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Business Taxes Law Guide—Revision 2024
Special Taxes Administration – Miscellaneous
California Code of Regulations
Title 18. Public Revenues
Division 2. California Department of Tax and Fee Administration - Business Taxes (State Board of Equalization - Business Taxes, See Chapters 6 and 9.9)
Chapter 9.9. California Department of Tax and Fee Administration and State Board of Equalization - Special Taxes Administration - Miscellaneous
Regulation 4901
Regulation 4901. Records.
Reference: Sections 8301, 8302, 8303, 8304, 9253, 9254, 30453, 30454, 32551, 32453, 40172, 40173, 40174, 40175, 41056, 41073, 41129, 43502, 45852, 46602, 46603, 50153, 55302, 55363.5, 60604, 60605, and 60606, Revenue and Taxation Code.
(a) Definitions.
(1) "Applicable Tax Laws" means any of the following:
(A) Aircraft Jet Fuel Tax, Revenue and Taxation Code sections 7385–7398 and 7486–8406;
(B) Alcoholic Beverage Tax, Revenue and Taxation Code sections 32001–32557;
(C) Childhood Lead Poisoning Prevention Fee, Health and Safety Code section 105310; Revenue and Taxation Code sections 43001–43651;
(D) Cigarette and Tobacco Products Tax, Revenue and Taxation Code sections 30001–30481;
(E) Diesel Fuel Tax, Revenue and Taxation Code sections 60001–60709;
(F) Emergency Telephone Users Surcharge, Revenue and Taxation Code sections 41001–41176;
(G) Energy Resources Surcharge, Revenue and Taxation Code sections 40001–40216;
(H) Fee Collection Procedures Law, Revenue and Taxation Code sections 55001-55381 (see Reg. 3500);
(I) Hazardous Substances Tax, Health and Safety Code sections 25205.2, 25205.5, and 25205.6; Revenue and Taxation Code sections 43001–43651;
(J) Integrated Waste Management Fee, Public Resources Code sections 40000–48008; Revenue and Taxation Code sections 45001–45984;
(K) Motor Vehicle Fuel Tax, Revenue and Taxation Code sections 7301–8526;
(L) Occupational Lead Poisoning Prevention Fee, Health and Safety Code section 105190; Revenue and Taxation Code sections 43001–43651;
(M) Oil Spill Response, Prevention, and Administration Fees, Revenue and Taxation Code sections 46001–46751;
(N) Underground Storage Tank Maintenance Fee, Revenue and Taxation Code sections 50101–50162; and
(O) Use Fuel Tax, Revenue and Taxation Code sections 8601–9355;
(2) "Database Management System"–a software system that controls, relates, retrieves, and provides accessibility to data stored in a database.
(3) "Electronic cash register"–a device that keeps a register or supporting documents through the means of an electronic device or computer system designed to record transaction data for the purpose of computing, compiling, or processing retail sales transaction data. This can include integrated point of sale systems.
(4) "Electronic data interchange" or "EDI technology"–the computer to computer exchange of business transactions in a standardized structured electronic format.
(5) "Electronic record"–a collection of related information in an electronic, machine-sensible format. Electronic records do not include hardcopy records that are created or recorded on paper or stored in or by a storage-only imaging system such as microfilm, microfiche, PDF files, or other media used in electronic imaging. Electronic records include records recorded and maintained by electronic cash registers.
(6) "Hardcopy"–Any document, record, report or other data maintained in a paper format.
(7) "Taxpayer" includes "fee payer" and means any person liable for the payment of a tax or a fee specified under any of the applicable tax laws.
(8) "Tax" includes "fee" and means any amount of tax or fee specified under any of the applicable tax laws.
(b) General.
(1) A taxpayer shall maintain and make available for examination on request by the Department or its authorized representative, all records necessary to determine the correct tax liability under the applicable tax laws and all records necessary for the proper completion of the required tax return or report. Such records include but are not limited to:
(A) Books of account or other similar summary information ordinarily maintained by the taxpayer as required by law or practice or otherwise in the possession of the taxpayer or third party at the direction or request of the taxpayer.
