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Attorney General's Opinion

Attorney General, Richard Blumenthal

December 6, 2001

The Honorable Gene Gavin
Department of Revenue Services
25 Sigourney Street
Hartford, CT 06103

Dear Commissioner Gavin:

I am writing in response to your request for a formal opinion regarding the effect of E-Sign (Public Law 106-229; Electronic Signatures in Global and National Commerce Act) on Connecticut’s electronic records and signatures laws. You have requested an opinion regarding the following issues:

(1) Whether the Department of Revenue Services (DRS) may convert paper records it receives from taxpayers or other filers to electronic form, then use those electronically-imaged documents and records for any purpose and in any circumstance in which DRS presently uses paper and microfilmed records, including but not limited to:
Freedom of information, taxpayer and other third party requests for documents and records;

As evidence in contested matters; and

For other, general administrative purposes;

(2) If DRS’ electronic records do have the same validity and admissibility as the original paper documents, whether DRS may destroy the original paper documents;

(3) Whether DRS may receive records from taxpayers or other filers that are created or transmitted in electronic form in lieu of paper documents and whether DRS may then use those electronic records with the same validity and admissibility as evidence as they would if they were paper documents;

(4) Whether DRS’ electronic record keeping practices and standards are within the scope of the authority of the Public Records Administrator under Conn. Gen. Stat. §11-8, Records Management Program; Public Records Administrator, or the Department of Information Technology under Conn. Gen. Stat. §4D-1, et seq.;

(5) Whether DRS must accept all electronic records that are filed with the agency; and

(6) Whether DRS may require taxpayers or informational return filers to keep paper records for audit or other purposes.

Based upon the following discussion, it is our opinion that the record-keeping issues listed above do not fall within the scope of the federal E-Sign Act because the receipt of electronic filings or conversion from paper records to electronic records are not "transactions" as defined by the Act. Moreover, even if these records did fall within the scope of the Act, state law would not be preempted because there is no conflict between the federal and state law with regard to the issues raised. Therefore, the state statutes concerning electronic record keeping and the use and admissibility of such records would apply. Each issue listed above is discussed in detail below.

Discussion

I.  E-Sign and Preemption

Under the Supremacy Clause of article VI of the federal Constitution, Congress may enact laws that preempt state or local law.

There are at least three ways in which preemption of local law may be accomplished... First, Congress may in express terms declare its intention to preclude state regulation in a given area...Second, preemption may be implied when federal law is sufficiently comprehensive to make reasonable the inference that Congress left no room for supplementary state regulation. Hillsborough County v. Automated Medical Laboratories, Inc., 471 U.S. 707, 713 (1985)...Third, state law may be preempted to the extent that it actually conflicts with a valid federal statute. Ray v. Atlantic Richfield Co., 435 U.S. 151, 158 (1978). Conflict preemption occurs either when ‘compliance with both federal and state regulations is a physical impossibility,’ Florida Lime & Avocado Growers, Inc. v. Paul., 373 U.S. 132, 142-43 (1963), or where state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’ Hines v. Davidowitz, 312 U.S. 52, 67 (1941). Of course, ‘courts should not lightly infer’ that state or local law has been preempted by federal law. International Paper Co. v. Ouellette, 479 U.S. 481, 490 (1987).

In answering your question we find at the outset that there is no preemption issue here because the federal E-Sign Act does not apply to state tax returns and other taxpayer filings with the DRS. The federal E-Sign act explicitly states that a signature, contract, or other record relating to "any transaction in or affecting interstate or foreign commerce" may not be denied legal effect because it is in electronic form. 15 U.S.C. §7001. "Transaction" is defined in section 106(13) of the federal act as, "an action or set of actions relating to the conduct of business, consumer, or commercial affairs between two or more persons," including "the sale, lease, exchange, licensing, or other disposition of" personal property, real property, or services. 15 U.S.C. §7006. Tax returns and related records do not constitute the sale, lease, exchange, licensing, or other disposition of property or services. This is true of all tax returns whether filed by an individual in the state or by a national or international company engaged in interstate or foreign commerce. Thus, the federal act does not apply to the receipt and retention by DRS of taxpayer records, because they are not "transactions" within the meaning of the Act.

While the federal E-Sign act provides for express preemption of state laws that are inconsistent with the act,1 because the act does not apply to the receipt and retention of taxpayer records, the express preemption provisions do not apply. Even assuming arguendo that the federal E-Sign Act was applicable to state tax returns, we find that there would be no conflict because state law concerning the electronic filing and copying of taxpayer records does not stand as an obstacle to the federal act’s purpose of eliminating barriers to the use of electronic signatures and records in interstate or foreign transactions. The electronic filing of state tax returns and related records is separate and apart from the use of electronic signatures in interstate and foreign transactions. Thus, even a company with interstate or international business can comply with both the federal E-Sign Act and with state regulations regarding electronic tax filings. Compliance with both federal and state regulations with regard to the issues raised herein is not a physical impossibility.

