The records required to be kept by this rule must be
preserved for a period of three years and will be open for examination by the
department during this period of time. The department, after an audit and
examination of the records, may authorize the disposal of the records required
to be kept upon written request by the taxpayer. For taxpayers using an
electronic data interchange process or technology also see 701-subrule
11.4(4).
(1)
Motor fuel and
special fuel supplier. Every supplier required to file a monthly
return under Iowa Code section
452A.8 is required to keep and
preserve the following records relating to the purchase or sale of fuel:
a. Copies of bills of lading or
manifests.
b. Copies of sales
invoices.
c. Sales
records.
d. Copies of filed returns
and supporting schedules.
e. Record
of payment.
f. Export
schedules.
(2)
Restrictive supplier. Every restrictive supplier required to
file a monthly return under Iowa Code section
452A.8 is required to keep and
preserve the following records relating to the purchase or sale of fuel:
a. Copies of bills of lading or
manifests.
b. Purchase
invoices.
c. Copies of sales
invoices.
d. Purchase
records.
e. Sales
records.
f. Copies of filed returns
and supporting schedules.
g. Record
of payment.
(3)
Importer. Every importer required to file a semimonthly return
under Iowa Code section
452A.8 is required to keep and
preserve the following records relating to the purchase or sale of fuel:
a. Copies of bills of lading or
manifests.
b. Purchase
invoices.
c. Copies of sales
invoices.
d. Purchase
records.
e. Sales
records.
f. Copies of filed returns
and supporting schedules.
g. Record
of payment.
(4)
Exporter. Every exporter is required to keep and preserve the
following records relating to the purchase of fuel for export:
a. Copies of bills of lading or
manifests.
b. Purchase invoices and
purchase records.
c. Copies of
reports, returns, and supporting schedules filed with the importing
state.
d. Record of
payment.
(5)
Compressed natural gas, liquefied natural gas, and liquefied petroleum
gas dealers and users. Every compressed natural gas, liquefied natural
gas, and liquefied petroleum gas dealer and user is required to keep and
preserve the following records:
a. Copies of
purchase invoice or bills of lading.
b. Copies of sales invoices and sales
records.
c. Record of
payment.
d. Exemption
certificates.
e. Copies of filed
returns and supporting schedules.
(6)
Terminal or nonterminal storage
facility operator. Every person required to report under Iowa Code
section
452A.15(2) or
2002 Iowa Acts, House File 2622, section 25, as an operator of a terminal or
nonterminal storage facility shall keep and preserve the following records:
a. Records to evidence the acquisition of
fuel.
b. Bills of lading or
manifests covering the withdrawal of fuel.
c. Copies of filed reports and supporting
schedules.
(7)
Distributor. Every distributor handling motor fuel or special
fuel is required to preserve and keep the following records:
a. Delivery tickets.
b. Sales invoices.
c. Bills of lading.
d. Record of payment.
(8)
Blender. Every blender
is required to keep and preserve the following records:
a. Purchase invoices for motor fuel, special
fuel, and alcohol.
b. Bills of
lading.
c. Copies of filed returns
and supporting schedules.
d. Record
of payment.
e. Copies of sales
invoices.
(9)
Dealer. Every dealer (retailer) is required to keep and
preserve the following records:
a. Purchase
invoices.
b. Purchase
records.
c. Delivery
tickets.
d. Sales
invoices.
e. Sales
records.
f. Record of
payment.
(10)
Microfilm and related record systems. Microfilm, microfiche,
COM (computer on machine), and other related reduction in storage systems will
be referred to as "microfilm" in this rule.
