Can a business store its tax records only on CD-ROM and destroy the paper originals?

Plain-English Summary

A company asked the Comptroller whether it could scan its accounting records — purchase records, accounts payable, sales, and accounts receivable — onto CD-ROM, keep the images in unalterable form, print copies clearly marked "copy" (but otherwise identical to the originals), make backup discs, and then destroy the original paper documents as a standardized, company-wide practice under an approved records-retention schedule.

The Comptroller said this is only partly acceptable. Business records must be kept in a form that lets Comptroller auditors examine them on request (with equipment provided to view the records if needed), and the records must contain all the information found in the original source documents. But for any record or certificate that requires a signature (such as a resale or exemption certificate), the original or a microfilmed copy must be kept so the signature can still be verified — a CD-ROM image alone is not enough for those documents.

The Comptroller explained that because complete electronic-only record retention was still a relatively new practice at the time (1994) whose long-term reliability hadn't been proven, and because courts had accepted unalterable electronic media as evidence only in limited situations, the agency would not allow full destruction of original or microfilmed signed documents. Electronic retention of other documents like purchase orders and invoices is acceptable as long as the images retain all relevant information and remain available for complete examination. The Comptroller also required backup discs to be maintained, and said only partial retention on electronic media is allowed — not complete replacement of paper records.

What This Means For You

If you are considering scanning and destroying paper business records to save storage space, this ruling shows the Comptroller's baseline conditions: (1) records must stay auditable and reproducible with all original information intact, (2) any signed document (like a resale certificate) generally needs to be kept in original or microfilmed form rather than as an electronic image alone, and (3) backup copies of any electronic media should be maintained. Modern Comptroller guidance on electronic recordkeeping has evolved since 1994, so businesses should confirm current rules (including any updated STAR letters or rules on electronic signatures and imaging) before adopting a scan-and-destroy policy, especially for signed exemption or resale certificates.

Q&A

Q: Can a business destroy all its original paper invoices and purchase orders once they are scanned to CD-ROM?
A: Not fully, according to this ruling. Regular invoices and purchase orders without required signatures can generally be retained electronically if they capture all the original information and remain examinable by auditors, but the Comptroller required that original or microfilmed documents also be kept, meaning only partial reliance on electronic media was approved.

Q: Does this rule apply the same way to signed documents like resale or exemption certificates?
A: No. Any record or certificate requiring a signature must be kept in original or microfilmed form so the signature can be verified — an unalterable CD-ROM scan by itself was not treated as a sufficient substitute.

Q: Is backup storage required in addition to the CD-ROM records?
A: Yes. The Comptroller said maintaining backup discs is in the taxpayer's own interest as well as the agency's, and required back-up discs as part of allowing even partial electronic retention.

Citations

No specific statutes or administrative rules were cited in the text of this letter ruling.

Subject

Electronic Storage And Retention Of Records/Source Documents (Invoices, Certificates, Purchase Orders) — Requirements

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9408L1312A12

Original ruling text

August 1, 1994

Dear **:

I am responding to your letter inquiring about the acceptability of
accounting and other documents for tax compliance and audit purposes.
You provided the following scenario:

1. Accounting and other records for purchases, accounts payable, sales
   and accounts receivable are stored on CD-ROM media, using computer
   scanning technology.

2. The resulting CD-ROM files are in unalterable form.

3. The files are available for computer display and for hard-copy
   printing.

4. The printed documents are identified as copies but are otherwise
   indistinguishable from the originals.

5. Back up copies of the CD-ROM disks are made, and original
   documents are destroyed.

6. The process is standardized as a regular business practice across
   the Company's divisions and facilities, and document retention periods
   are indicated on an approved records retention schedule.

The Comptroller formally requires that business records be maintained
in formats that provide the following:

• these records are maintained in a manner that allows examination by
  Comptroller personnel and sufficient equipment is provided to allow
  Comptroller auditors to examine the records on request,

• any records or certificates requiring a signature are maintained in
  an original or microfilmed form such that the signature may be verified,
  and

• the records must contain all relevant information contained in the
  original source documents.

Because complete record retention on electronic media is a relatively
new process whose longevity has not been proven for general use and the
courts have recognized unalterable electronic media as acceptable only
in limited circumstances, the Comptroller requires the original or
microfilmed documents must be maintained as indicated above. Otherwise,
electronic retention of purchase orders, invoices, and other such
documents that contains relevant information and is available for
complete examination by Comptroller personnel is acceptable.

It is in your interests as well as those of the Comptroller to
maintain backup discs. Therefore, this agency also requires back-up
discs and allows only partial retention on electronic media.

This opinion is based upon the facts presented. If there are additional
or different facts, this opinion may change.

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9408520L