Recordkeeping requirements - Machine-sensible records

1. General requirements. a. Machine-sensible records used to establish tax compliance shall contain sufficient transaction-level detail information so that the details underlying the machine-sensible records can be identified and made available to the tax commissioner upon request. A taxpayer has discretion to discard duplicated records and redundant information provided its responsibilities under this regulation are met. b. At the time of an examination, the retained records must be capable of being retrieved and converted to a standard record format. c. Taxpayers are not required to construct machine-sensible records other than those created in the ordinary course of business. A taxpayer who does not create the electronic equivalent of a traditional paper document in the ordinary course of business is not required to construct such a record for tax purposes. 2. Electronic data interchange requirements. a. When a taxpayer uses electronic data interchange processes and technology, the level of record detail, in combination with other records related to the transactions, must be equivalent to that contained in an acceptable paper record. For example, the retained records should contain such information as vendor name, invoice date, product description, quantity purchased, price, amount of tax, indication of tax status, and shipping detail. Codes may be used to identify some or all of the data elements, provided that the taxpayer provides a method which allows the tax commissioner to interpret the coded information. b. The taxpayer may capture the information necessary to satisfy subdivision a at any level within the accounting system and need not retain the original EDI transaction records provided the audit trail, authenticity, and integrity of the retained records can be established. For example, a taxpayer using electronic data interchange technology receives electronic invoices from its suppliers. The taxpayer decides to retain the invoice data from completed and verified EDI transactions in its accounts payable system rather than to retain the EDI transactions themselves. Since neither the EDI transaction nor the accounts payable system captures information from the invoice pertaining to product description and vendor name (i.e., they contain only codes for that information), the taxpayer also retains other records, such as its vendor master file and product code description lists and makes them available to the tax commissioner. In this example, the taxpayer need not retain its EDI transaction for tax purposes. 3. Electronic data processing systems requirements. The requirements for an electronic data processing accounting system should be similar to that of a manual accounting system, in that an adequately designed accounting system should incorporate methods and records that will satisfy the requirements of this regulation. 4. Business process information. a. Upon the tax commissioner's request, the taxpayer shall provide a description of the business process that created the retained records. Such description shall include the relationship between the records and the tax documents prepared by the taxpayer and the measures employed to ensure the integrity of the records. b. The taxpayer shall be capable of demonstrating: (1) The functions being performed as they relate to the flow of data through the system; (2) The internal controls used to ensure accurate and reliable processing; and (3) The internal controls used to prevent unauthorized addition, alteration, or deletion of retained records. c. The following specific documentation is required for machine-sensible records retained pursuant to this regulation: (1) Record formats or layouts; (2) Field definitions, including the meaning of all codes used to represent information; (3) File descriptions (e.g., data set name); and (4) Detailed charts of accounts and account descriptions.