Current through Register Vol. 56, No. 6, March 18, 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.
