Q. We receive a Job Development Tax Credit that is calculated based on building costs and jobs developed (capital expenditures/operating expenses). The credit is given back to us as a refund on our state income tax withholdings.  We are uncertain whether they should be credited back to the government. Could you provide some citation from the FAR that would help us in resolving this issue?

A.  I would take a look at FAR 31.205-41(d), Taxes that says in part "Any taxes, interest  or penalties that were allowed as contract costs and are refunded to the contractor shall be credited or paid to the Government in a manner it directs.”  That FAR citation would indicate the credit should be used to reduce the amount of state income tax paid that you then charged indirectly.  Of course if you did not include the state income taxes or other relevant tax in your indirect cost pool(s), the pool should not be reduced.

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