TITLE 3: TAXATION
CHAPTER 1: TAX ADMINISTRATION
PART 5: RECORDS
3.1.5.1 ISSUING AGENCY: Taxation and Revenue Department,
Joseph M. Montoya Building, 1100 South St. Francis Drive, P.O. Box 630, Santa
Fe NM 87504-0630
[10/31/96; 3.1.5.1 NMAC - Rn, 3 NMAC 1.5.1, 12/29/00]
3.1.5.2 SCOPE: This part applies to all
taxpayers, their agents and representatives and all persons required to submit
a return or information to the taxation and revenue department under any tax,
tax act or other law administered and enforced pursuant to the Tax
Administration Act.
[10/31/96; 3.1.5.2 NMAC - Rn, 3 NMAC 1.5.2, 12/29/00]
3.1.5.3 STATUTORY AUTHORITY: Section 9-11-6.2 NMSA 1978.
[10/31/96; 3.1.5.3 NMAC - Rn, 3 NMAC 1.5.3, 12/29/00]
3.1.5.4 DURATION: Permanent.
[10/31/96; 3.1.5.4 NMAC - Rn, 3 NMAC 1.5.4, 12/29/00]
3.1.5.5 EFFECTIVE DATE: 10/31/96, unless a later date is
cited at the end of a section, in which case the later date is the effective
date.
[10/31/96; 3.1.5.5 NMAC - Rn & A, 3 NMAC 1.5.5, 12/29/00]
3.1.5.6 OBJECTIVE: The objective of this part is to
interpret, exemplify, implement and enforce the provisions of the Tax
Administration Act.
[10/31/96; 3.1.5.6 NMAC - Rn, 3 NMAC 1.5.6, 12/29/00]
3.1.5.7 DEFINITIONS: Reserved.
[10/31/96; 3.1.5.7 NMAC - Rn, 3 NMAC 1.5.7, 12/29/00]
3.1.5.8 SUFFICIENCY OF RECORDS:
A. Books of account, documents and other records shall be
kept and maintained by a taxpayer in a manner that will permit the accurate
computation of state taxes and provide information required by the statutes
under which the taxpayer is required to keep records. The Tax Administration
Act sets no time requirement for taxpayer retention of books of account or
other records but Section 7-1-18 NMSA 1978 sets the statute of limitations for
the assessing of tax asserted to be due. If state taxes cannot be accurately or
readily computed by the secretary or secretary's delegate from the records, the
records are not sufficient or adequate for the purpose of Section 7-1-10 NMSA
1978. The adequacy or inadequacy of taxpayer records is a matter of fact to be
determined by the secretary or secretary's delegate. Taxpayers have a duty to
provide the secretary or secretary's delegate, upon request, with books of
account and other records upon which to establish a basis for taxation.
B. Failure of a taxpayer to keep adequate books of account
or other records will cause the department to use alternative methods to
determine or estimate taxes due.
C. Alternative methods which may be used by the department
include, but are not limited to:
(1) bank deposit method;
(2) documents and records of persons other
than the taxpayer;
(3) federal returns and other government
reports;
(4) cost of sales markup -- weighted
percentage;
(5) net worth analysis;
(6) industry comparison; and
(7) provisional assessment of taxes based on
best available information and allowing for any increase which may have
occurred due to inflation, increased economic activity or other reasons.
D. Any one, or a combination, of the methods listed above or
other methods may be used for taxpayer records reconstruction or verification.
[7/19/67,
11/5/85, 8/15/90, 10/31/96; 3.1.5.8 NMAC - Rn &
A, 3 NMAC 1.5.8, 12/29/00]
3.1.5.9 RECORDS RECONSTRUCTION:
A. The secretary or secretary's delegate is authorized to
reconstruct records of a person to establish or determine the extent of tax
liability. The nonexistence or inadequacy of the records, for whatever reason,
is the pertinent fact permitting reconstruction.
B. Example: A
taxpayer's records for one audit year were destroyed accidentally. The
department auditor is permitted to use the bank deposit method to reconstruct
sales and income for that year.
[11/5/85,
8/15/90, 10/31/96; 3.1.5.9 NMAC - Rn, 3 NMAC 1.5.9, 12/29/00]
3.1.5.10 CONSISTENCY IN METHOD OF
ACCOUNTING: The
method of accounting used by taxpayers for state tax computation or for
accumulating information required by state tax statutes shall be consistent for
the same business. There is no requirement that the method of accounting for
one type of state tax be the same method of accounting for another type of state
tax. For example, a taxpayer may account for and report the taxpayer's gross
receipts tax on the cash basis, while accounting for and reporting the
taxpayer's income tax on an accrual basis. But a taxpayer may not account for
and report January's gross receipts on the cash accounting method, and then
account for and report February's gross receipts on the accrual accounting
method without first securing the consent of the secretary or secretary's
delegate.