Microfilm reproductions of general books of account, such as
a cash book, journals, voucher registers, and ledgers, are not acceptable other
than those that have been approved by the Internal Revenue Service under
Revenue Procedure 76-43, Section 3.02. However, microfilm reproductions of
supporting records of detail, such as sales invoices and purchase invoices, may
be allowed providing there is no administrative rule or Iowa Code section
requiring the original and all of the following conditions are met and accepted
by the taxpayer:
a. Appropriate
facilities are provided to ensure the preservation and readability of the
films.
b. Microfilm rolls are
indexed, cross-referenced, labeled to show beginning and ending numbers or
beginning and ending alphabetical listing of documents included, and are
systematically filed.
c. The
taxpayer agrees to provide transcripts of any information contained on
microfilm which may be required for purposes of verification of tax
liability.
d. Proper facilities are
provided for the ready inspection and location of the particular records,
including modern projectors for viewing and for the copying of
records.
e. Any audit of "detail"
on microfilm may be subject to sample audit procedures, to be determined at the
discretion of the director or the director's designated
representative.
f. A posting
reference must be on each invoice.
g. Documents necessary to support claimed
exemptions from tax liability, such as bills of lading and purchase orders,
must be maintained in an order by which they readily can be related to the
transaction for which exemption is sought.
(11)
Automatic data processing
records. Automatic data processing (ADP) is defined in this rule as
including electronic data processing (EDP) and will be referred to as ADP.
a. An ADP tax accounting system must have
built into its program a method of producing visible and legible records which
will provide the necessary information for verification of the taxpayer's tax
liability.
b. ADP records must
provide an opportunity to trace any transaction back to the original source or
to a final total. If detailed printouts are not made of transactions at the
time they are processed, then the system must have the ability to reconstruct
these transactions.
c. A general
ledger with source references will be produced as hard copy to coincide with
financial reports of tax reporting periods. In cases where subsidiary ledgers
are used to support the general ledger accounts, the subsidiary ledgers should
also be produced periodically.
d.
Supporting documents and audit trail. The audit trail should be designed so
that the details underlying the summary accounting data may be identified and
made available to the director or the director's designated representative upon
request. The system should be designed so that the supporting documents, such
as sales invoices and purchase invoices, are readily available. (An audit trail
is defined as the condition of having sufficient documentary evidence to trace
an item from source, such as invoice or payment, to a financial statement or
tax return or report; or the reverse, that is, to have an auditable
system.)
e. Program documentation.
A description of the ADP portion of the accounting program should be available.
The statements and illustrations as to the scope of operations should be
sufficiently detailed to indicate:
(1) The
application being performed;
(2)
The procedure employed in each application (which, for example, might be
supported by flow charts, block diagrams or other satisfactory description of
the input or output procedures); and
(3) The controls used to ensure accurate and
reliable processing. Program and systems changes, together with their effective
dates, should be noted in order to preserve an accurate chronological
record.
f. Storage of ADP
output will be in appropriate facilities to ensure preservation and readability
of output.
(12)
Electronic data interchange or EDI technology. The purpose of
this subrule is to adopt the "Model Recordkeeping and Retention Regulation"
report as promulgated by the Federation of Tax Administrators' Steering
Committee Task Force on EDI Audit and Legal Issues for Tax Administration
(March 1996). This subrule defines the requirements imposed on taxpayers for
the maintenance and retention of books, records, and other sources of
information under Iowa Code sections
452A.10,
452A.12,
452A.55,
452A.60,
452A.62,
452A.69,
452A.76, and
452A.80. It is also the purpose
of this subrule to address these requirements where all or part of a taxpayer's
records are received, created, maintained, or generated through various
computer, electronic, and imaging processes and systems. A taxpayer must
maintain all records that are necessary for determination of the correct tax
liability as set forth in this subrule and the other subrules within rule
701-259.3 (452A). Upon request,
all required records must be made available to the department or its authorized
representatives as provided in Iowa Code sections
452A.10 and
452A.62. If a taxpayer retains
records required to be retained under this subrule in both machine-sensible and
hard-copy formats, the taxpayer must make the records available to the
department in machine-sensible format upon request of the department. Nothing
in this subrule will be construed to prohibit a taxpayer from demonstrating tax
compliance with traditional hard-copy documents or reproductions thereof, in
whole or in part, whether or not the taxpayer also has retained or has the
capability to retain records on electronic or other storage media in accordance
with this subrule. However, as previously stated, this will not relieve a
taxpayer of the obligation to comply with the requirement to make records
available to the department.
a.