(B) Bills, receipts, invoices, cash register tapes, or other documents of original entry supporting the entries in the books of account.
(C) Schedules or working papers used in connection with the preparation of tax returns and reports.
(2) Electronic records are considered records under Revenue and Taxation Code sections 8301–8306, 9253, 9254, 30453, 30454, 32551, 32453, 40172–40175, 41056, 41073, 41129.30, 43502, 45852, 46602, 46603, 50153, 55302, and 60604–60606.
(c) Electronic Records.
(1) General.
(A) Electronic records used to establish tax compliance shall contain sufficient source document (transaction-level) information so that the details underlying the electronic records can be identified and made available to the Department upon request. A taxpayer has discretion to discard duplicated records and redundant information provided the integrity of the audit trail is preserved and the 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 magnetic record format which the Department has the technological capability to use, such as Extended Binary Coded Decimal Interchange Code (EBCDIC) or American Standard Code for Information Interchange (ASCII) flat file.
(C) Taxpayers are not required to construct electronic 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) Where a taxpayer uses electronic data interchange (EDI) 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:
1. vendor name,
2. invoice date,
3. product description,
4. quantity purchased,
5. price,
6. amount of tax,
7. indication of tax status (e.g., exempt), and
8. shipping detail.
Codes may be used to identify some or all of the data elements, provided the taxpayer maintains a method which allows the Department to interpret the coded information.
(B) The taxpayer may capture the information necessary to satisfy subdivision (c)(2)(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 EDI 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 must also retain other records, such as its vendor master file and product code description lists, and make 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 (EDP) 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 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:
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 electronic 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.
(d) Electronic Records Maintenance Requirements.
(1) The taxpayer's computer hardware or software shall accommodate the extraction and conversion of retained electronic records to a standard magnetic record format as provided in subdivision (c)(1)(B).
(2) 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.
(e) Access to Electronic Records.
(1) The manner in which the Department is provided access to electronic records 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 electronic records.
(B) The taxpayer may arrange for a third party to provide the hardware, software, and personnel resources necessary to access the electronic records.
(C) The taxpayer may convert the electronic 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 electronic records.
(f) Taxpayer Responsibility and Discretionary Authority.
(1) In conjunction with meeting the requirements of subdivision (c), a taxpayer may create files solely for the use of the Department. 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 data base management system and that meets the requirements of subdivision (c). 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.
(g) Hardcopy Records.
(1) Except as specifically provided, taxpayers are not relieved 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 record keeping medium as provided in subdivision (h).
(2) If hardcopy transaction level documents 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 this regulation. Such details include those listed in subdivision (c)(2)(A).
(4) Computer printouts that are created for validation, control, or other temporary purposes need not be retained.
(h) 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 this regulation to storage-only imaging media such as microfilm, microfiche, PDF files, or other media used in electronic imaging and may discard the original hardcopy documents, provided the conditions of subdivision (h) 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) Storage-only imaging media such as microfilm, microfiche, PDF files, or other media used in electronic imaging systems shall meet the following requirements.
(A) Documentation establishing the procedures for converting the hardcopy documents to the 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 subdivision (i).
(C) Upon request by the Department, a taxpayer must provide facilities and equipment for reading, locating, and reproducing any documents maintained on storage-only imaging media
(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 on storage-only imaging media must be maintained and arranged in a manner that permits the location of any particular record.
(F) There is no substantial evidence that the storage-only imaging medium lacks authenticity or integrity.
(i) Record Retention—Time Period. All records required to be retained under this regulation must be preserved for a period of not less than four years unless the Department authorizes in writing their destruction within a lesser period.
For example, if a taxpayer has a point of sale system that overwrites data after a period of time less than four years, the taxpayer should transfer, maintain, and have available, all data that would have been overwritten or otherwise removed from the system for the required time periods indicated above.
(j) Record Retention Limitation Agreements.
