From: TomCrouser@aol.com
Date: Sun, 29 Sep 1996 22:33:52 -0400
Subject: Sales Taxes On In-House-Printing, More
Content-Length: 19469
X-UIDL: 844093821.003

Crouser Report OnLine Copyright 1996 Thomas P. Crouser, September 29, 1996 -
Material may not be reproduced in whole or in part without prior written
consent of the copyright holder.
***** ***** *****
If you are located within a 6 hour drive of Jacksonville, Florida and aren t
doing as well as you should, then message me with your name, address and
telephone. I am tentatively planning a special group project this winter for
six selected companies. See the end of this message for more details.
***** ***** *****
Sales Taxes On In-House-Printing, More
Transmitted from Orlando, Florida

Index: Sales TAX On In-House Printing: Joe Polanco, Printing & Imaging
Association of Texas comments on Charging for Preflight TIME$; Averil Strauss
of Legend Communications, Inc., makers of PostScript and Imposition Software,
responds to OLD Software File Woes; A Mississippi PrinterNeeds A PRESS and
Other Stuff At The Same Time Workers Need Raises (Justifying Equipment
Discussion);  Hotline Cy Gives Us The Straight Skinny on CARRIER Air
Conditioning; and an ADVERTISING Recommendation for you.
*****
Sales TAX On In-House Printing
A reader in Iowa asks what they can do about the direct material costs
associated with donated work. Earlier, Mike Stevens of Ink, Inc. asks a
similar question. He says, 

If a printer spends $500 per month on paper for
his direct mail, is the paper cost advertising or a cost of direct materials?
He noted that he gets asked this so often, he thinks some guidelines should
be established.  Well, I dug back into the Crouser Report Archives and found
this following article which was published in November 1988 which handles
both questions at once.

November 1, 1988

Dear Friends. . .

What can you do with the costs of your own printing so your direct material
cost percentages aren t messed up on your income statement? This question was
asked of us by a client concerned about his heavy in-house direct mailings
driving up his cost of sales. What to do?

Well, this immediately brought up another, more pertinent and related
problem: sales taxes. Why? Because in all states I am familiar with, and
that s quite a few, you are required to charge yourself sales tax on the
items consumed within your business. Huh? I said you have to write up
invoices and charge yourself sales tax. And when you do this, a simple
accounting entry will move the costs to the proper accounts within your
income statements and clear up our client s concern while, at the same time,
providing the state with their sales tax.

Warning: What follows is an accounting explanation of this transaction. If
you are not particularly keen on accounting, then talk this over with your
accountant. The transactions are rather routine.

Here is how it works. Simply process the direct mail printing the way you
would for any other customer, only your shop is the customer. Bill the job as
you normally would bill a charge sale. So, you then have an accounts
receivable for your own company, say $200 with $12 of sales tax. This will be
reflected in a sales transaction of a debit to accounts receivable of $212
and a credit to printing sales of $200 and a credit to the sales tax account
of $12.

Accounts Receivable  $212
Printing Sales                       $200
Sales Tax Collected               $ 12
  (To record sale)

Then, at the end of the month, credit this invoice from your accounts
receivable for the amount of the invoice (including sales tax, in this case
$212) and debit your advertising expense account (again, $212). This
transaction has no effect on the original sales transaction of a credit to
sales of $200 and a credit to sales tax of $12.

Advertising Expense	$212
Accounts Receivable                $212
  (To record expense and remove invoice from accounts receivable)

No effect? Well, the $12 of sales tax remains in your sales tax account and
the $200 remains in your printing sales account and is unchanged by this
general ledger entry. When you actually forward the sales tax collected to
the state, you debit the sales tax account ($12 plus all other sales tax
collected) and credit cash.

Sales Tax Collected	 $12
Cash                                           $12
      (To Pay Sales Tax)

If you have office expense (such as envelopes and invoices), do the same
thing only have the accountant debit the office expense account instead of
advertising expense. Same can be said with bartered sales which require you
to pay the sales tax on the value received in most states.

The only cash this entire transaction costs you is the amount of the sales
tax. The other part of the transaction is a general ledger entry which more
properly matches the sales (including the things you print for yourself) with
the cost of sales. Since our sale of $200 will now be properly reflected in
our gross sales, the percentage of our direct materials used for our
advertising job will not adversely effect our cumulative percentages shown on
the monthly income statement.

