# Title 81 — Tax Commissioner

## Article 81-01.1 — Practice and Procedure

## Chapter 81-01.1-04 — Model Recordkeeping and Retention Regulation

### § 81-01.1-04-01. Purpose.

The purpose of this regulation is to define the requirements imposed on taxpayers for the
maintenance and retention of books, records, and other sources of information. It is also the purpose of
the regulation to address these requirements where all or a part of the taxpayer's records are received,
created, maintained, or generated through various computer, electronic, and imaging processes and
systems.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-02. Definitions.

For purposes of this chapter, these terms shall be defined as follows:
1. "Data base management system" means a software system that controls, relates, retrieves,
and provides accessibility to data stored in a data base.
2. "Electronic data interchange" or "EDI" means the computer-to-computer exchange of business
transactions in a standardized structured electronic format.
3. "Hardcopy" means any documents, records, reports, or other data printed on paper.
4. "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.
5. "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 hardcopy or as an optical image.
6. "Taxpayer" as used in this chapter means an individual, partnership, firm, corporation, joint
venture, association, estate, fiduciary, trust receiver, or any other group or combination acting
as a unit and the plural as well as the singular number who is or may be required to file a tax
return under North Dakota Century Code title 57 or who has or may have information relating
to any matter which the tax commissioner deems relevant to a determination of tax liability
under North Dakota Century Code title 57.

History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-03. Recordkeeping requirements - General.

1. A taxpayer shall maintain all records that are necessary to a determination of the correct tax
liability under North Dakota Century Code title 57. All required records must be made available
on request by the tax commissioner or its authorized representative. Such records shall
include any original and nonidentical copy of any communication or other transmission of
information that has been reduced by any means into any tangible form or medium or is
electronically stored information, including written, electronic, magnetic, or photographic form,
of any kind or description and including all records, reports, papers, accounting schedules,
books, letters, notes, memoranda, e-mail, and other correspondence, reports and recordings
of telephone and other conversations, tape recordings, contracts, evaluations, ledgers,
journals, books or records of accounts, summaries of accounts, desk calendars, minutes,
drawings, photographs, inspection reports, test reports, diaries, notebooks, sketches, graphs,
charts, and press releases, all whether in the taxpayer's possession or under the control of
any other individual or entity with knowledge of the information requested.
2. If a taxpayer retains records required to be retained under this regulation in both
machine-sensible and hard-copy formats, the taxpayer shall make the records available to the
tax commissioner in machine-sensible format upon the tax commissioner's request.
3. Nothing in this regulation shall 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 such taxpayer also has retained or has the capability to retain records on
electronic or other storage media in accordance with this regulation. However, this subsection
shall not relieve the taxpayer of the obligation to comply with subsection 2.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-04. 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.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02

### § 81-01.1-04-05. Records maintenance requirements.

1. The tax commissioner recommends but does not require that taxpayers refer to the national
archives and record administration's standards [36 CFR, part 1234, July 1, 1995, edition], 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.
2. The taxpayer's computer hardware or software shall accommodate the extraction and
conversion of retained machine-sensible records.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-06. Access to machine-sensible records.

1. The manner in which the tax commissioner is provided access to machine-sensible records as
required in subsection 2 of section 81-01.1-04-03 may be satisfied through a variety of means
that shall take into account a taxpayer's facts and circumstances through consultation with the
taxpayer.
2. Such access will be provided in one or more of the following manners:
a. The taxpayer may arrange to provide the tax commissioner with the hardware, software,
and personnel resources to access the machine-sensible records.
b. The taxpayer may arrange for a third party to provide the hardware, software, and
personnel resources necessary to access the machine-sensible records.
c. The taxpayer may convert the machine-sensible records to a standard record format
specified by the tax commissioner, including copies of files, on a magnetic medium that is
agreed to by the tax commissioner.
d. The taxpayer and the tax commissioner may agree on other means of providing access
to the machine-sensible records.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-07. Taxpayer responsibility and discretionary authority.

1. In conjunction with meeting the requirements of section 81-01.1-04-04, a taxpayer may create
files solely for the use of the tax commissioner. For example, if a data base management
system is used, it is consistent with this regulation for the taxpayer to create and retain a file
that contains the transaction-level detail from the date base management system and that
meets the requirements of section 81-01.1-04-04. The taxpayer should document the process
that created the separate file to show the relationship between that file and the original
records.
2. A taxpayer may contract with a third party to provide custodial or management services of the
records. Such a contract shall not relieve the taxpayer of its responsibilities under this
regulation.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02

Law Implemented: NDCC 57-01-02
### § 81-01.1-04-08. Alternative storage media.

1. 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 regulation
to microfilm, microfiche, or other storage-only imaging systems and may discard the original
hard-copy documents, provided the conditions of this section are met. Documents that may be
stored on these media include general books of account, journals, voucher registers, general
and subsidiary ledgers, and supporting records of details, such as sales invoices, purchase
invoices, exemption certificates, and credit memoranda.
2. Microfilm, microfiche, and other storage-only imaging systems must meet the following
requirements:
a. Documentation establishing the procedures for converting the hard-copy documents to
microfilm, microfiche, or other storage-only imaging system must be maintained and
made available on request. Such documentation must, at a minimum, contain a sufficient
description to allow an original document to be followed through the conversion system
as well as internal procedures established for inspection and quality assurance.
b. Procedures must be established for the effective identification, processing, storage, and
preservation of the stored documents and for making them available for the period they
are required to be retained under section 81-01.1-04-10.
c. Upon request by the tax commissioner, a taxpayer must provide facilities and equipment
for reading, locating, and reproducing any documents maintained on microfilm,
microfiche, or other storage-only imaging system.
d. When displayed on such equipment or reproduced on paper, the documents must exhibit
a high degree of legibility and readability. For this purpose, legibility is defined as the
quality of a letter or numeral which enables the observer to identify it positively and
quickly to the exclusion of all other letters or numerals. Readability is defined as the
quality of a group of letters or numerals being recognizable as words or complete
numbers.
e. All data stored on microfilm, microfiche, or other storage-only imaging systems must be
maintained and arranged in a manner that permits the location of any particular record.
f. There is no substantial evidence that the microfilm, microfiche, or other storage-only
imaging system lacks authenticity or integrity.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-09. Effect on hardcopy recordkeeping requirements.

1. Except as otherwise provided in this section, the provisions of this regulation 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 regulations. Hard-copy records
may be retained on a recordkeeping medium as provided in section 81-01.1-04-08.
2. 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), such
hard-copy records need not be created.

3. Hard-copy records generated at the time of a transaction using 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
regulation. Such details include those listed in section 81-01.1-04-04.
4. Computer printouts that are created for validation, control, or other temporary purposes need
not be retained.
5. Nothing in this section shall prevent the tax commissioner from requesting hard-copy printouts
in lieu of retained machine-sensible records at the time of examination.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
### § 81-01.1-04-10. Records retention - Time period.

Nothing contained in this chapter modifies any previous policy adopted by the tax commissioner
relating to the period of time records must be retained by the taxpayer, unless the tax commissioner
had provided in writing that the records are no longer required. All records required to be retained under
this chapter shall be retained according to the record retention schedule required for each tax type.
History: Effective June 1, 2002.
General Authority: NDCC 28-32-02
Law Implemented: NDCC 57-01-02