Thus, since state law pertaining to the receipt, retention, and conversion of taxpayer filings and records does not conflict with the federal act and there is no preemption, Connecticut state law applies.

II.  Connecticut Law Regarding Admissibility and Use of Electronic Records (Issues 1 & 2)

The following statutes indicate that as long as the accuracy of the electronic record can be demonstrated, paper records may be converted electronically and used as evidence in contested matters and for other administrative purposes, and once converted accurately, the original paper record may be destroyed.

Section 12-39bb of the Connecticut General Statutes provides:

Records of the Department of Revenue Services may be provided in the form of written documents, reproductions of such documents, films or photo-impressions, or electronically produced tapes, disks or records, or by any other mode or means which the commissioner determines necessary or appropriate. Any reproduction of any return, document or other matter made in accordance with this section shall have the same legal status as the original, and any such reproduction shall, if properly authenticated, be admissible in evidence in any judicial or administrative proceeding as if it were the original, whether or not the original is in existence. (emphasis added).

Section 1-7 of the Connecticut General Statutes provides:

When any officer, office, court, commission, board, institution, department, agent or employee of the state, or of any political subdivision thereof, is required or authorized by law or has the duty to record or copy any document, plat, paper or instrument of writing, such recording or copying may be done by any photographic, micrographic, electronic imaging or other process, which clearly and accurately copies, photographs or otherwise reproduces the original document, plat paper or instrument of writing. Each such photographic, micrographic, electronic imaging or other process shall be subject to the approval of the Public Records Administrator. Properly certified reproductions of any record made under the provisions of this section shall be admissible in evidence in the same manner and entitled to the same weight as copies made and certified from the original. (emphasis added).

These statutes indicate that returns that have been accurately recorded or copied through digital imaging and “properly certified” would be admissible evidence in court.

Section 52-180(c), concerning the admissibility of business records, similarly provides:

(c) Except as provided in the Freedom of Information Act, as defined in section 1-200, if any person in the regular course of business has kept or recorded any memorandum, writing, entry, print, representation or combination thereof, of any act, transaction, occurrence or event, and in the regular course of business has caused any or all of them to be recorded, copied or reproduced by any photographic, photostatic, microfilm, microcard, miniature photographic or other process which accurately reproduces or forms a durable medium for so reproducing the original, the original may be destroyed in the regular course of business unless its preservation is otherwise required by statute. The reproduction, when satisfactorily identified, shall be as admissible in evidence as the original in any judicial or administrative proceeding, whether the original is in existence or not, and an enlargement or facsimile of the reproduction shall be likewise admissible in evidence if the original reproduction is in existence and available for inspection under direction of court. The introduction of a reproduced record,..shall not preclude admission of the original. (emphasis added).

This section also indicates that the accurate reproduction through electronic imaging would be admissible in court and originals can be destroyed.

Section 1-262(d) of the Connecticut General Statutes also provides:

If a law requires a governmental record to be retained in its original form, or provides consequences if the record is not presented or retained in its original form, such requirement is met by an electronic record if the electronic record accurately reflects the information set forth in the record after it was first generated in its final form and the electronic record remains accessible for later reference.

The essential factor in all of these statutes is the accuracy of the reproduction. If the accuracy of the reproduction can be established, then digitally scanning or otherwise electronically producing returns should not prevent their admissibility in court.

Section 1-211 of the Connecticut Freedom of Information Act (“FOIA”), governs production of electronic records. Electronic records are treated in the same way as paper records. Of course, tax returns are exempt from production under the FOIA pursuant to section 1-210 (1).

III.  Receipt of Records in Electronic Form (Issues 3 & 5)

The Department may receive electronic filings in lieu of paper documents pursuant to section 12-690 of the Connecticut General Statutes, which provides in part:

(a) The Commissioner of Revenue Services may permit the filing, by computer transmission or by employing new technology as it is developed, of any return, statement or other document that is required by law or regulation to be filed with said commissioner.

With regard to the receipt of returns in electronic form, the Connecticut Electronic Records Act, section 1-262(a), also provides:

(a) A state agency may allow any governmental record that is created, owned, used, distributed or maintained by such agency to be in the form of an electronic record. A state agency may allow governmental records received by such agency and identified in regulations adopted by such agency pursuant to section 1-264 to be in the form of electronic records.

