[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.205-41]

[Page 609-610]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents
 
          Subpart 31.2--Contracts With Commercial Organizations
 
Sec. 31.205-41  Taxes.

    (a) The following types of costs are allowable:
    (1) Federal, State, and local taxes (see part 29), except as 
otherwise provided in paragraph (b) below that are required to be and 
are paid or accrued in accordance with generally accepted accounting 
principles. Fines and penalties are not considered taxes.
    (2) Taxes otherwise allowable under subparagraph (a)(1) above, but 
upon which a claim of illegality or erroneous assessment exists; 
provided the contractor, before paying such taxes--
    (i) Promptly requests instructions from the contracting officer 
concerning such taxes; and
    (ii) Takes all action directed by the contracting officer arising 
out of subparagraph (2)(i) above or an independent decision of the 
Government as to the existence of a claim of illegality or erroneous 
assessment, to (A) determine the legality of the assessment or (B) 
secure a refund of such taxes.
    (3) Pursuant to subparagraph (a)(2) above, the reasonable costs of 
any action taken by the contractor at the direction or with the 
concurrence of the contracting officer. Interest or penalties incurred 
by the contractor for non-payment of any tax at the direction of the 
contracting officer or by reason of the failure of the contracting 
officer to ensure timely direction after a prompt request.
    (4) The Environmental Tax found at section 59A of the Internal 
Revenue Code, also called the ``Superfund Tax.''
    (b) The following types of costs are not allowable:
    (1) Federal income and excess profits taxes.
    (2) Taxes in connection with financing, refinancing, refunding 
operations, or reorganizations (see 31.205-20 and 31.205-27).
    (3) Taxes from which exemptions are available to the contractor 
directly, or available to the contractor based on an exemption afforded 
the Government, except when the contracting officer determines that the 
administrative burden incident to obtaining the exemption outweighs the 
corresponding benefits accruing to the Government. When partial 
exemption from a tax is attributable to Government contract activity, 
taxes charged to such work in excess of that amount resulting from 
application of the preferential treatment are unallowable. These 
provisions intend that tax preference attributable to Government 
contract activity be realized by the Government. The term exemption 
means freedom from taxation

[[Page 610]]

in whole or in part and includes a tax abatement or reduction resulting 
from mode of assessment, method of calculation, or otherwise.
    (4) Special assessments on land that represent capital improvements.
    (5) Taxes (including excises) on real or personal property, or on 
the value, use, possession or sale thereof, which is used solely in 
connection with work other than on Government contracts (see paragraph 
(c) below).
    (6) Any excise tax in subtitle D, chapter 43 of the Internal Revenue 
Code of 1986, as amended. That chapter includes excise taxes imposed in 
connection with qualified pension plans, welfare plans, deferred 
compensation plans, or other similar types of plans.
    (7) Income tax accruals designed to account for the tax effects of 
differences between taxable income and pretax income as reflected by the 
books of account and financial statements.
    (c) Taxes on property (see subparagraph (b)(5) above) used solely in 
connection with either non-Government or Government work should be 
considered directly applicable to the respective category of work unless 
the amounts involved are insignificant or comparable results would 
otherwise be obtained; e.g., taxes on contractor-owned work-in-process 
which is used solely in connection with non-Government work should be 
allocated to such work; taxes on contractor-owned work-in-process 
inventory (and Government-owned work-in-process inventory when taxed) 
used solely in connection with Government work should be charged to such 
work. The cost of taxes incurred on property used in both Government and 
non-Government work shall be apportioned to all such work based upon the 
use of such property on the respective final cost objectives.
    (d) 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 the manner it directs. If a contractor or 
subcontractor obtains a foreign tax credit that reduces its U.S. Federal 
income tax return because of the payment of any tax or duty allowed as 
contract costs, and if those costs were reimbursed by a foreign 
government, the amount of the reduction shall be paid to the Treasurer 
of the United States at the time the Federal income tax return is filed. 
However, any interest actually paid or credited to a contractor incident 
to a refund of tax, interest, or penalty shall be paid or credited to 
the Government only to the extent that such interest accrued over the 
period during which the contractor had been reimbursed by the Government 
for the taxes, interest, or penalties.

[48 FR 42301, Sept. 19, 1983, as amended at 55 FR 3884, Feb. 5, 1990; 55 
FR 52794, Dec. 21, 1990; 61 FR 2641, Jan. 26, 1996]