Current through Register Vol. 56, No. 18, September 16, 2024
(a) General requirements
pertaining to machine-sensible records are as follows:
1. Machine-sensible records used to establish tax
compliance must contain sufficient transaction-level detail information so that the
details underlying the machine-sensible records can be identified and made available
to the Director upon request. A taxpayer has discretion to discard duplicate records
and redundant information provided its responsibilities under this section are
met.
2. At the time of an examination,
the retained records must be capable of being retrieved and converted to a standard
record format.
3. 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.
(b) Electronic data interchange requirements are
as follows:
1. Where 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 must
contain such information as vendor name, invoice date, product description, quantity
purchased, price, amount of tax, indication of tax status, shipping detail, etc.
Codes may be used to identify some or all of the data elements, provided that the
taxpayer provides a method which allows the Director to interpret the coded
information.
2. The taxpayer may capture
the information necessary to satisfy (b)1 above 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.
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 (that is, they contain only codes
for that information), the taxpayer shall also retain other records, such as its
vendor master file and product code description lists and makes them available to
the Director. In this example, the taxpayer need not retain its EDI transaction for
tax purposes.
(c)
Electronic data processing accounting systems requirements are as follows:
1. The requirements for an electronic data
processing accounting system must be similar to that of a manual accounting system,
in that an adequately designed accounting system incorporates methods and records
that will satisfy the requirements of this subchapter.
(d) Business process information requirements are
as follows:
1. Upon the request of the Director,
the taxpayer shall provide a description of the business process that created the
retained electronic records. Such description must include the relationship between
the electronic records and the tax documents prepared by the taxpayer and the
measures employed to ensure the integrity of the records.
2. The taxpayer shall be capable of demonstrating:
i. The functions being performed as they relate to
the flow of data through the system;
ii.
The internal controls used to ensure accurate and reliable processing; and
iii. The internal controls used to prevent
unauthorized addition, alteration, or deletion of retained records.
3. The following specific documentation
is required for machine-sensible records retained pursuant to this subchapter:
i. Record formats or layouts;
ii. Field definitions (including the meaning of
all codes used to represent information);
iii. File descriptions (for example, data set
name); and
iv. Detailed charts of
accounts and account descriptions.