(1) The Department has the authority to enter into or revoke a record retention limitation agreement with the taxpayer to modify or waive any of the specific requirements in this regulation. A taxpayer's request for an agreement must specify which records (if any) the taxpayer proposes not to retain and provide the reasons for not retaining such records, as well as, proposing any other terms of the requested agreement. The taxpayer shall remain subject to all requirements of this regulation that are not modified, waived, or superseded by a duly approved record retention limitation agreement.
(A) If a taxpayer seeks to limit its retention of electronic records, the taxpayer may request a record retention limitation agreement, which shall;
1. document understandings reached with the Department, which may include, but is not limited to, any one or more of the following issues:
a. the conversion of files created on an obsolete computer system;
b. restoration of lost or damaged files and the actions to be taken;
c. use of taxpayer computer resources, and
2. specifically identify which of the taxpayer's records the Department determines are not necessary for retention and which the taxpayer may discard, and
3. authorize variances, if any, from the normal provisions of this regulation.
(B) The Department shall consider a taxpayer's request for a record retention limitation agreement and notify the taxpayer of the actions to be taken.
(C) The Department's decision to enter or not to enter into a record retention limitation agreement shall not relieve the taxpayer of the responsibility to keep adequate and complete records supporting entries shown on any tax or information return.
(2) A taxpayer's record retention practices shall be subject to evaluation by the Department when a record retention limitation agreement exists. The evaluation may include a review of the taxpayer's relevant data processing and accounting systems with respect to EDP systems, including systems using EDI technology.
(A) The Department shall notify the taxpayer of the results of any evaluation, including acceptance or disapproval of any proposals made by the taxpayer (e.g., to discard certain records) or any changes considered necessary to bring the taxpayer's practices into compliance with this regulation.
(B) Since the evaluation of a taxpayer's record retention practices is not directly related to the determination of tax reporting accuracy for a particular period or return, an evaluation made under this regulation is not an "examination of records" under the applicable tax law.
(C) Unless otherwise specified, an agreement shall not apply to accounting and tax systems added subsequent to the completion of the record evaluation. All electronic records produced by a subsequently added accounting or tax system shall be retained by the taxpayer in accordance with this regulation until a new evaluation is conducted by the Department.
(D) Unless otherwise specified, an agreement made under this subdivision shall not apply to any person, company, corporation, or organization that, subsequent to the taxpayer's signing of a record retention limitation agreement, acquires or is acquired by the taxpayer. All electronic records produced by the acquired or the acquiring person, company, corporation, or organization, shall be retained pursuant to this regulation.
(3) In addition to the record retention evaluation under subdivision (j)(2), the Department may conduct tests to establish the authenticity, readability, completeness, and integrity of the electronic records retained under a record retention limitation agreement. The state shall notify the taxpayer of the results of such tests. These tests may include the testing of EDI and other procedures and a review of the internal controls and security procedures associated with the creation and storage of the records.
(k) Failure to Maintain Records. Failure to maintain and keep complete and accurate records will be considered evidence of negligence or intent to evade the tax and may result in penalties or other appropriate administrative action.
History—Adopted February 5, 2003, effective May 28, 2003.
Adopted January 27, 2010, effective March 30, 2010. Replaced "Ballast Water Management Fee" with "Marine Invasive Species Fee" in subparagraph (C) of, added a semicolon at the end of subparagraph (Q) of, added subparagraph "(R) Covered Electronic Waste Recycling Fee, Health and Safety Code Sections 25214.9-25214.10.2; Public Resources Code Sections 42460-42486; Revenue and Taxation Code Sections 55001-55381;" to, and added subparagraph "(S) Water Rights Fee, Water Code Sections 1525-1552, 13050, 13160.1; Revenue and Taxation Code Sections 55001-55381" to, paragraph (1) of subdivision (a).
