Article 9-A─Franchise tax on S corporations
Information on this page relates to a tax year that began on or after January 1, 2015. See S corporations - tax years beginning before January 1, 2015, for S corporation information for years prior to 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 § 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.
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 be the parent of a qualified subchapter S subsidiary that is taxable under Article 9-A of the New York State Tax Law (Insurance corporations taxable under Article 33 or any corporation taxable under Article 9 cannot elect to be a New York S corporation.); and
- get consent to the New York S election from all of the corporation's shareholders.
(Note: A qualified subchapter S subsidiary cannot make the New York S election. Only the parent corporation of the qualified subchapter S subsidiary can do so.)
Shareholders of eligible federal S corporations that have not 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 if the corporation's investment income is more than 50% of its federal gross income for that year.
- For purposes of the mandated New York State S election, investment income means the sum of an eligible S corporation's gross income from:
- rents, and
- gains derived from dealings in property, including the corporation's share of such items from:
- a partnership,
- estate, or
to the extent such items would be includable in the corporation's federal gross income for the tax year (Tax Law § 660(i)(3)).
- In determining whether an eligible S corporation is deemed to have made the New York S election, the income of a qualified subchapter S subsidiary owned directly or indirectly by the eligible S corporation shall be included with the income of the eligible S corporation.
- If deemed to have made the New York S election, the taxpayer must file form CT-3-S.
In most instances, New York will follow the federal qualified subchapter S subsidiary treatment in the Article 9-A franchise taxes, but different situations may apply when the parent is not a New York S corporation.
See New York qualified subchapter S subsidiary treatment for additional information.
- Under the corporation franchise tax (Article 9-A), you pay a fixed dollar minimum tax based on New York receipts.
- The metropolitan transportation business tax (MTA surcharge) does not apply to a New York S corporation.
- S corporations may qualify to earn certain tax credits that flow-through to the S corporation shareholders to be claimed on the shareholders' individual returns.
- 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 available under Article 9-A flow-through to shareholders to be claimed on the shareholders' returns, except for the special additional mortgage recording tax credit.
- Federal S corporations that are not qualified or do not 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.
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. You must use one of the following methods to file:
|Type of filer
|On or before April 15
|Within 3 ½ months after end of reporting period
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 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.