DEPARTMENT OF TREASURY  
BUREAU OF REVENUE  
RECORDKEEPING AND RETENTION RULES  
(By authority conferred upon the department by section 3(b) of 1941 PA 122, MCL  
205.3(b))  
PART 1. GENERAL PROVISIONS  
R 205.4101 Scope  
Rule 1. These rules set forth the requirements imposed on taxpayers for the  
maintenance and retention of books, records, and other sources of information under  
the revenue act, MCL 205.1 et seq, and each of the tax statutes that are administered  
by the department in accordance with the revenue act. These rules also address the  
requirements where all or part of the taxpayer's records are received, created, maintained  
or generated through various computer, electronic, and imaging processes and systems.  
History: 1998 - 2000 AACS.  
R 205.4102 Definitions  
Rule 2. As used in these rules:  
(a) "Commissioner" means the commissioner of the bureau of revenue of the  
Michigan department of treasury.  
(b) "Database management system" means a software system that controls,  
relates, retrieves, and provides access to data stored in a database.  
(c) "Department" means the Michigan department of treasury.  
(d) "Electronic data interchange" or "EDI" or "EDI technology" means the  
computer-to-computer exchange of business transactions in a standardized structured  
electronic format.  
(e) "Hardcopy" means any documents, records, reports or other data printed on  
paper.  
(f) "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.  
(g) "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.  
(h) "Taxpayer" means a person subject to a tax administered in accordance with the  
revenue act.  
(i) "The revenue act" means 1941 PA 122, MCL 205.1 et seq.  
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History: 1998 - 2000 AACS.  
R 205.4103 General recordkeeping requirements  
Rule 3. (1) Pursuant to section 28(3) of the revenue act, MCL 205.28(3), a taxpayer  
shall maintain all records that are necessary for the proper determination of the  
taxpayer's tax liability. In addition, a taxpayer shall maintain the records required by  
each of the tax statutes that are administered by the department in accordance with  
the revenue act. All required records shall be made available to the commissioner at  
the request of the commissioner or the commissioner's authorized representatives as  
provided for in section 3(a) of the revenue act, MCL 205.3(a).  
(2) If a taxpayer retains in both machine-sensible and hardcopy formats records  
required to be retained under the revenue act, the tax statutes administered through  
the revenue act, and these rules, the taxpayer shall make the records available to the  
department in machine-sensible format upon  
request of the commissioner or the commissioner's authorized representatives as  
provided for in MCL 205.3(a).  
(3) Nothing in these rules shall be construed to prohibit  
demonstrating tax compliance with traditional hardcopy  
a
taxpayer from  
documents or  
reproductions of those documents, 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 these rules. However, this subrule does not relieve the  
taxpayer of the obligation to comply with subrule (2) of this rule.  
History: 1998 - 2000 AACS.  
PART 2. RECORDKEEPING REQUIREMENTS FOR MACHINE-SENSIBLE  
RECORDS  
R 205.4104 General requirements  
Rule 4. (1) 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 may discard duplicated records and redundant information if the  
taxpayer's responsibilities under these rules are otherwise met.  
(2) At the time of an examination, the retained records shall be capable of being  
retrieved and converted to a standard record format.  
(3) 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 record in the ordinary course of business is  
not required to construct such a record for tax purposes. However, in the absence of  
the electronic equivalent, the taxpayer shall maintain traditional paper records.  
History: 1998 - 2000 AACS.  
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R 205.4105 Electronic data interchange requirements  
Rule 5. (1) Where a taxpayer uses electronic data interchange processes and  
technology, the level of record detail, in combination with other records related to the  
transactions, shall be equivalent to the level of record detail contained in an  
acceptable hardcopy record. For example, the retained records should contain  
information including, but not limited to, the vendor name, invoice date, product  
description, quantity purchased, price, amount of tax, indication of tax status, and  
shipping detail. The taxpayer may use codes to identify some or all of the data  
elements, provided that the taxpayer provides a method that allows the department to  
interpret the coded information.  
(2) The taxpayer may capture the information necessary to satisfy subrule  
(1) of this rule 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 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.  
History: 1998 - 2000 AACS.  
R 205.4106 Electronic data processing systems requirements  
Rule 6. The requirements for an electronic data processing accounting system  
shall be similar to the requirements of a manual accounting system. An adequately  
designed electronic data processing accounting system shall incorporate methods and  
include records sufficient to satisfy the  
requirements of these rules.  
History: 1998 - 2000 AACS.  