DRS has promulgated a regulation concerning the filing and form of electronic tax returns in section 12-690(c)-1 of the Connecticut Regulations2.

In accordance with the statutes quoted above, Conn. Gen. Stat. §§ 1-7, 12-39bb and 52-180(c), tax returns filed electronically should be admissible in court. As discussed above, the essential factor for admissibility is the accuracy of the reproduction.

As to whether DRS must accept all electronic records that are filed with the agency, Conn. Gen. Stat. § 12-690 allows but does not require the Commissioner to permit the filing of returns by electronic means. The Department has established criteria for such acceptance. Regulation 12-690(c)(1). If the return is defective or there is some legitimate basis on which it should be rejected consistent with the regulation, whether DRS must accept or reject the electronic return would not differ from that of a paper return.

Thus, in response to issues 3 and 5 in the request for opinion, DRS may receive records from taxpayers or other filers that are created or transmitted in electronic form in lieu of paper documents. Such records should be admissible if the accuracy of reproduction can be established. Conn. Gen. Stat. §§ 1-7 and 52-180(c). Finally, DRS is not required to accept returns that do not comply with the statutory and regulatory requirements. (See Regulation 12-690(c)(1)).

IV.  The Public Records Administrator and the Department of Information Technology. (Issue 4)

Section 1-7 of the Connecticut General Statutes quoted above provides that when a department is required or authorized to record or copy any document, copying by electronic imaging or other process “shall be subject to the approval of the Public Records Administrator.” Thus, electronic imaging of tax returns would fall within the authority of the Public Records Administrator under section 1-8.

With regard to the Department of Information Technology, Conn. Gen. Stat. sections 4d-2 and 4d-7 indicate that the use and acquisition of systems for electronic imaging fall within the scope of the authority of the Department of Information Technology. Section 1-264 also authorizes the Chief Information Officer of the Department of Information Technology to adopt regulations concerning electronic records. To date, the only regulations so adopted concern the application by electronic means for a license from the Department of Consumer Protection.

V.  Whether DRS may require taxpayers or informational return filers to keep paper records for audit or other purposes. (Issue 6)

Electronic filing does not alter requirements regarding the retention of records for audit purposes. Taxpayers are required to maintain “all records that are necessary to a determination of correct tax liability under the affected tax law provisions.” Connecticut Regulations, section 12-2-12(b)(1). “Such records include, but are not limited to: books of account, invoices, sales receipts, cash register tapes, purchase orders, exemption certificates, returns, and schedules and working papers used in connection with the preparation of returns.” Connecticut Regulations, section 12-2-12(b)(1). Therefore, to the extent that paper records are necessary for audit or other purposes, the DRS may require the taxpayer to retain such paper records.

We hope that this information is of assistance to you. Please do not hesitate to call me if you have any questions or comments regarding this matter.

Very truly yours,

RICHARD BLUMENTHAL
ATTORNEY GENERAL

Joan C.G. Grear
Assistant Attorney General

1See sections 102 and 104 of the federal Act, 15 U.S.C §7002, 15 U.S.C. §7004.

2Section 12-690(c)-1 of the Connecticut Regulations provides:

(a) Where the Commissioner has permitted the filing of a return by telephone or by electronic means, a person so permitted to file a return may, in lieu of filing a related document on which such person’s signature is affixed and at the direction of the Commissioner, either state such person’s name and such other information as the Commissioner may require in order to provide sufficient identification of such person, or provide a personal identification number, as designated by the Department tosuch person, or both state such person’s name and other required information to provide sufficient identification, and provide a personal identification number, as so designated, when required to do so. The stating by such person of such person’s name or the providing of a personal identification number, or both, when such person is requested to do so, shall have the same validity, status and consequences as an actual signature by such person on a paper return that is filed with the Department.

(b) A return that is filed by telephone or by electronic means shall be treated as timely filed only if it is received by the Department on or before the due date of such return. If the department elects to provide a confirmation number to each person filing a return by telephone or by electronic means at the time of the filing of such return, such return shall be treated as filed with the Department at the time such confirmation number is provided.

(c)Whether a return is filed by electronic means, by telephone or by filing a paper return, nothing in this section shall excuse any person from the legal obligation to provide such person’s (1) name, address and social security number or federal employer identification and (2) sufficient required information to permit the mathematical verification of any tax liability reported on such return. If the Department elects to provide a confirmation number to each person filing a return by telephone or by electronic means at the time of the filing of such return, such person shall be treated as having provided such sufficient required information at the time that such confirmation is provided. Any such confirmation number shall be retained by such person as proof of filing.

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