Model recordkeeping and retention regulation: a report of the Steering Committee Task Force on EDI Audit and Legal Issues for Tax Administration.

• Position: Electronic Data Interchange

Over the past 18 months the Task Force on Electronic Data Interchange Audit and Legal Issues for Tax Administration, consisting of representatives from Tax Executives Institute, the Federation of Tax Administrators, the Committee on State Taxation, the Institute of Property Taxation, and the Multistate Tax Commission, has been examining the impact of various electronic technologies on the tax administration process. The chair of the EDI Task Force is Stanley R. Arnold, Commissioner of the New Hampshire Department of Revenue Administration. The first work product of the Task Force, the Model Recordkeeping and Retention Regulation, together with the Steering Committee's Report and Explanation and Commentary, is reproduced below.

TEI representatives on the Steering Committee include Manuel Davila of AT&T Corporation, Mark V. Beshears of Sprint Corporation, and Jeffery P. Rasmussen of TEI's staff. TEI representatives on the Workgroup for Legal and Recordkeeping issues that generated and refined the Model Recordkeeping and Retention Regulation and related Commentary included Bill Zornes of Western Auto Supply Co., chair of TEI's Tax Information Systems Committee, and Barbara Timek of AT&T Corporation.

Foreword

Over the past 18 months, the Task Force on EDI Audit and Legal Issues for Tax Administration, consisting of representatives from the Committee on State Taxation, Federation of Tax Administrators, Institute of Property Taxation, Multistate Tax Commission, and Tax Executives Institute, has been examining the impact of various electronic commerce technologies on the tax administration process. This report presents the first work product of the Task Force, a model state administrative regulation to govern taxpayer retention of books and records, particularly electronically generated and retained books and records, for tax administration purposes.

The regulation, and the Task Force process as a whole, reflects a considerable amount of work by a large number of taxpayers and state administrators. It also reflects a substantial effort by parties on `both sides of the table' to understand the needs of their counterparts and to work together to fashion solutions that are satisfactory and acceptable to all. As such, the process has been a healthy one which will pay rewards in many other areas.

The Steering Committee is optimistic that states will understand the importance of facilitating an efficient and effective tax administration process and will use the model regulation as a starting point when defining the record retention and maintenance requirements imposed under state tax statutes. However, the model regulation, as presented in this report, is not binding on any one state or taxpayer organization.

The Steering Committee wishes to acknowledge the contributions of all individuals who devoted their time and effort in developing and refining the Model Recordkeeping and Retention Regulation and related materials.

Stanley R. Arnold, Steering Committee Chair

Commissioner, New Hampshire

Department of Revenue Administration

March 1996

Introduction

U.S. businesses are increasingly employing electronic data interchange (EDI)(1) technology in the conduct of commerce. The EDI Group, Ltd. estimates that in 1995, nearly 100,000 U.S. businesses utilized EDI technology. Growth in the EDI market is expected to average in excess of 15 percent per year to the year 2000.(2)

At its simplest level, EDI involves the exchange of information and documents necessary to a transaction between trading partners via computerized or electronic means rather than the exchange of paper documents. For example, an EDI transaction might involve ordering products through the electronic...