I point out again, most all states require this type of transaction so you
will pay sales tax on consumable items. In fact, most all sales tax auditors
look specifically for these transactions during their audits. Some
unscrupulous printers have been known to only record some of their
transactions and thus avoid paying sales tax on all transactions. This is, of
course, not legal and is not recommended.
*****
Since publishing this article in 1988, a few folks have contacted me noting
that their state requires payment of sales tax on only the value of the
direct materials used. If that is true, the accounting entries remain the
same, only the dollar amounts change. However, please note that every state
with which I am familiar really do look for these sales tax omissions during
audits which you WILL receive at some point in your business life.

Now, as to the charity printing, there is a caveat. We might be donating jobs
to charitable institutions which, in most states, aren t charged sales tax.
However, the other parts of the transactions stand.

IMPORTANT PART: Now, that was the technical answer. The non-technical answer
is most printers really don t do this (except for recording the sales tax
obligations, of course). And, in my opinion, if your charity printing or
advertising printing is enough to materially impact your cost of direct
materials, then you need to seriously review the amount of advertising or
charity printing you are doing. 
******
Subj:	Pricing Preflight TIME$
From:	piatexas.joe@NT1.azone.net (Joe Polanco)
To:	      TomCrouser@aol.com

Hi Tom!! Here s some thoughts from the commercial printing world (regarding
whether or not to charge for pre-flight time).  Charge for it!!  

More and more commercial printers, in Texas and other places, are charging
for preflight time.  They make it part of their regular cost quotation, just
as you would add ink charges to a job, they add preflight time.  Normal time
allowance is 1 - 1.5 hours.  Granted, the files that the commercial printer
is dealing with is much more complex than what s found in a job shop/quick
print environment, but let s face it, it s a necessary cost of production so
you re going to either have to spell it out as a cost item, or somehow absorb
it in your hourly rates. Good question.  I hope this gives food for thought.

Joe Polanco, Printing & Imaging Association of Texas (used to be Printing
Industries Association of Texas)
*****
Earlier we received a letter from 

New in Jersey

 about data files becoming
obsolete due to software upgrades. Averil Strauss of Legend Communications com
ments.
*****
Subj:	Re: Jobs Created In OLD Software and More
From:	averil@legendcomm.com (Averil Strauss)
To: 	TomCrouser@aol.com

My question is, 

Why is (New In Jersey) not requesting PostScript files from
the customer?

 Of course, his customers may have difficulty creating them;
ours did. Now we have detailed, illustrated instructions for most common PC
software applications included as an appendix in the manual for our
imposition software and the problem has mostly disappeared. If someone does
call, the call is shorter because we can refer the person to the correct page
as well as talking them through it and the second call is unlikely. FYI, for
all service bureau customers, we tell them that they are welcome to copy AND
distribute those pages freely to all their customers, cutting down on their
support time.

We have found this problem in both QuarkXPress and Pagemaker. . . It s a
problem. I have found in both cases that simply changing the file type and
creator. . . allows the new software to read the old file - at least most of
the time.

Yes, we include support for Mac files, also old applications, even back to
things like Ventura 3.0 under GEM.

I do keep old versions around, but is it reasonable to keep PageMaker 1,
3, 4, 5 and 6 in my system, along with Ventura (which we no longer use but
have old files for) and Photoshop and CorelDraw 1 & 3? There is a limit to
how many programs my system will hold.

Again, why not request PostScript?

Averil Strauss, Legend Communications, Inc.
Makers of PostScript and Imposition Software
http://www.legendcomm.com
***** ***** ***** *****
Major Changes to The 1997 Crouser Guide: 3% Increase In Your Overhead Costs;
More Competitive Carbonless and Coated Stock Prices; New Matching Letterhead
Envelope Section; Increased Drill, Fold, Number and Score Prices; Color
Connectivity and Color Copy Prices; High Speed Copy Price Grid; More
Competitive Carbonless Set Values and more. . .

