New York QSSS treatment - tax years beginning before January 1, 2015

The information on this page should not be relied on for tax years beginning on or after January 1, 2015, as corporate tax reform significantly altered the Article 9-A tax for such tax years. See New York QSSS treatment - tax years beginning on or after January 1, 2015 for QSSS information updated for corporate tax reform.

What is a QSSS

A QSSS is a corporation which is a qualified subchapter S subsidiary as defined in IRC section 1361(b)(3)(B).

An election must be made at the federal level by the parent of the QSSS to treat the subsidiary corporation as a QSSS. The parent must be a federal S corporation and must own 100% of the stock of the subsidiary corporation to be eligible to make the federal QSSS election. The subsidiary corporation can't be an "ineligible corporation" as defined under IRC section 1361(b)(2).

How is a QSSS treated for federal tax purposes

For federal tax purposes, a QSSS is not treated as a separate corporation apart from its parent.

All assets, liabilities, and items of income, deduction, and credit of a QSSS are treated as assets, liabilities, and items of income, deduction, and credit of the parent S corporation.

How is a QSSS treated in New York for tax purposes

In most instances, New York will follow the federal QSSS treatment in the Article 9-A and Article 32 franchise taxes. When the federal QSSS treatment is followed, the assets, liabilities, income and deductions of the QSSS will be included on the parent's franchise tax return.

However, with regard to other taxes under the Tax Law, such as sales and excise taxes, the QSSS will continue to be recognized as a separate corporation.

In all instances where the federal QSSS treatment is followed, the subsidiary is exempt (on a separate corporation basis) not only from the income-based franchise taxes, but also from the fixed dollar minimum tax and from the capital tax (Article 9-A) and the alternative tax based upon assets and the fixed minimum tax (Article 32).

An exempt QSSS is a QSSS that is exempt from tax under Article 9-A or Article 32 of the New York Tax Law:

• For Article 9-A/Article 32 purposes the QSSS is not treated as a separate corporation apart from its parent.
• For Article 9-A/Article 32 purposes all the assets, liabilities, income, deductions, credits and all other tax attributes and elements of economic activity of an exempt QSSS are treated as those of the parent corporation.

How to determine New York QSSS treatment under Article 9-A

♦ Are both the parent and the subsidiary general business corporations?

Excluded corporation - QSSS treatment will not be allowed unless parent and subsidiary are both general business corporations. Within the Article 9-A framework the parent and subsidiary will each have to file on a stand-alone basis if one is an Article 9-A taxpayer but the other is an Article 9 (transportation, transmission, utilities) or Article 32 (bank) or Article 33 (insurance) taxpayer (or is a foreign corporation not taxable by New York State that, if it were taxable, would be subject to tax under those articles). Likewise, within the Article 32 framework, the parent and subsidiary will each have to file on a stand-alone basis if one is an Article 32 taxpayer but the other is an Article 9, Article 9-A, or Article 33 taxpayer (or is a foreign corporation not taxable by New York State that, if it were taxable, would be subject to tax under those articles). This is an exception to the general rules that follow below.

♦ Is the parent a New York S corporation? (This includes a parent that is mandated to file as an S corporation under Tax Law section 660(i)); see S corporations - tax years beginning before January 1, 2015 for more information on the mandatory S corporation election.)

New York will follow the federal QSSS treatment when the parent is a New York S corporation. The parent and subsidiary will be taxed as a single New York S corporation under Article 9-A or Article 32 (and the shareholders of the parent will be taxed under the Article 22 personal income tax). This treatment will apply whether or not the subsidiary, viewed on a stand-alone basis, is a New York taxpayer.

♦ Is the parent a New York C corporation?

New York will follow the federal QSSS treatment (a) if the subsidiary is a New York taxpayer, or (b) if the subsidiary is not a taxpayer but the parent makes a QSSS inclusion election. In both instances, parent and subsidiary will be taxed as a single New York C corporation under Article 9-A or Article 32 (and the shareholders of the parent will be treated as shareholders of a C corporation). On the other hand, if the subsidiary is not a taxpayer and the parent does not make a QSSS inclusion election, the parent will file as a New York C corporation on a stand-alone basis under Article 9-A or Article 32.

♦ Is the parent a nontaxpayer?

New York will follow the federal QSSS treatment where the subsidiary is a New York taxpayer but the parent is not, if the parent makes the New York S election. The parent and subsidiary will be taxed as a single New York S corporation under Article 9-A or Article 32 (and the shareholders of parent will be taxed under the Article 22 personal income tax). If the parent does not make the New York S election, the subsidiary will file as a New York C corporation on a stand-alone basis under Article 9-A or Article 32.

How to make a QSSS inclusion election

As indicated above, if the parent of a QSSS is a New York C corporation and the QSSS is not a taxpayer and is not an excluded corporation, the parent may make a QSSS inclusion election to include all assets, liabilities, income, deductions, and credits of the QSSS on the parent’s New York C corporation return.

This election can be made by completing Form CT-60-QSSS, Affiliated Entity Information Schedule, and attaching it to your franchise tax return (CT-3, CT-3-A, CT-3-S, CT-32, CT-32-S, or CT-32-A). The election is effective for the tax year for which the election is made and for all succeeding tax years of the corporation until the election is terminated. If you elect to include a QSSS you must also include any lower tier QSSS owned by that QSSS.

You are required to complete Part 2 of Form CT-60-QSSS to make the election, and you are required to complete Part 2 for each succeeding tax year for which you wish the election to be effective.

How to terminate a QSSS inclusion election

If a QSSS for which the election had been made in a previous year is not included in Part 2 of Form CT-60-QSSS it indicates termination of the election.

For more information see:

• Corporation tax forms and instructions (prior years)