S corporations - 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 S corporations - tax years beginning on or after January 1, 2015, for S corporation information updated for corporate tax reform.

If your shareholders have made an S election for federal purposes, you should be aware that New York State does not automatically treat your company as a New York S corporation unless you are mandated to file as an S corporation under Tax Law section 660(i). Therefore, unless you are mandated, you need to qualify to make the election to be a New York S corporation and follow the steps outlined below.

Who qualifies to make the New York S election

To qualify for New York S corporation treatment, your corporation must:

• Be a federal S corporation.
• Be a general business corporation taxable under Article 9-A or a banking corporation taxable under Article 32 of the New York State Tax Law, or be the parent of a QSSS that is taxable under Article 9-A or Article 32. Insurance corporations taxable under Article 33 or any corporation taxable under Article 9 can't elect to be a New York S corporation.
• Get consent to the New York S election from all of the corporation's shareholders.

(Note: A qualified subchapter S subsidiary (QSSS) can't make the New York S election. Only the parent corporation of the QSSS can do so.)

Mandatory New York S election

Shareholders of eligible federal S corporations that haven't made the election to be treated as a New York S corporation for the current tax year will be deemed to have made that election under Tax Law section 660(i) if the corporation's investment income is more than 50% of its federal gross income for that year. This provision only applies to S corporations taxable under Article 9-A. See TSB-M-07(8)I or TSB-M-08(1)C for more information on the mandatory New York S corporation election.

What to do if you have a QSSS

In most instances, New York will follow the federal QSSS treatment in the Article 9-A and Article 32 franchise taxes, but different situations may apply when the parent is not a New York S corporation. See New York QSSS treatment - tax years beginning before January 1, 2015 for additional information.

How to make or terminate the New York S election

To make the New York S election, file Form CT-6, Election by a Federal S Corporation to be Treated As a New York S Corporation.

To terminate the New York S election, file Form CT-6.1, Termination of Election to be Treated As a New York S Corporation.

Paying tax as a New York S corporation

Under the corporation franchise tax (Article 9-A), you pay a fixed dollar minimum tax based on New York receipts.

Under the corporation franchise tax on banking corporations (Article 32), you pay the higher of:

• the tax on entire net income, computed as if the S corporation had not made the federal S corporation election, reduced by the Article 22 tax equivalent; or
• the fixed dollar minimum tax of $250. (Generally, the fixed dollar minimum tax is the higher amount.)

A license fee or maintenance fee may also apply if you're a corporation formed outside of New York.

The metropolitan transportation business tax (MTA surcharge) doesn't apply to a New York S corporation.

S corporations may earn tax credits that flow-through to the S corporation shareholders to be claimed on the shareholders' individual returns. 

Paying tax as a shareholder of a New York S corporation

Shareholders pay New York tax on their pro rata share of the S corporation pass-through items of income, gain, loss, and deduction that are includable in their federal adjusted gross income.

Nonresident shareholders and part-year resident shareholders pay tax only on the S corporation items derived from New York sources, which is determined at the corporate level.

Tax credits that are available under Article 9-A and Article 32 flow-through to shareholders to be claimed on the shareholders' returns, except for the special additional mortgage recording tax credit. 

Paying tax if you don't make the New York S election

Federal S corporations that aren't qualified or don't make a New York S election pay the same corporate franchise taxes as C corporations.

Tax credits are applied against the corporation's tax liability and do not flow-through to shareholders.

Resident shareholders pay tax on actual distributions of cash or other property from the corporation rather than on their pro rata share of the S corporation pass-through items.

Nonresident shareholders do not pay tax on actual distributions of cash or other property or on their pro rata share of the S corporation pass-through items.

Paying estimated tax

If your corporation reasonably expects to owe more than $1,000 in franchise tax after credits, you must file estimated tax forms (CT-400, Estimated Tax for Corporations) and make quarterly payments of all estimated tax due. Most corporations are mandated to e-file the estimated tax.

• Use Corporation tax Web File to submit Form CT-400. You'll need to first create an Online Services account.
  
  or
  
  
• Use tax preparation approved software to submit Form CT-400.

How to file and pay

• New York S corporations that are general business corporations file Form CT-3-S, New York S Corporation Franchise Tax Return.
• New York S corporations that are banking corporations file Form CT-32-S, New York Bank S Corporation Franchise Tax Return.

You may have to e-file your return. See e-file and e-pay requirements for certain filers for details.

If your due date falls on a Saturday, Sunday, or legal holiday, you may file your return on or before the next business day.

If you can't meet the filing deadline

If you cannot meet the filing deadline, you may request a six-month extension of time by filing Form CT-5.4, Request for Six-Month Extension to File New York S Corporation Franchise Tax Return, and paying your properly estimated franchise tax on or before the due date of the return.  Most general business corporations are mandated to e-file the extension.

• Use Corporation Tax Web File to submit Form CT-5.4. You will need to first create an Online Services account.

or

• Use tax preparation approved software to submit Form CT-5.4.

For more information see:

• Corporation tax forms and instructions (prior years)
• Corporate Tax Reform 2015
• Corporation Tax Publications
• Corporation Tax Memos (TSB-Ms)
• Corporation Tax Advisory Opinions