Definitions. The following definitions are applicable to this
subrule:
"Database management system" means a
software system that controls, relates, retrieves, and provides accessibility
to data stored in a database.
"Electronic data interchange" or
"EDI technology" means the computer-to-computer exchange of
business transactions in a standardized, structured electronic format.
"Hard copy" means any documents, records,
reports, or other data printed on paper.
"Machine-sensible record" means a collection
of related information in an electronic format. Machine-sensible records do not
include hard-copy records that are created or recorded on paper or stored in or
by an imaging system such as microfilm, microfiche, or storage-only imaging
systems.
"Storage-only imaging system" means a system
of computer hardware and software that provides for the storage, retention, and
retrieval of documents originally created on paper. It does not include any
system, or part of a system, that manipulates or processes any information or
data contained on the document in any manner other than to reproduce the
document in hard copy or as an optical image.
"Taxpayer" as used in this subrule means any
person, business, corporation, fiduciary, or other entity that is required to
file a return or report with the department of revenue.
b.
Record-keeping requirements -
machine-sensible records. A taxpayer that maintains and retains books,
records, and other sources of information in the form of machine-sensible
records must comply with the following:
(1)
General requirements. A taxpayer must comply with the following general
requirements regarding the retention of machine-sensible records:
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 department upon request. A taxpayer has discretion to
discard duplicated records and redundant information provided its
responsibilities under this regulation 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. The term "standard record format" does not mean that every
taxpayer must keep records in an identical manner. Instead, it requires that if
a taxpayer utilizes a code system to identify elements of information in each
record when creating and maintaining records, the taxpayer is required to
maintain a record of the meaning of each code and any code changes so that the
department may effectively review the taxpayer's records.
3. Taxpayers are not required to construct
machine-sensible records other than those created in the ordinary course of
business. A taxpayer that does not create the electronic equivalent of a
traditional paper document in the ordinary course of business is not required
to construct a traditional paper document for tax purposes.
(2) Electronic data interchange
requirements. A taxpayer must comply with the following requirements for
records received through electronic data interchange:
1. Where a taxpayer uses an electronic data
interchange process 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, for motor fuel tax
purposes the retained records should contain the following minimal information:
bills of lading or manifests; invoices; sales and purchase records; returns,
reports, and supporting schedules; records of payments; export schedules;
exemption certificates; and delivery tickets. 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 the requirements set forth in the preceding paragraph at
any level within the accounting system and need not retain the original EDI
transaction records provided that 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 the 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 original EDI
transaction for tax purposes.
(3) Electronic data processing accounting
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 rule. In addition, pursuant
to Iowa Code sections
452A.10,
452A.12,
452A.55,
452A.60,
452A.62,
452A.69,
452A.76, and
452A.80, the department must
have access to the taxpayer's EDI processing, accounting, or other systems for
the purposes of verifying or evaluating the integrity and reliability of those
systems to provide accurate and complete records.
(4) Business process information. To verify
the accuracy of the records being retained, the taxpayer must comply with the
following:
1. Upon the request of the
department, the taxpayer shall provide a description of the business process
that created the retained records. The description must include the
relationship between the records and the tax documents prepared by the taxpayer
and include the measures employed to ensure the integrity of the
records.
2. The taxpayer must be
capable of demonstrating the following:
* The functions being performed as they relate to the flow of
data through the system;
* The internal controls used to ensure accurate and reliable
processing; and
* The internal controls used to prevent unauthorized addition
to, alteration of, or deletion of retained records.
3. The following specific documentation is
required for machine-sensible records retained pursuant to this rule:
* Record formats or layouts;
* Field definitions (including a record of any changes in the
system or codes and the meaning of all codes used to represent
information);
* File descriptions (e.g., data set name); and
* Detailed charts of accounts and account
descriptions.
c.