Amendments adopted March 29, 2016, effective October 1, 2016. The amendments replaced "Sections" with "sections" throughout subdivision (a)(1) and in subdivision (b)(2); deleted the comma and inserted "and" after "7398" in subdivision (a)(1)(A); deleted old subdivision (a)(1)(C), (D), (M), (R), and (S), which respectively referred to the "Marine Invasive Species Fee, Public Resources Code Sections 71200-71271; Revenue and Taxation Code Sections 44000-44008, 55001-55381;" "California Tire Fee, Public Resources Code Sections 42860-42895; Revenue and Taxation Code Sections 55001-55381;" "Natural Gas Surcharge, Public Utilities Code Sections 890-900; Revenue and Taxation Code Sections 55001-55381;" "Covered Electronic Waste Recycling Fee, Health and Safety Code Sections 25214.9-25214.10.2; Public Resources Code Sections 42460-42486; Revenue and Taxation Code Sections 55001-55381;" and "Water Rights Fee, Water Code Sections 1525-1552, 13050, 13160.1; Revenue and Taxation Code Sections 55001-55381"; added new subdivision (a)(1)(H) regarding the "Fee Collection Procedures Law"; renumbered subdivision (a)(1)(E) through (I) and (J) through (Q), as subdivision (a)(1)(C) through (G) and (I) through (O), respectively; replaced "Section" with "section" in renumbered subdivision (a)(1)(C) and (L); added "and" to the end of renumbered subdivision (a)(1)(N); replaced the semicolon with a period at the end of renumbered subdivision (a)(1)(O); added new subdivision (a)(3) to define "electronic cash register"; moved the definition of "hardcopy" from subdivision (a)(4) to subdivision (a)(6) and renumbered subdivision (a)(3), (6), and (7) as subdivision (a)(4), (7), and (8), respectively; replaced "Machine-sensible" with "Electronic" at the beginnings subdivisions (a)(5), (b)(2) and (c)(1)(A) and the second sentence in subdivision (a)(5); inserted ", machine-sensible" before "format" in the first sentence in subdivision (a)(5); added a comma after "microfilm" and deleted "or" from before "microfiche" in the second sentence in subdivision (a)(5); added the text after "microfiche" in subdivision (a)(5); inserted "and" before "60604" in and deleted ", Revenue and Taxation Code" from the end of subdivision (b)(2); deleted an extra space after "c" in subdivision "(c)"; replaced "Machine-Sensible" with "Electronic" in subdivisions (c), (d), and (e); replaced "machine-sensible" with "electronic" in subdivisions (c)(1)(A), (1)(C), and (4)(C), (d)(1), (e)(1) and (2)(A)-(D), (j)(1)(A), (2)(C) and (D), and (3); replaced "board" with "Board" in subdivisions (c)(1)(B), (2)(A) and (B), (d)(2), (e)(1), (e)(2)(A), (C), and (D), (f)(1), (h)(2)(C), (j)(1), (1)(A)1 and 2, (1)(B) and (C), (j)(2), (2)(A) and (C), and (j)(3); added ":" after "as" in subdivision (c)(2)(A); numbered the examples provided in subdivision (c)(2)(A); added ", PDF files," after "microfiche" in subdivision (h)(1) and (2); added a new second paragraph to subdivision (i); deleted ".30" from the reference to section "41129.30" in the reference note; and added a reference to Revenue and Taxation Code section 55363.5 to the reference note.
Amended and effective March 15, 2023. Changes without regulatory effect to delete the references to Health and Safety Code sections 25174.1 and 25205.7 from subdivision (a)(1)(I), replace "Board" with "Department" in subdivisions (b)(1), (c)(1)(A) and (B), (2)(A) and (B), and (4)(A), (d)(2), (e)(1), (2)(A), (C), and (D), (f)(1), (h)(2)(C), (j)(1), (1)(A)1 and 2, (B) and (C), (2), (2)(A) and (C), and (3), replace "State Board of Equalization" with "Department" in subdivision (i), and add references to Government Code sections 15570.22, 15570.24, and 15570.40 to the authority note; filed March 15, 2023, pursuant to section 100, title 1, California Code of Regulations (Register 2023, No.12-Z ).