Our company owns numerous New York real estate interests, many of which we built ourselves, generating huge volumes of vendor invoices, purchase orders, and accounting records supporting the 'original purchase price' we'd need to prove for the Real Property Transfer Gains Tax. Can we keep those supporting records solely on microfilm or similar media, instead of retaining the original paper documents?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1992 opinion is preserved here for historical and research value, not as current law.

Olympia and York (U.S.) Holdings Company owned numerous interests in New York real property, many of which the company had constructed itself -- generating an enormous volume of vendor invoices, contractor bills, purchase orders, and general accounting records. Under the gains tax, a transferor selling property had to substantiate its "original purchase price" (the basis used to calculate taxable gain), and Form TP-580 required submitting the original closing statement and contract of sale, or (if those didn't exist) other independent documentation of the purchase price, acquisition date, and a detailed cost breakdown for every capital improvement, selling expense, and other allowable cost claimed. Given the sheer volume of records involved, the company asked whether it could keep this supporting documentation solely on microfilm, microfiche, optical disk, or similar media, rather than retaining the original paper records indefinitely.

The gains tax statute itself had no dedicated recordkeeping regulations, but the Department reasoned it was not unreasonable to apply the same recordkeeping standards used generally for corporate tax purposes (former 20 NYCRR § 50.1(3)-(6)). Those standards permit microfilm-based retention, but only if a fairly detailed set of procedural safeguards is followed: preserving any underlying machine-readable (electronic) records that were used to generate the microfilmed documents; adopting written, properly authorized procedures for establishing and operating the microfilm system; using the system completely and consistently in the regular course of business; documenting how to trace an original document through the microfilm system; establishing internal inspection and quality-assurance checks; keeping the microfilm identified, processed, stored, and readily available for as long as it might be material to a Department examination; logging where, when, by whom, and on what equipment each microfilm was produced; ensuring the material is highly legible and readable when displayed or printed; maintaining a detailed, immediately-searchable index; and providing a working reader/printer on request during any Department examination. The Department confirmed that if the company's microfilm system met these standards, it would satisfy the gains tax's own recordkeeping obligation under former Tax Law § 1447.1(b) and Form TP-580.

What this means for you

Large real estate owners and developers with voluminous construction and acquisition records

Under this now-repealed tax, you didn't have to warehouse original paper invoices and closing documents forever to substantiate your original purchase price for gains-tax purposes -- microfilm or similar media was an acceptable substitute, as long as you followed the Department's established procedural safeguards for such systems.

Records management professionals and accountants at large property-owning companies

This opinion is a useful historical reference for how the Department analogized gains-tax recordkeeping to its general corporate tax recordkeeping regulations (former 20 NYCRR § 50.1) in the absence of dedicated gains-tax rules -- a pattern worth knowing if you're researching how the Department filled procedural gaps in this now-repealed tax.

Tax professionals reconstructing a large owner's original-purchase-price documentation

If you're researching whether an old microfilmed record set can substantiate a pre-1996 property's basis, this opinion and its detailed list of required safeguards (traceability, indexing, legibility, availability) are the key authority for what made microfilm retention acceptable.

Common questions

Q: Does this microfilm recordkeeping standard still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York tax recordkeeping rules (including for electronic records) have evolved substantially since this 1992 opinion.

Q: Why did the Department borrow rules from the CORPORATE tax regulations instead of writing gains-tax-specific rules?
A: Because the gains tax statute and its regulations didn't include their own recordkeeping provisions, so the Department reasoned it was reasonable to apply the same general standard it already used for corporate tax purposes, rather than leave the question unanswered.

Q: What was the biggest risk of relying on microfilm records under this ruling?
A: Failing to meet all the procedural safeguards -- for example, not keeping the underlying machine-sensible records used to create the microfilm, or lacking a detailed index -- could mean the microfilm wouldn't be accepted as adequate substantiation, even if the underlying paper records had already been discarded.

Q: Can another large property owner rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, though the underlying recordkeeping standard (former 20 NYCRR § 50.1) was a generally applicable corporate tax regulation, not something unique to this taxpayer.

Citations and references

Statutes and regulations:

• former Tax Law § 1447.1(b) (a transferor must disclose the original purchase price, including capital improvement costs, the parties paid, the consideration to be paid by the transferee, brokerage fees, and anticipated tax due)
• Form TP-580, Real Property Transfer Gains Tax Questionnaire-Transferor (requires the original closing statement and contract of sale, or other independent documentation, plus a detailed cost breakdown for claimed allowable costs)
• former 20 NYCRR § 50.1(3) (records may be retained on microfilm/microfiche if a detailed list of procedural safeguards is followed: retaining underlying machine-sensible records, written authorized procedures, system completeness and consistent use, traceability to the original document, internal inspection/quality assurance, preservation and availability, production logging, legibility/readability standards, a detailed searchable index, and an available reader/printer)
• former 20 NYCRR § 50.1(4) (periodic checks on retained records; lost, destroyed, or materially inaccurate records must be re-created within a reasonable time)
• former 20 NYCRR § 50.1(5) (records, along with related federal tax returns and supporting documents, must be made available to the Department upon request, with suitable audit facilities provided)
• former 20 NYCRR § 50.1(6) (the Commissioner may agree to modify or waive specific recordkeeping requirements upon a showing of hardship, via a timely written application)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a92_6r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92(6)-R
Real Property
Transfer Gains Tax
October 5, 1992

