State S Corp Election: NY CT-6, NYC, New Jersey, California

Does my state follow the federal S corp election?

Not always. A federal S election, confirmed by the IRS acceptance letter (CP261), settles federal tax only. Each state, and New York City, decides for itself, and the places below handle it in different ways (New York; New York City; New Jersey; California; Arkansas).

For a state not in the table, read that state's own S corporation return instructions before assuming it follows the federal election.

A case stops being simple when CT-6 was missed or CT-3-S was filed without New York's approval (each year before a valid CT-6 takes effect can be a C corporation year in New York), the company is new to New York or New Jersey, the corporation was formed elsewhere and moved its business in, or shareholders live in other states. Gather:

• The IRS acceptance letter (CP261) and the effective date on Form 2553
• New York's CT-6 approval notice, or proof of when CT-6 was faxed or mailed
• New Jersey registration records and the Shareholder Jurisdictional Consent filed
• A shareholder list: names, shares, dates acquired and each shareholder's state of residence
• The incorporation date and the date business began in each state
• State and City returns already filed (CT-3 or CT-3-S, CBT-100 or CBT-100S, NYC returns) and shareholders' IT-201 or IT-203

The federal side, Form 2553 and its deadline, is covered in S corporation from day one and late S corporation election relief.

NYS S corp election: what is Form CT-6, and who files it?

Form CT-6 is New York State's own election for a federal S corporation to be taxed as a New York S corporation; New York does not grant that status automatically (New York Tax Department). A corporation can elect when all of these hold (CT-6 instructions):

• It is a federal S corporation, including an LLC taxed as one (it lists members' ownership percentages instead of shares). If Form 2553 is still pending, CT-6 can still be filed, marked to show the federal election is pending.
• It is taxable under New York's corporate franchise tax (Article 9-A), or owns a qualified subchapter S subsidiary (a subsidiary the IRS treats as part of its parent) that is. The subsidiary cannot elect for itself.
• Every shareholder consents. In the first year the election applies, anyone who held stock earlier in that year, up to the fifteenth day of the third month, must also consent. Both spouses sign for stock held as community property, and each joint owner signs.

New York notifies the corporation whether the election is approved and from what date. The instructions say not to file CT-3-S until then; a corporation already filing CT-3 keeps filing it until the election takes effect. If no notice arrives before the first return is due, they say to write to the Tax Department's Corporation Tax Account Resolution Unit. The election lasts until shareholders holding more than half the shares revoke it on Form CT-6.1, the federal S election ends (New York's ends the same day), or a new shareholder refuses to consent (it ends the day that person becomes one) (Tax Law section 660).

Once approved, the corporation files CT-3-S and pays a fixed dollar minimum tax based on New York receipts; the MTA surcharge that C corporations pay in New York City and seven nearby counties does not apply (New York Tax Department). Shareholders report their share on their own New York returns. A late or incomplete CT-3-S costs $50 per shareholder for each month or part of a month, for up to 5 months (CT-6 instructions).

When is the CT-6 deadline?

For an existing calendar-year corporation, file CT-6 any time in the year before, or by March 15 of the year the election is to start: the same date as federal Form 2553 (CT-6 instructions), or the next business day when it falls on a weekend or legal holiday (General Construction Law section 25-a). File it by fax to 518-435-8605, or by mail to the address in the instructions; a mailed CT-6 counts as filed on its US postmark date.

A CT-6 filed on time still starts only the next year if, on an earlier day of the year, the corporation did not qualify as a federal S corporation, or someone who held stock before the election did not consent. A consent missed by mistake may be cured under Tax Law section 660(e), described below.

Can New York treat us as an S corporation without CT-6?

Yes, in one case: the mandated election. When an eligible federal S corporation has not elected and its investment income is more than 50% of its federal gross income for the year, its shareholders are deemed to have elected for that year, and it files CT-3-S (New York Tax Department).

Investment income means interest, dividends, royalties, annuities, rents and gains from dealings in property, including such income received through a partnership, estate or trust. A qualified subchapter S subsidiary's income counts with its parent's. The test is applied to each year on its own (Tax Law section 660), so a holding company with mostly rent or portfolio income may meet it in some years and not others. An operating business whose income comes mostly from sales or services does not meet it, so it becomes a New York S corporation only by filing CT-6.

NYS late S corp election: what if we missed CT-6?