To Reserve Your Copy of The Crouser Guide s 1997 Edition, send $203 ($195
plus $8 shipping) to Crouser & Associates, 235 Dutch Road, Charleston, WV
25302. Add $30 for Next Day Air delivery. Or telephone (304) 342-5100 or fax
(304) 342-5187 and use your MasterCard, Visa or American Express. We also
will ship C.O.D. Shipments will begin in December 1996.
***** ***** *****
Subj:	Need A PRESS and Other Things
From:	Mississippi Buyer
To:	      TomCrouser@aol.com

Tom: As usual . . .We re looking at a 2-color Ryobi 3302.  For around $40K,
it s a nice press.  But the work we d have to do in order for such a piece of
equipment to pay for itself (and to make us a profit) would also require a
platesetter ($30K).  And, of course, I have some folks who have earned and
deserve a raise in pay.

If I buy the Imagesetter/platesetter. I don t see how I can also afford the
press (and the raises).  If I buy the press, but not the Imagesetter, then I
feel like I d just be peeing in my jeans, so to speak.  (Crude metaphor, but
descriptive, n est-ce pas?)  Same thing if I buy the Imagesetter but not the
press.  (At this point my jeans are thoroughly wet.)  If I do neither, then
I m not moving ahead.

Bearing in mind that I m most certainly NOT an accountant-type, my financial
doodlings have brought me to the conclusion that I d have to do (very
roughly) another $400K per year to pay for all the above stuff.  Since we re
only doing about $520K now, wouldn t that seem to be a rather large bite to
have to swallow?  Plus, where th  heck (and to whom) are we s posed to sell
the required work?

Hmmm. . . .Never mind.  I think I ve just answered my own question. As
always, my best to you and your gender-opposite. Mississippi Buyer

P.S.:  I still tell the story of your son 

condensing

 the Ten Commandments.
 Ya gotta love it!   :>)
*****
Hey, Mississippi. You write: Never mind.  I think I ve just answered my
own question.  Yea. Sounded like you did. However, since you brought up the
question, here s the response. I would start with budgets. The operating
budget is where you would handle the pay raises, etc.

Here s a rough outline of the process. Sales (use current sales not projected
increases) - Direct Materials (use current percentages) - Wages (include the
raises, taxes and benefits here) - Overhead = Income before Owner s
Compensation - the amount you plan to take out for yourself = net income.
Then, add back depreciation and amortization which was deducted in overhead,
above, and then deduct the amount of payments (not operating leases) that you
pay each month (a payment would be for a note on the balance sheet) =
estimate of cash spun off or cash build-up (or decrease). (Note to purists, I
said estimate.)

The operating budget would then spin off (increase) cash (if not, stop and
fix it). Okay, now you have the amount of cash you are increasing. Now
prioritize you capital commitments.

First capital commitment is working capital. I highly recommend a 2:1 ratio.
That s followed by funds for stuff such as retirement fund for you; education
for kids (if that is a factor); increased living expenses (pay raise for
you); and all equipment you might want to buy during the next YEAR (do
capital budgeting only once or twice per year - not everytime a salesman
walks in the door).

Now, prioritize your wants and needs. Your question about press and
Imagesetter would be put into play with all other equipment 

investments

 you
can make as well as the other items such as retirement fund, etc. There are
several techniques to decide among equipment alternatives, however a simple
payback is usually adequate for companies our size.

Simply put, payback is to divide the total investment by the amount of cash
generated on a yearly basis to determine the number of years until the money
is paid back.

For instance, say equipment plus training, initial spoilage of training
supplies, installation, rigging, electrical work, etc. amounts to $50,000.
Then, on the revenue side, look for places where costs go away or sales will
increase. If you have been buying out $100,000 worth of work you could do on
this press, then you could begin with the $100,000, deduct $35,000 of direct
materials which would be used, $30,000 for a press operator and then see your
contribution from the purchase would be about $35,000 per year. $50,000
investment divided by $35,000 contribution would result in a payback of 1.4
years.

Now, although it appears you are finished, you are not. You must also now
analyze any other equipment investment available to you at this time.
Generally, the logical person would go with the fastest payback, highest
probability of occurring and the lowest outlay of total funds which generally
translates to the lowest risk or surest investment. Then you do it again six
to twelve months from now. Lot less sexy than going to the trade show and
buying it cause you want it, but it fulfills the role of the entrepreneur -
taking responsible risks.