[7/19/67,
11/5/85, 8/15/90, 10/31/96; 3.1.5.10 NMAC - Rn, 3
NMAC 1.5.10, 12/29/00]
3.1.5.11 ACCOUNTING FOR GOVERNMENTAL
GROSS RECEIPTS TAX:
Agencies, institutions, instrumentalities and political subdivisions of the
state of New Mexico which are subject to the governmental gross receipts tax
may treat different taxable activities as different lines of business.
Accordingly, one or more activities may be accounted for and reported on a cash
basis and one or more other activities may be accounted for and reported on an
accrual or modified accrual basis. Once the cash basis, accrual or modified
accrual basis has been selected as the method of accounting for and reporting
receipts from a particular activity, the activity must continue to be accounted
for and reported on the same basis in subsequent periods unless prior
permission is received from the department to change the method of accounting
or reporting.
[9/17/91,
10/31/96; 3.1.5.11 NMAC - Rn, 3 NMAC 1.5.11, 12/29/00]
3.1.5.12 RECORDS INCLUDE GOVERNMENTAL
RETURNS, DOCUMENTS, REPORTS
AND OTHER ATTACHMENTS: For the
purpose of inspection or audit of taxpayers' records and books of account by
the secretary or secretary's delegate, “records” shall include, but not be
restricted to, all copies of returns or reports filed by taxpayers with
agencies of the federal government, agencies of the state of New Mexico and
agencies of any sovereign state or Indian nation, tribe or pueblo located
nationally or worldwide. Records shall include all returns, documents and
reports, as well as any attachments thereto, to any political subdivision of
any state.
[11/5/85,
8/15/90, 10/31/96; 3.1.5.12 NMAC - Rn, 3 NMAC 1.5.12,
12/29/00]
3.1.5.13 ENFORCEMENT BY SUBPOENA: The secretary may serve or cause
to be served a subpoena duces tecum upon a taxpayer or other person having custody
of the taxpayer's records and books of account.
[11/5/85,
8/15/90, 10/31/96; 3.1.5.13 NMAC - Rn, 3 NMAC 1.5.13,
12/29/00]
3.1.5.14 REASONABLE HOURS: Reasonable hours for taxpayers
to make their records and books of account available for inspection means any
time during taxpayer's business hours but not less than between the hours of
8:00 a.m. and 5:00 p.m. of any day except Saturday, Sunday and state and
federal holidays.
[11/5/85,
8/15/90, 10/31/96; 3.1.5.14 NMAC - Rn, 3 NMAC 1.5.14,
12/29/00]
3.1.5.15 RECORDKEEPING AND RETENTION
REQUIREMENTS
A. RECORDKEEPING
REQUIREMENTS - DEFINITIONS: For purposes of Section 3.1.5.15 NMAC, these
terms shall be defined as follows:
(1) “Database management system” means a software
system that controls, relates, retrieves and provides accessibility to data
stored in a database.
(2) “Electronic data interchange” or “EDI
technology” 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 hardcopy 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.
B. RECORDKEEPING
REQUIREMENTS - GENERAL:
(1) A taxpayer shall maintain all records that
are necessary to a determination of the correct tax liability under the taxes
and tax acts the administration and enforcement of which is governed by the Tax
Administration Act. All required records must be made available on request by
the department or its authorized representatives as provided for in Section
7-1-11 NMSA 1978. Such records shall include, but not be necessarily limited to
the records required under Section 7-1-10 NMSA 1978.
(2) If a taxpayer retains records required to
be retained under Section 3.1.5.15 NMAC in both machine-sensible and hardcopy
formats, the taxpayer shall make the records available to the department in
machine-sensible format upon request of the department.
(3) Nothing in Section 3.1.5.15 NMAC shall be
construed to prohibit a taxpayer from demonstrating tax compliance with
traditional hardcopy 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 Section
3.1.5.15 NMAC. However, this paragraph shall not relieve the taxpayer of the
obligation to comply with Paragraph 3.1.5.15B(2) NMAC.
C. 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 department upon request. A taxpayer has discretion to
discard duplicated records and redundant information provided its
responsibilities under Section 3.1.5.15 NMAC 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 or store the information in machine-sensible records
in the ordinary course of business is not required to construct a machine-sensible
record for tax purposes.
(2) Electronic Data Interchange Requirements.
(a) 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
should 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
department to interpret the coded information.
(b) The taxpayer may capture the information
necessary to satisfy Paragraph 3.1.5.15C(1) NMAC 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
capture 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.
(3) Electronic Data Processing Systems
Requirements. The requirements for an electronic data processing accounting
system are 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 Section 3.1.5.15 NMAC.
(4) Business Process Information.
(a) 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.
(b) 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.
(c) The following specific documentation is
required for machine sensible records retained pursuant to Section 3.1.5.15
NMAC:
(i) record formats or layouts;
(ii) field definitions (including the meaning
of all codes used to represent information);
(iii) file descriptions (e.g.,
data set name); and
(iv) detailed charts of accounts and account
descriptions.