For each year without a valid CT-6 and outside the mandated election, New York taxes the federal S corporation like a C corporation. It pays the corporate franchise tax, plus the MTA surcharge if it does business in New York City or those seven counties (Article 9-A definitions), and its credits stay with the corporation. Resident shareholders are taxed on the distributions they receive, to the extent these come from income New York has not already taxed to them (Tax Law section 612(b)(20)); nonresident shareholders are not taxed on its income or distributions (New York Tax Department).

Filing CT-3-S without an approved CT-6 does not by itself make a year a New York S year: the CT-6 instructions say not to file CT-3-S before approval, and the Audit Division reviews whether the corporation qualifies. Each such year's corporate return and each shareholder's IT-201 or IT-203 then need checking together.

On its own, a late CT-6 does not reach back. Under Tax Law section 660(b)(3), an election made after the fifteenth day of the third month of a year is treated as made for the following year. A calendar-year corporation that files CT-6 in June therefore gets its first New York S year the next January, if approved.

Three narrower routes exist, and none is automatic:

• Federal validation. When the IRS retroactively validates a federal S election under section 1362(f) of the Internal Revenue Code, New York may validate the New York election for the same years. File CT-6 with a statement explaining the circumstances, the effective date and every shareholder's signature; all shareholders must have reported their income consistently with S status on every affected return (CT-6 instructions). The statute, Tax Law section 660(f), speaks of a New York election made for those years, and the instructions do not say whether a CT-6 first filed with the request is enough, or whether federal late-election relief alone carries New York with it.
• Reasonable cause. Tax Law section 660(b)(5) lets the Tax Department treat a late election as timely if it finds reasonable cause for the delay. The CT-6 instructions describe no procedure for asking, so the outcome is uncertain and depends on the facts.
• A missing consent. Tax Law section 660(e) lets the Tax Department treat the corporation as a New York S corporation for the period it sets when the election failed for lack of a shareholder's consent, the omission was inadvertent, the consent was sought within a reasonable time after discovery, and the corporation and every shareholder of that period agree to the required adjustments.

Does New York City recognize S corporation status?

No. New York City has no S election and does not recognize New York State's, so a federal S corporation that does business, employs capital, owns or leases property, or keeps an office in the City is generally subject to the City's General Corporation Tax (GCT), even with an approved CT-6 (NYC Department of Finance). It files NYC-3L if it does business both inside and outside the City, has subsidiary or investment capital, or meets another case in the NYC-3L instructions; otherwise NYC-4S, or NYC-4S-EZ where allowed. Dormant S corporations and a few listed types are exempt.

The GCT is whichever of four measures produces the most tax (GCT rates):

Because the alternative base adds back pay to owners, an owner's salary still counts in that measure even though it lowers City net income. A corporation with federal gross income under $250,000, all its business in the City and no investment or subsidiary capital or income skips the capital and alternative bases and pays the larger of the income measure and the fixed dollar minimum (NYC-3L instructions).

A City resident shareholder of a New York S corporation also pays City resident income tax on that income on Form IT-201 (IT-201 instructions); the former credit for GCT paid, Form IT-222, is discontinued (forms list).

New Jersey S corp election: do we still file CBT-2553?

Not for current years. For privilege periods beginning on or after December 22, 2022, a federal S corporation registered with the Division of Revenue and Enterprise Services as a corporation is a New Jersey S corporation and files CBT-100S, unless its shareholders choose C status (TB-105; CBT-100S instructions). Two things must be on file:

• Proof of federal S status: the IRS acceptance letter (CP261 or 385C).
• The Shareholder Jurisdictional Consent, listing every shareholder and ownership share. By signing, each shareholder acknowledges New Jersey's right to tax their share of S corporation income wherever they live.

Both can be submitted during NJ-REG registration once the federal letter has arrived, with the CBT-100S on Schedule SJC, or through the Division of Revenue's online S corporation system. Later shareholder changes go on Schedule SJC. An LLC registered as a partnership filer must first change its registered ownership type to a corporation (New Jersey FAQ).

To be taxed as a C corporation in New Jersey instead, every shareholder signs a C Corporation Tax Status Election Consent, which the corporation keeps, and the corporation files CBT-100 or CBT-100U by the original or extended due date. A return cannot later be amended to switch between S and C. In general, a New Jersey S corporation pays only the statutory minimum tax unless it has income taxed at the federal level.

For earlier periods, New Jersey required its own election, Form CBT-2553, filed within 3½ months of the start of the year with every shareholder's consent (New Jersey Division of Taxation). A federal S corporation that never made it was taxed as a C corporation. To have those older returns accepted as S returns, file the retroactive application, CBT-2553-R, online through the Division of Revenue and Enterprise Services; otherwise those periods stay taxed as C corporation periods (forms list; TB-105; New Jersey FAQ). Some older New Jersey pages still say the federal election never flows through; the Division labels those procedures as applying to corporations authorized before the change.