Now, for a bonus thought for you. You said:

If I buy the Imagesetter/platesetter. I don t see how I can also afford the
press (and the raises).  If I buy the press, but not the Imagesetter, then I
feel like I d just be peeing in my jeans, so to speak. . . . Same thing if I
buy the Imagesetter but not the press.  . .  If I do neither, then I m not
moving ahead.

Whether one 

moves ahead

 or not rarely has anything to do with buying toys.
It has everything to do with whether you are building cash or not building
cash. That s the measure. Use it. You ll be glad you did. Thanks for the
message. Happy Trails. Tom
*****
P.S. For those of your interested in 

I still tell the story of your son


condensing

 the Ten Commandments.  Ya gotta love it!

 Edward, our young
genius, who just turned 21, condensed the ten commandments to 

Don t Do Dumb
Stuff.


*****
Subj:	CARRIER Air Conditioning
From:	Hotline Cy
To: 	TomCrouser

While this has nothing to do with the question (of correct humidity in the
press room), an interesting but little known fact is that in 1902 a New York
City printer hired a young engineer to come up with a method of dehumidifying
his pressroom. That young engineer, Willis Carrier, solved the problem and
the by-product of his efforts was what we know today as 

Air-Conditioning.


*****
Okay, so I thought it was Walter Carrier in Philadelphia. Thanks for the
straight skinny, Cy. By the way, I messaged Hotline Cy from our group meeting
last week to seek a source for a buy-out. He happened to be on-line and got
multiple sources back to me in a few hours. Impressive. Very impressive.
*****
ADVERTISING Recommendation
Another reader wrote this week: 

Should we do nothing but direct mail and
direct sales calls? Or is a little newspaper O.K.? I ve decided to stop all
trades with radio.



Well, the top fifteen ways to generate sales in small press shops are as
follows: one, direct mail; two, sales calls; fifteen, yellow pages. There is
nothing between number two and fifteen and everything else comes after that.
If you are going to trade radio, know what you are doing. Never do run of
station. Only morning drive time at the highest rates however major markets
today are so segmented it s hard to get any kind of penetration. Most station
packages are designed to get your average cost per spot down by running many
of them at midnight. Some positives can be said for cable TV in some markets
and some markets newspaper. But, some printers who spend a great amount of
time and money on becoming the 

Lee Iacocca of the printing industry

 are
just fooling themselves.
*****
End Note

Well, the blonde lady and I just finished meeting with another performance
group this week in Orlando, Florida. And, as I mentioned last week,
performance in these groups is the key word. In this group, two companies
were honored for their increases in sales (one 32% from $260,000 to $350,000
and one 43% from $276,000 to $400,000). And one of the two increased their
strength and current ratios to 2:1 from 0.8:1 during the last twelve months.
Interestingly, income went up greatly. Another of the companies was and
continues to perform well with some 35+% net owner s compensation on
$650,000+ sales and a really, really strong current ratio.  Their current
major concern is transitioning the business to the next generation. And we
have four others who are still in the implementing stages. What s special
about this group is that it began only 12 short months ago. Adopted during
the retreat was the refrain, 

One, Two, Three, Fix It!!!

 

Happy Trails. . . .Tom and Old Grandma
*****
If you are located within a 6 hour drive of Jacksonville, Florida and aren t
doing as well as you should, then message me with your name, address and
telephone. I am tentatively planning a special group project this winter for
six selected 

emerging

 companies in addition to our normal work load.
Companies do not have to be 

successful,

 be making money or, for that
matter, have a lot of money. An alternative fee structure is available. The
companies should, however, have $250,000 or so in sales, be in good markets,
have the ability to print and be willing to embrace changes once they are
fully explained.

Message me with your name, address and telephone. We are tentatively planning
a special project this winter for companies interested in a quick turnaround.
I ll give you a call and we can discuss it.
***** *****
End of Message. To unsubscribe to this service, send a message to
TomCrouser@aol.com and include the word 

UNSUBSCRIBE

 in the body copy of the
message.

BACK ISSUES May Be Found at the National Association of Quick Printer s
America On Line Site (keyword: NAQP, publications, Crouser Report) or on the
internet at the PrintUSA web site (http://printusa.com/articles/crouser.htm). 
Hey, do we get around or what?