D. RECORDKEEPING
REQUIREMENTS - RECORDS MAINTENANCE REQUIREMENTS:
(1) 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 back-up 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.
(2) The taxpayer's computer hardware or
software shall accommodate the extraction and conversion of retained
machine-sensible records.
E. RECORDKEEPING
REQUIREMENTS - ACCESS TO MACHINE-SENSIBLE RECORDS:
(1) The manner in which the department is
provided access to machine-sensible records as required in Paragraph
3.1.5.15C(2) NMAC 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
department 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 department, including
copies of files, on a magnetic medium that is agreed to by the department;
(d) the taxpayer and the department may agree
on other means of providing access to the machine sensible records.
F. RECORDKEEPING REQUIREMENTS
- TAXPAYER RESPONSIBILITY AND DISCRETIONARY AUTHORITY:
(1) In conjunction with meeting the
requirements of Subsection 3.1.5.15C NMAC, 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 Section 3.1.5.15 NMAC 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 Subsection 3.1.5.15C NMAC.
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 Section 3.1.5.15
NMAC.
G. RECORDKEEPING
REQUIREMENTS - ALTERNATIVE STORAGE MEDIA:
(1) For purposes of storage and retention,
taxpayers may convert hardcopy documents received or produced in the normal
course of business and required to be retained under Section 3.1.5.15 NMAC to
microfilm, microfiche or other storage-only imaging systems and may discard the
original hardcopy documents, provided the conditions of Section 3.1.5.15 NMAC
are met. Documents which may be stored on these media include, but are not
limited to 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 shall meet the following requirements.
(a) Documentation establishing the procedures
for converting the hardcopy documents to microfilm, microfiche or other storage
only imaging system must be maintained and made available on request. Such
documentation shall, 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 Subsection 3.1.5.15I NMAC.
(c) Upon request by the department, 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 that 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.
H. RECORDKEEPING
REQUIREMENTS - EFFECT ON HARDCOPY RECORDKEEPING REQUIREMENTS:
(1) Except as otherwise provided in Subsection
3.1.5.15H NMAC, the provisions of Section 3.1.5.15 NMAC do not relieve
taxpayers of the responsibility to retain hardcopy records that are created or
received in the ordinary course of business as required by existing law and
regulations. Hardcopy records may be retained on a recordkeeping medium as
provided in Subsection 3.1.5.15G NMAC.
(2) If hardcopy records are not produced or
received in the ordinary course of transacting business (e.g., when the
taxpayer uses electronic data interchange technology), such hardcopy records
need not be created.
(3) Hardcopy 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 Section 3.1.5.15 NMAC. Such details include those listed in Subparagraph
3.1.5.15C(2)(a) NMAC.
(4) Computer printouts that are created for
validation, control, or other temporary purposes need not be retained.
(5) Nothing in Section 3.1.5.15 NMAC shall
prevent the department from requesting hardcopy printouts in lieu of retained
machine-sensible records at the time of examination.
I. RECORDKEEPING
REQUIREMENTS - RECORDS RETENTION PERIOD: All records required to be
retained under Section 3.1.5.15 NMAC shall be preserved pursuant to Section
7-1-10 NMSA 1978 unless the department has provided in writing that the records
are no longer required.
[4/30/97; 3.1.5.15 NMAC - Rn & A, 3 NMAC 1.5.15, 12/29/00]
3.1.5.16 TAXPAYER’S RECORDS IN POSSESSION OF
ANOTHER: Section 7-1-11 NMSA 1978 applies to records of a taxpayer in the
possession, whether permanent or temporary, of another person. Except for
possessors who are banks, savings and loan associations, credit unions or
similar financial institutions, the possessor is required to allow the
inspection or audit by the department of the records upon written request of
the department just as if the records were in the possession of the taxpayer.
Failure of the possessor to allow inspection or audit of the records by the
department upon a reasonable request of the department is a violation of
Section 7-1-74 NMSA 1978. Requests by the department to inspect or audit
records of a taxpayer in the possession of a bank, savings and loan
association, credit union or similar financial institution will be made in
accordance with Sections 14-7-1 and 14-7-2 NMSA 1978.
[3.1.5.16
NMAC - N, 12/29/00]
HISTORY
OF 3.1.5 NMAC:
Pre-NMAC
History: The material in this part was
derived from that previously filed with the State Records Center:
BOR
67-1, Tax Administration Act, 7/19/67, filed 7/28/67.
R.D./OGAD
Rule No. 1985, Regulations Pertaining to the Tax Administration Act, filed
11/5/85.
TRD Rule
TA-90, Regulations Pertaining to the Tax Administration Act, Sections 7-1-1 to
7-1-82 NMSA 1978, filed 8/15/90.
History
of Repealed Material: [RESERVED]
NMAC
History:
3 NMAC
1.5, Tax Administration - Records, filed 10/17/96.
3.1.5
NMAC, Tax Administration - Records, filed 12/15/2000.