Record maintenance
requirements. The department recommends, but does not require, that
taxpayers refer to the National Archives and Record Administration's (NARA)
standards for guidance on the maintenance and storage of electronic records
such as the labeling of records, the location and security of the storage
environment, the creation of backup copies, and the use of periodic testing to
confirm the continued integrity of the records. (The NARA standards may be
found at 36 Code of Federal Regulations, Part 1234, July 1, 1995, Edition.) The
taxpayer's computer hardware and software must accommodate the extraction and
conversion of retained machine-sensible records.
d.
Access to machine-sensible
records. If a taxpayer retains records required to be retained under
this regulation in both machine-sensible and hard-copy formats, the taxpayer
must make the records available to the department in machine-sensible format
upon the request of the department.
(1) The
manner in which the department is provided access to machine-sensible records
may be satisfied through a variety of means that must take into account a
taxpayer's facts and circumstances through consultation with the
taxpayer.
(2) Access shall be
provided in one or more of the following manners:
1. The taxpayer may arrange to provide the
department with the hardware, software, and personnel resources to access the
machine-sensible records.
2. The
taxpayer may arrange for a third party to provide the hardware, software, and
personnel resources necessary to access the machine-sensible records.
3. The taxpayer may convert the
machine-sensible records to a standard record format specified by the
department, including copies of files, on magnetic medium that is agreed to by
the department.
4. The taxpayer and
the department may agree on other means of providing access to the
machine-sensible records.
e.
Taxpayer's responsibility and
discretionary authority. In conjunction with meeting the requirements
of paragraph "b" of this subrule, a taxpayer may create files
solely for the use of the department. For example, if a database management
system is used, it is consistent with this subrule for the taxpayer to create
and retain a file that contains the transaction-level detail from the database
management system and that meets the requirements of paragraph
"b" of this subrule. The taxpayer shall document the process
that created the separate file to show the relationship between that file and
the original records. A taxpayer may contract with a third party to provide
custodial or management services of the records. Such a contract will not
relieve the taxpayer of its responsibilities under this rule.
f.
Alternative storage
media. For purposes of storage and retention, taxpayers may convert
hard-copy documents received or produced in the normal course of business and
required to be retained under this rule to microfilm, microfiche, or other
storage-only imaging systems and may discard the original hard-copy documents
provided that the rules governing alternative storage media are met. For
details regarding alternative storage, see subrule 259.3(10), "Microfilm and
related record systems."
g.
Effect on hard-copy record-keeping requirements. Except as
otherwise provided, the provisions of this subrule do not relieve taxpayers of
the responsibility to retain hard-copy records that are created or received in
the ordinary course of business as required by existing law and rules.
Hard-copy records may be retained on alternative storage media as indicated in
paragraph
"f" above and subrule 259.3(10).
If hard-copy records are not produced or received in the
ordinary course of transacting business (e.g., when the taxpayer uses
electronic data interchange technology), hard-copy records need not be
created.
Hard-copy records generated at the time of the transaction
with the use of a credit or debit card must be retained unless all the details
necessary to determine correct tax liability relating to the transaction are
subsequently received and retained by the taxpayer in accordance with this
rule.
Computer printouts that are created for validation, control,
or other temporary purposes need not be retained.
Nothing in this rule shall prevent the department from
requesting hard-copy printouts in lieu of retained machine-sensible records at
the time of examination.
(13)
General requirements.
If a tax liability has been assessed and an appeal is pending to the
department, district court or an appellate court, books, papers, records,
memoranda, or documents specified in this rule that relate to the period
covered by the assessment must be preserved until the final disposition of the
appeal.
If the requirements of this rule are not met, the records
will be considered inadequate and rule
701-259.5 (452A), estimate
gallonage, applies.
This rule is intended to implement Iowa Code sections
452A.6 and
452A.15 as amended by 2002 Iowa
Acts, House File 2622, and sections
452A.8,
452A.9,
452A.10,
452A.17,
452A.59,
452A.60,
452A.62, and
452A.69.
