64:06:01:35.  Required records for sales, rentals, and leases. A seller, retailer, or person storing, using, or otherwise consuming in this state tangible personal property or any product transferred electronically purchased from a retailer and the lessor and lessee of tangible personal property or any product transferred electronically for use in this state shall keep complete records showing the following:

 

          (1)  Gross receipts from sales or rental payments from leases of tangible personal property or any product transferred electronically, including any services that are a part of the sale or lease, made within South Dakota, whether the seller or lessor regards the receipts as taxable or nontaxable;

 

          (2)  All deductions allowed by law and claimed in filing returns; and

 

          (3)  The total purchase price of all tangible personal property or any product transferred electronically purchased for sale, consumption, or lease in South Dakota.

 

          These records must include the normal books of account ordinarily maintained by the average prudent business person engaged in the activity in question, together with all bills, receipts, invoices, cash register tapes, or other documents showing the original entries supporting the entries in the books of account as well as all schedules or working papers used in connection with the preparation of tax returns.

 

          Source: SL 1975, ch 16, § 1; 7 SDR 80, effective February 22, 1981; 11 SDR 1, effective July 19, 1984; 13 SDR 129, 13 SDR 134, effective July 1, 1987; 21 SDR 219, effective July 1, 1995; 28 SDR 178, effective July 1, 2002; 32 SDR 225, effective July 3, 2006; 35 SDR 48, effective September 8, 2008.

          General Authority: SDCL 10-45-47.1(4), 10-45D-13(4), 10-46-35.1(4), 10-46E-11(4), 10-52-4, 10-52A-7(4).

          Law Implemented: SDCL 10-45-45, 10-45D-12, 10-46-39, 10-46E-8, 10-52-4, 10-52A-6.

 

          64:06:01:35.03.  Records to be preserved for three years -- Penalty for failure to maintain records. All records pertaining to transactions involving sales or use tax, or telecommunications access fees liability must be preserved for not less than three years. Records on depreciating assets must be maintained until that asset is fully depreciated.

 

          The records required for the audit must be presented to the auditor for examination on request by the secretary or authorized representatives. For purposes of this section, presentation to the auditor means physically handing over to the auditor those complete documents which are required to be kept by law and which are the subject of the audit.

 

          Failure to maintain and keep complete and accurate records is evidence of negligence or intent to evade the tax and may result in penalties or other administrative action.

 

          Source: 11 SDR 1, effective July 19, 1984; 13 SDR 129, 13 SDR 134, effective July 1, 1987; 16 SDR 76, effective November 1, 1989; 21 SDR 219, effective July 1, 1995; 27 SDR 9, effective August 7, 2000; 28 SDR 178, effective July 1, 2002; 30 SDR 58, effective November 5, 2003; 32 SDR 225, effective July 3, 2006.

          General Authority: SDCL 10-45-47.1(4), 10-45D-13(4), 10-46-35.1(4), 10-46E-11(4), 10-52A-7(4), 10-59-38(2), 49-31-51.1(3).

          Law Implemented: SDCL 10-45-45, 10-45D-12, 10-46-2, 10-46-39, 10-46E-8, 10-52A-6, 10-59-3, 10-59-7, 10-59-16, 49-31-51.1(3).

 

          64:06:01:35.04.  Sample periods for audits. An auditor conducting an audit for the department may choose to do a sample audit, random or judgmental, rather than a detailed examination of all records for the audit period. The auditor shall determine the sample size based on the records available, internal controls, changes in the accounting system, and changes in business operations. If the auditor uses a judgmental block sampling method and the taxpayer does not agree to a different percentage, the auditor shall select no less than ten percent of the taxpayer's sales and use tax reporting periods to determine whether sales and use tax was properly charged. The auditor shall apply the error factor, if any, calculated from the sample to all periods of the audit.

 

          Source: 15 SDR 58, effective October 19, 1988; 19 SDR 42, effective September 29, 1992; 20 SDR 103, effective January 10, 1994; 21 SDR 219, effective July 1, 1995; 27 SDR 9, effective August 7, 2000; 28 SDR 178, effective July 1, 2002; 30 SDR 58, effective November 5, 2003; 32 SDR 225, effective July 3, 2006.

          General Authority: SDCL 10-45-47.1(5), 10-45D-13(5), 10-46E-11(4), 10-47B-2, 10-52-4, 10-52A-7(5), 10-59-38, 49-31-51.1(4).

          Law Implemented: SDCL 10-45-45, 10-45D-12, 10-46E-8, 10-47B-2, 10-52-4, 10-52A-6, 10-59-5, 49-31-51.1(4).

 

          64:06:01:35.05.  Use of other records to verify audits. For auditing purposes, the auditor may refer to other records to determine the tax liability of the taxpayer, as follows:

 

          (1)  When the gross sales records are inadequate, the auditor may refer to the following records:

 

               (a)  Federal income tax returns;

               (b)  Bank statements, including checks, deposit slips, and bank records of loans;

               (c)  Purchase invoices or journals;

               (d)  Gross profit tests based on expenses and withdrawals; and

               (e)  Cash transactions;

 

          (2)  When the gross taxable sales records are inadequate, the auditor may use the following methods of verifying the taxable sales:

 

               (a)  Using purchase invoices or journals plus an acceptable industry markup;

               (b)  Computing the ratio of gross taxable sales to gross sales from a like business and applying this ratio to gross sales;

               (c)  Using a percentage markup based on like businesses; and

               (d)  Using other indirect methods generally accepted under accounting principles; and

 

          (3)  Records the auditor may use to verify the deductions taken by the taxpayer include the following:

 

               (a)  Invoices for sale for resale;

               (b)  Invoices for exempt sales;

               (c)  Invoices for out-of-state sales;

               (d)  Freight bills showing out-of-state deliveries;

               (e)  Invoices for returns and allowances; and

               (f)  Worksheets for bad debts; and

 

          (4)  Records the auditor may use to verify the use tax purchases include the following;

 

               (a)  Purchase invoices;

               (b)  Disbursements journals or check registers; and

               (c)  Depreciation schedules.

 

          Source: 15 SDR 58, effective October 19, 1988; 21 SDR 219, effective July 1, 1995; 27 SDR 9, effective August 7, 2000; 28 SDR 178, effective July 1, 2002; 32 SDR 225, effective July 3, 2006.

          General Authority: SDCL 10-45-47.1(5), 10-45D-13(5), 10-46-35.1(5), 10-46E-11(4), 10-52-4, 10-52A-7(5), 49-31-51.1(4).

          Law Implemented: SDCL 10-45-45, 10-45D-12, 10-46-43, 10-46E-8, 10-52-4, 10-52A-6, 49-31-51.1(4).

 

          Cross-Reference: Accounting principles, § 20:37:11:08.