value added is getting your lawnmower fixed up. The shop sharpens your blade, cleans the carb, gas tank, does some tin bending maybe & CLEANS your spark plug. The former is all labor & is sales tax exempt.

If the shop puts a new plug in the mower it’s value added (in IL and prolly other states). Then the labor to change the plug, plus the price of the plug AND the time overhead of buying, stocking and paying for the plug are all subject to sales tax.

Then there’s the production run in IL… If CAT sends you 50 shafts to straighten, somebody is coughing up the sales tax on your labor (passes through to end customer ending up in the poor sap paying tax on tax). If the vendor or CAT doesn’t catch this before the sales tax auditor does then one or the other has to cough it up. If it’s too late to pass it on tough titties.

BTW, many shops really underestimate the little things that go into purchase, handle & ship things and focus on the skill things. It’s a good way to get yourself upside down (real money pit if you track it).

Good luck,
Matt

Long time reader, first time poster.

I noticed the words income tax and sales tax used in this discussion. Two different things.
In California, sales tax is charged on some retail sales. If you fabricate something and sell it, you must charge sales tax since it is a new product. The only variance is if the customer has provided a resale number provided by the BOE (Board of Equalization) and the item(s) are sold to another party.

However, if the item is being repaired, there is no sales tax on the labor. The parts will have sales tax added but the labor won't. Using part of the quote above, tax is being applied to the spark plug, but not to the labor to change it out.

Also, if you modify the item, some labor is taxable. If you modify the item, and change its intended use, then the labor is taxable. If you modify something and the use is unchanged, then the labor is not taxable. Straightening the shafts above is nontaxable since it is a repair and you haven't changed the primary use.
 
Seems like Illinois has figured out a way to be more abusive than Cali??? Hope nobody out there is looking (pollys) because they do want to call out the labor on that particular part of your work value added & won’t settle for 30 seconds labor value for tax purpose (negotiable, how much you want us looking in your files???).

Straightening is non sales taxable here also, until you reach 50pcs on a PO or invoice. Then they say production run and want the dough from somebody...

Good luck,
Matt
 








 
Back
Top