S corp election in California or Arkansas: is a state form needed?

No. California treats a corporation with a federal S election and a California filing requirement as having made the California election on the same date, and ending the federal election ends the California one (FTB Form 100S instructions). The corporation still files Form 100S and owes California's own corporate-level tax; the amounts and the first-year exemption are in California minimum tax and LLC fee.

Arkansas shows how a state can drop its own election. For tax years beginning before January 1, 2018, Arkansas S status needed Form AR1103 as well as federal Form 2553. For later years, a federal S corporation must file as an Arkansas S corporation on Form AR1100S and cannot choose C status there (Arkansas DFA).

What do states ask of shareholders who live elsewhere?

States with a personal income tax generally tax a nonresident shareholder on the share of income earned there, and some make the corporation collect or pay that tax:

• New York: nonresident shareholders of a New York S corporation pay tax only on their share of New York-source items, and the corporation may have to pay estimated tax for certain nonresident shareholders on Form IT-2658 (New York Tax Department).
• New Jersey: a nonresident who does not sign the jurisdictional consent is a nonconsenting shareholder, and the corporation pays New Jersey tax for them on Form NJ-1040-SC, unless the shareholder joins a composite return or the corporation pays the pass-through business alternative income tax and the shareholder would expect a refund (New Jersey FAQ; CBT-100S instructions).
• Arkansas: the corporation withholds on distributions to nonresident individuals unless an exception applies (a share of income under $1,000, a composite return, or the shareholder's signed agreement to file and pay Arkansas tax), and a nonresident shareholder's failure to report and pay can be grounds to revoke the Arkansas S election (Arkansas DFA).

Whether each shareholder must also file a nonresident return is covered in nonresident state return thresholds.

Does the state S election change our PTET options?

It can. New York's pass-through entity tax is open only to partnerships and New York S corporations, so a federal S corporation without CT-6 or the mandated election cannot opt in for that year; the opt-in closes March 15, or the next business day when that is a weekend or legal holiday (New York PTET). Whether the election pays off, and other states' rules, are in PTET election.

Example

These scenarios are illustrative; amounts are in US dollars.

A Brooklyn consulting corporation files CT-6 on time

A one-owner consulting corporation formed in an earlier year elects S status from January 1. It sends Form 2553 and CT-6 in February, receives CP261 and New York's approval, and files CT-3-S for the year. Its net income allocated to the City, after the owner's salary, is US$100,000. The City's income measure alone is US$8,850 (8.85%), and the GCT is at least that, so the S election leaves the City tax in place. New York State charges the corporation only its fixed dollar minimum, and the owner, a City resident, pays State and City income tax on the US$100,000.

A New Jersey corporation with two owners

Two owners, 50% each, form a New Jersey corporation and file Form 2553 on time; one lives in New Jersey, the other in Pennsylvania. They register on NJ-REG before CP261 arrives, so registration does not offer the consent. When the letter comes, the corporation submits it with both owners' signed Shareholder Jurisdictional Consent through the Division of Revenue's S Corporation Election system, or with its first CBT-100S. No CBT-2553 is filed. Had the Pennsylvania owner refused to sign, the corporation would generally pay New Jersey tax on her share on Form NJ-1040-SC, unless an exception above applied.

A Manhattan corporation that never filed CT-6

The corporation's Form 2553 was accepted from January 1 of Year 1, but nobody filed CT-6 until November of Year 2. The owner lives in New York and takes US$60,000 a year in distributions out of that year's profit.

Years 1 and 2 stay C corporation years in New York unless the Tax Department finds reasonable cause for the late election; the instructions describe no way to ask, so the result depends on the facts.

Different for you?

• Form 2553 is not filed yet, or the company is brand new: see S corporation from day one.
• The IRS has no record of the federal election, or it was late: see late S corporation election relief.
• CT-6 was missed, CT-3-S was filed without an approval notice, this is the first New York or New Jersey return, or shareholders live in several states: past and coming years need checking return by return; get corporate tax help.
• You are weighing whether S status is worth it with City tax on top: see should you elect S corporation status and how S corporations are taxed.
• A shareholder is a nonresident alien, an LLC or a trust: see S corporation eligibility.
• You are not sure how the IRS has the company classified: see how the IRS classifies your LLC.
• You are considering the pass-through entity tax: see PTET election.
• The business also works in other states: see business income tax in other states.