§ 26-04 Recordkeeping Requirements – Machine-Sensible Records.
(a) General.
(1) 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 Department upon request. A taxpayer has discretion to discard duplicated records and redundant information provided its responsibilities under these rules 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 as specified by the Department.
(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.
(4) Any system for creating, maintaining and retrieving machine-sensible records must be able to accept date information input, provide date output, and store and perform calculations on dates before, on and after January 1, 2000 correctly and without ambiguity.
(b) Electronic Data Interchange Requirements.
(1) Where a taxpayer uses electronic data interchange processes and technology, the level of record detail, in combination with other records related to the transaction, must be equivalent to that contained in an acceptable paper record. The retained records should contain such information as vendor name, invoice date, product description, quantity purchased, price, amount of tax and indication of tax status (where applicable), 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 Department to interpret the coded information.
(2) The taxpayer may capture the information necessary to satisfy paragraph (1) of this subdivision 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 (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 Department. In this example, the taxpayer need not retain its EDI transaction for tax purposes.
(c) 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 these rules. An electronic data processing accounting system must be able to accept date information input, provide date output, and store and perform calculations on dates before, on and after January 1, 2000, correctly and without ambiguity.
(d) Business Process Information.
(1) Upon the request of the Department, 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.
(2) The taxpayer must 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 for all retained files must also be kept:
(i) record formats (including the meaning of all "codes" used to represent information);
(ii) flowcharts for a system and a program;
(iii) label descriptions;
(iv) source program listings of programs that created the retained files;
(v) detailed charts of accounts (for specific periods);
(vi) evidence that periodic checks that are prescribed in 19 RCNY § 26-03(h) were performed; and
(vii) evidence that the retained records reconcile to the books and the tax report or return. This reconciliation must establish the relationship between the total of the amounts in the retained records by account to the account totals in the books and to the tax report or return.
(4) Any change to a data processing system that affects the accounting system and/or subsystems, together with their effective dates, must be documented in order to preserve an accurate chronological record. This record should include any changes to software or systems and any changes to the formats of files.
(5) Every taxpayer must be able to process the retained records at the time of a Department examination. Processing must include the ability to print a hard copy of any record. When the data processing system that created the records is being replaced by a system with which the records would be incompatible, the taxpayer must convert pre-existing records to a format that is compatible with the new system.
(6) At the time of an examination, every taxpayer must provide the Department with computer resources (e.g., terminal access, computer time and personnel) that are necessary for the processing of the retained records.
(7) Every taxpayer that utilizes a Database Management System must create a sequential file(s) that contains all the detail necessary to identify the underlying source documents. In addition to the documentation described in paragraphs (2), (3) and (4) of this subdivision the following documentation must be retained:
(i) data base description including vendor, name and version;
(ii) record layouts of each segment with respect to the fields in the segment;
(iii) systems control language; and
(iv) programs associated with the DMS including a description of what each program does.
(8) The manner in which the Department is provided access to machine-sensible records as required in 19 RCNY § 26-03(b) may be satisfied through a variety of means that must take into account a taxpayer's facts and circumstances through consultation with the taxpayer.
(9) Such access must be provided in one or more of the following manners unless the taxpayer and the Department agree on another means of providing access to the machine-sensible records:
(i) The taxpayer may arrange to provide the Department with the hardware, software and personnel resources to access the machine-sensible records.
(ii) The taxpayer may arrange for a third party to provide the hardware, software and personnel resources necessary to access the machine-sensible records.
(iii) The taxpayer may convert the machine-sensible records to a standard record format specified by the Department, including copies of files, on a magnetic medium that is agreed to by the Department.
