N.J.A.C. 18:7-20.4 - New Jersey S Corporation Status and New Jersey Qualified Subchapter S Subsidiary Status

(a) For privilege periods beginning on and after December 22, 2022, Federal S corporations and Federal Qualified Subchapter S Subsidiaries automatically receive New Jersey S corporation and New Jersey Qualified Subchapter S Subsidiary status, respectively. There is no longer a requirement for a separate New Jersey S corporation election for a Federal S corporation. Any S corporation or Qualified Subchapter S Subsidiary doing business in New Jersey, or having or exercising its franchise in New Jersey, or deriving receipts, engaging in contracts, or employing or owning capital or property in New Jersey, or registered to do business in New Jersey, that does not elect to be taxed as a C corporation for New Jersey purposes will be taxed as a New Jersey S corporation or New Jersey Qualified Subchapter S Subsidiary. For New Jersey S corporation or New Jersey Qualified Subchapter S Subsidiary that are taxed as C corporations, see (e) and (f) below.

(b) S Corporations and Qualified Subchapter S Subsidiaries with Federal acceptance letters with a starting date in said letter before December 22, 2022, that made an affirmative New Jersey S corporation or Qualified S corporation election in privilege periods beginning before December 22, 2022, continue to file the CBT-100S as New Jersey S corporations and New Jersey Qualified Subchapter S Subsidiaries in the manner that New Jersey S corporations and New Jersey Qualified Subchapter S Subsidiaries would normally file. However, they may prospectively elect C corporation status for New Jersey purposes, as described below.

(c) Any Federal S corporation or Federal Qualified Subchapter S Subsidiary that never elected that status for New Jersey purposes for periods beginning before December 22, 2022, and is seeking retroactive New Jersey S corporation or Qualified Subchapter S Subsidiary status, will need to make an affirmative retroactive New Jersey S corporation or Qualified Subchapter S Subsidiary election for those periods, and follow the administrative procedures set forth by the Division of Revenue and Enterprise Services for making such retroactive election filings.

(d) Businesses that receive their Federal approval letter authorizing them to file as a Federal S corporation or Federal Qualified Subchapter S Subsidiary after December 22, 2022, will submit the letter to New Jersey when they complete their business registration with the Division of Revenue and Enterprise Services; or if the business did not submit their Federal acceptance letter at the time of registration, they can either provide the documentation when filing the S corporation return (Form CBT-100S) or use the Division of Revenue and Enterprise Services' S Corporation election system to submit the documentation.

(e) Federal S corporations and Qualified Subchapter S Subsidiaries that were taxed as a C corporation for New Jersey purposes for privilege periods before December 22, 2022, may continue to be so taxed by filing the applicable CBT return (other than the CBT-100S) and by checking the applicable box on the return.

(f) Federal S corporations and Qualified Subchapter S Subsidiaries that were taxed as a C corporation for New Jersey purposes for privilege periods before December 22, 2022, but elect to be taxed as a New Jersey S corporation or a New Jersey Qualified Subchapter S Subsidiary thereafter, must submit Shareholder Jurisdictional Consents either through the Division of Revenue and Enterprise Services S corporation election portal or as part of the CBT-100S.

(g) Federal S corporations and Qualified Subchapter S Subsidiaries that first elect to be taxed as a C corporation for New Jersey purposes for privilege periods beginning on and after December 22, 2022, must file/maintain a C Corporation Tax Status Election Consent. The S corporation or Qualified Subchapter S Subsidiary has until the later of the original due date of the return or the extended due date of the return (if an extension to file a return was submitted) to elect to be taxed as a C corporation for New Jersey purposes. Taxpayers can make such an election by filing the applicable CBT return (other than the CBT-100S), and checking the applicable box on the return. A taxpayer electing to be taxed as a C corporation is required to make installment payments of estimated tax and is subject to interest on the underpayment of estimated tax unless an exception applies. See N.J.A.C. 18:7-3.13.

1. The election to be taxed as a C corporation as set forth at N.J.S.A. 54:10A-5.22(d), requires 100 percent shareholder consent. However, N.J.S.A. 54:10A-5.22(d) does not require the consent to be attached to the returns. The taxpayer must retain proof of the consent as part of their books and records and provide it upon request to Division of Taxation.