R 205.4107 Business process information  
Rule 7. (1) At the department's request, a taxpayer shall provide a description  
of the business process that created the retained records. The 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.  
(2) The description of the business process shall include all of the following  
information:  
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(a) The functions being performed as they relate to the flow of data through the  
system.  
(b) The internal controls used to ensure accurate and reliable processing.  
(c) The internal controls used to prevent unauthorized addition, alteration, or deletion  
of retained records.  
(3) The following specific documentation is required for machine-sensible records  
retained under these rules:  
(a) Record formats or layouts.  
(b) Field definitions (including the meaning of all codes used to represent  
information).  
(c) File descriptions (e.g., data set name).  
(d) Detailed charts of accounts and account descriptions.  
History: 1998 - 2000 AACS.  
PART 3. RECORDS MAINTENANCE  
R 205.4108 Records maintenance requirements  
Rule 8. The taxpayer's computer hardware or software shall accommodate the  
extraction and conversion of retained, machine-sensible records.  
History: 1998 - 2000 AACS.  
PART 4. ACCESS TO MACHINE-SENSIBLE RECORDS  
R 205.4109 Access to machine-sensible records  
Rule 9. (1) The taxpayer may provide access to machine-sensible records by one or  
more of the following methods:  
(a) The taxpayer may arrange to provide the department with the hardware,  
software and personnel resources necessary 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 approved by the department.  
(d) The taxpayer and the department may agree on other means of providing access  
to the machine-sensible records.  
(2) In implementing subrule (1) of this rule, the department shall take into account a  
taxpayer's particular facts and circumstances through consultation with the taxpayer.  
History: 1998 - 2000 AACS.  
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PART 5. TAXPAYER RESPONSIBILITY AND DISCRETIONARY  
AUTHORITY  
R 205.4110 Taxpayer responsibility and discretionary authority  
Rule 10. (1) To meet the requirements of part 2 of these rules, a taxpayer may  
create files solely for the use of the department. For example, if a data base management  
system is used, the taxpayer may create and retain a file that contains the transaction-  
level detail from the data base management system and that meets the requirements of  
part 2 of these rules. The taxpayer shall 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. The contract shall not relieve the taxpayer of its  
responsibilities under these rules.  
History: 1998 - 2000 AACS.  
PART 6. ALTERNATIVE STORAGE MEDIA  
R 205.4111 Alternative storage media  
Rule 11. (1) For purposes of storage and retention, a taxpayer may convert hard-  
copy documents received or produced in the normal course of business and required to be  
retained under these rules to microfilm, microfiche or other storage-only imaging  
systems and may discard the original hard-copy documents, provided that all other  
requirements of these rules 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 hard-copy  
documents to microfilm, microfiche or other storage-only imaging system shall be  
maintained and made available to the department at the department's request. The  
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 shall 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 R 205.4113.  
(c) At the department's request, a taxpayer shall 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 shall  
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  
Page 5  
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  
shall 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: 1998 - 2000 AACS.  
R 205.4112 Effect of rules on hard-copy recordkeeping requirements  
Rule 12. (1) Except as otherwise provided in this rule, these rules 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. Hard-copy records may  
be retained on a recordkeeping medium as provided in R 205.4111.  
(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), then 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 shall be retained unless all of the details necessary to determine correct tax  
liability relating to the transaction are later received and retained by the taxpayer in  
accordance with these rules. The details include those listed in R 205.4115(1).  
(4) A taxpayer is not required to retain computer printouts that are created for  
validation, control, or other temporary purposes.  
(5) Nothing in this rule shall prevent the department from requesting hard-copy  
printouts instead of retained machine-sensible records at the time of examination.  
History: 1998 - 2000 AACS.  
R 205.4113 Records retention-time period  
Rule 13. All records required to be retained under these rules shall be preserved  
while the statute of limitations period described in MCL 205.27a(2) or in any of the tax  
statutes administered under the revenue act is open by operation of law, agreement of  
the parties, or otherwise, unless the department has stated in writing that the records  
are no longer required.  
History: 1998 - 2000 AACS.  
R 205.4114 Confidential nature of taxpayer records  
Rule 14. A person who discloses confidential information in violation of MCL  
205.28(1)(e) or 205.28(1)(f), is guilty of a felony punishable by a fine of not more than  
$5,000, imprisonment for not more than 5 years, or both, together with the costs of  
prosecution. In addition, if the offense is committed by an employee of the state, the  
Page 6  
employee shall be dismissed from office or discharged from employment upon  
conviction.  
History: 1998 - 2000 AACS.  
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;