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M9l0611B

On June 11, 1991, a Petition for Advisory Opinion was received from Olympia and York
(U.S.) Holdings Company, 237 Park Avenue, New York, New York 10017.
The issue raised by Petitioner, Olympia and York (U.S.) Holdings Company, is whether it
and its affiliates and successors in interest may retain solely on microfilm (including microfiche,
optical disk, and similar media) documentation of expenditures includible in the "original purchase
price" of real property for purposes of the Real Property Transfer Gains Tax (hereinafter the "gains
tax").
Petitioner owns numerous interests in real property within the State of New York. Many of
these interests include properties constructed by Petitioner. Particularly in connection with
construction activities, Petitioner's records contain numerous vendors' and contractors' invoices,
purchase orders, and similar documents. In the course of their activities, Petitioner also maintains
voluminous books of account.
Section 1447.1(b) of the Tax Law provides as follows:
(b) On the form prescribed for a transferor, the transferor shall set forth the
following information: the original purchase price including the consideration paid
by the transferor for any capital improvements made to such property, the party or
parties to whom such original purchase price was paid, the consideration to be paid
by the transferee, the amount of any brokerage fees to be paid and the party or parties
to whom such fees will be paid and the anticipated tax due.
Form TP-580, Real Property Transfer Gains Tax Questionnaire-Transferor, sets forth that the
transferor must submit a copy of the original closing statement and contract of sale pertaining to the
original transfer or purchase to substantiate the original purchase price. If the closing statement does
not exist, the transferor must submit other independent documentation to substantiate the
consideration paid to acquire the property or interest therein, the date of the acquisition and the name
and address of person to whom original purchase price was paid. Also, the transferor must submit
a schedule giving a complete breakdown of all the allowable costs the transferor is claiming,
including the date the expense was incurred, the names and addresses of the persons to whom
payments were made, and the amount paid to each and the nature of the acquisition cost, capital
improvement, and the selling expenses.
There are no specific gains tax regulations on recordkeeping. However, it is noted that
Sections 50.1(3), (4), (5) and (6) of the Corporate Tax Procedure and Administration Regulations
state as follows:

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Transfer Gains Tax
October 5, 1992
(3) Except as otherwise provided in subdivision (b)(8)(ii) of this section
regarding Electronic Data Interchange (EDI) technology, every taxpayer must retain
the records described in paragraph (2) of this subdivision, that are created or received
in the ordinary course of business, in hardcopy form. This requirement may be met
by retaining the actual hardcopy record or a copy on microfilm (including microfiche)
provided the following requirements are met­
(i) All machine - sensible records, such as records retained on magnetic tape
or magnetic disk generated by the taxpayer's ADP system and used in producing the
records described in paragraph (2) of this subdivision, are retained;
(ii) The procedures governing the establishment of a microfilm system and
the individuals who are responsible for maintaining and operating the microfilm
system, with appropriate authorization from the Board of Directors, general
partner(s), or owner, whichever is applicable, must be set forth in writing;
(iii) The microfilm system must be complete and must be used consistently
in the regularly conducted activity of the business;
(iv) Procedures with appropriate documentation must be established so the
original document can be followed through the micrographic system;
(v) Internal procedures for inspection and quality assurance must be
established;
(vi) The taxpayer is responsible for the effective identification, processing,
storage, and preservation of microfilm, making it readily available for as long as the
contents may become material in the administration of article 9, 9-A, 13, 32, 33 or
33-A of the Tax Law;
(vii) A record must be kept of where, when, by whom, and on what
equipment the microfilm was produced;
(viii) When displayed on a microfilm reader (viewer) or reproduced on paper,
the material 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;
(ix) A detailed index of all microfilmed data must be maintained and
arranged in a manner that permits the immediate location of any particular record;
and

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October 5, 1992
(x) The taxpayer must make available upon request a reader/printer in good
working order at the examination site for reading, locating and reproducing any
record maintained on microfilm.
(4) Every taxpayer should make periodic checks on all records being retained
for use by the Department of Taxation and Finance. If any records required to be
retained are subsequently lost, destroyed, damaged, or found to be incomplete or
materially inaccurate, the taxpayer must re-create the files within a reasonable period
of time.
(5) Every taxpayer must make available to the Department of Taxation and
Finance upon request any records described in this section, together with tax returns,
including supporting schedules, filed with the Federal government, and supporting
documents related thereto. Additionally, every taxpayer must provide the
representative of such Department with suitable facilities for conducting an audit or
examination.
(6) The Commissioner of Taxation and Finance may enter into an agreement
with a taxpayer to modify or waive any or all of the specific requirements of this
section if hardship is shown in an application filed pursuant to this paragraph and the
recordkeeping under such agreement permits the taxpayer and the Department to
accurately determine the taxpayer's tax liability. Such taxpayer remains subject to all
requirements of this section that are not specifically modified or waived by such
agreement. A request for modification or waiver shall be in writing and must be filed
at least 90 days before the beginning of the taxable year for which such modification
or waiver is requested. In determining whether hardship has been shown, the
principal factor to be taken into account will be the amount by which the cost of
recordkeeping in accordance with this section exceeds the cost of recordkeeping
employed or proposed to be employed by the taxpayer. Additional factors to be
considered include, but are not limited to: the presence of a pre-existing agreement
between the taxpayer and the Internal Revenue Service regarding record retention for
Federal income tax purposes and any unusual circumstances. If the Commissioner
grants a modification or waiver, the Commissioner shall specify the period of time
to which it applies and shall also prescribe the method of recordkeeping to be
utilized.
It is not unreasonable for similar standards of record keeping to be applied to the
administration of the gains tax statute. Accordingly, if Petitioner maintains its records in conformity
with the methods as outlined in Sections 50.1(3), (4), (5) and (6) of the Corporation Tax Procedure

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and Administration Regulations, such records will be considered to have met for gains tax purposes
the record retention requirements required by Section 1447.1(b) of the Tax Law and by Form TP­
580, Real Property Transfer Gains Tax Questionnaire-Transferor.

DATED: October 5, 1992

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.