2. An S corporation or Qualified Subchapter S Subsidiary has until the later of the original due date of the return or the extended due date of the return (if an extension to file a return was submitted) to elect to be taxed as a C corporation, and this is also the last day for shareholders to consent. However, if there are reasonable delays in obtaining shareholder consent, the Division of Taxation will not penalize the S corporation by revoking its election to be taxed as a C corporation and refunding the taxes paid if an S corporation or Qualified Subchapter S Subsidiary obtains shareholder consent within a reasonable time.

3. If the S corporation filed a CBT return other than CBT-100S, paid the tax as though it were a C corporation, and had not received 100 percent of shareholder consent during the original period, the S corporation may amend its CBT-return, and file a CBT-100S. In such cases, a taxpayer will receive a refund of the amounts paid as a C corporation, but not owed as a New Jersey S corporation. However, such Corporation Business Tax payments are not credited to the Business Alternative Income Tax.

4. If the S corporation made estimated tax payments as a C corporation, and had not received 100 percent of shareholder consent during the original period, the S corporation may file a CBT-100S, and will receive a refund of the amounts paid as a C corporation, but not the amounts owed as a New Jersey S corporation. However, such Corporation Business Tax payments are not credited to the Business Alternative Income Tax.

(h) An election to be taxed as a C corporation for New Jersey purposes may be revoked if shareholders holding more than 50 percent of the shares of stock of the S corporation on the date on which the revocation is made consent to the revocation. Such revocation shall be effective on the first day of the taxpayer's taxable year if made on or before the 15th day of the third month of the privilege period. If the revocation is made after such date, the revocation shall be effective for the following taxable year, unless the shareholders revoke such revocation before December 31 of the current year. The revocation is made by filing the CBT-100S, submitting the Shareholder Jurisdictional Consents either through the Division of Revenue and Enterprise Services S corporation election portal or as part of the CBT-100S, and maintaining the shareholder revocation consents as part of the taxpayer's books and records.

(i) For Federal S corporations and Federal Qualified Subchapter S Subsidiaries that are part of a larger corporate group that files New Jersey combined returns, an election made pursuant to either N.J.S.A. 54:10A-5.22(d) or 54:10A-4(ff) results in an S corporation or Qualified Subchapter S Subsidiary being included as a taxable member of its combined group and taxed as a C corporation for New Jersey purposes.

1. If a Federal S corporation and its Federal Qualified Subchapter S Subsidiaries each make an election pursuant to either N.J.S.A. 54:10A-5.22(d) or 54:10A-4(ff), the Federal S corporation and its Federal Qualified Subchapter S Subsidiaries shall file a New Jersey combined return and be taxed as C corporations for New Jersey purposes.

2. Federal S corporations and Qualified Subchapter S Subsidiaries do not have to make two elections to be taxed as a C corporation for New Jersey purposes because either the election made pursuant to N.J.S.A. 54:10A-5.22(d) or 54:10A-4(ff) results in being taxed as a C corporation. However, a Federal S corporation that is not part of a group can only make an election to be taxed as a C corporation pursuant to N.J.S.A. 54:10A-5.22(d).

(j) New Jersey conformity to Federal rules and revenue procedures regarding mergers and reorganizations depends on the applicable time the event took place. New Jersey conformity to Federal rules, revenue rulings, and revenue procedures regarding mergers and reorganizations is as follows:

1. Pre-December 22, 2022, entities that became Federal S corporations and Federal Qualified Subchapter S Subsidiaries as a result of a merger or reorganization must proactively elect New Jersey S corporation and New Jersey Qualified Subchapter S Subsidiary status.

2. For mergers or reorganizations on or after December 22, 2022, New Jersey S corporation status and New Jersey Qualified Subchapter S Subsidiary status is automatic for Federal S corporations and Federal Qualified Subchapter S Subsidiaries, and New Jersey generally conforms to the Federal rules, revenue rulings, and revenue procedures regarding mergers and reorganizations.

3. The business shall also register to do business with the Division of Revenue and Enterprise Services, if otherwise required to do so pursuant to Title 14A or Title 42, if it has not registered with the State previously.