Official Site of The State of New Jersey

1. How does the corporation notify New Jersey that it wants to file a return as a C corporation or an S corporation for privilege periods on or after December 22, 2022?

   A federal S corporation (or QSSS) that is registered with the Division of Revenue and Enterprise Services (DORES) has until the original due date of the tax return (or the extended due date, if applicable) to decide whether it wants to file a return as a C corporation or an S corporation for New Jersey purposes. There is no formal notification that needs to be sent to New Jersey to elect either tax filing status but the following steps must be taken.

   New Jersey C Corporation Tax Status. To have the C corporation tax status recognized, the federal S corporation (or QSSS) must do the following:

   • Maintain the C Corporation Tax Status Election Consent; and
   • Make estimated payments as though it were a C corporation and then timely file the applicable Corporation Business Tax (CBT) return, other than Form CBT-100S, indicating that the entity is a hybrid corporation (federal S corporation/New Jersey C corporation) in the appropriate section of the return (page 1 of Form CBT-100 or on the Members and Affiliates Schedule portion of Form CBT-100U); or

   • File the applicable CBT return, other than Form CBT-100S, by the due date or extended due date, if applicable, indicating that the entity is a hybrid corporation in the appropriate section of the form. There is no option to be taxed as a C corporation on Form CBT-100S.

     If there is a change of stock ownership during the tax year in which a C Corporation Tax Status Election Consent is made, the shareholders that must be included in the consent will be determined by the date of any transactions made by the entity. If the corporation filed estimated payments before the stock ownership change, the former shareholder must join the C Corporation Tax Status Election Consent.

   New Jersey S Corporation Tax Status. To have the S corporation tax status recognized, the federal S corporation (or QSSS) must do the following:

   • Make estimated payments as though it were an S corporation and then timely file Form CBT-100S; or
   • File Form CBT-100S by the due date or extended due date, if applicable. There is no option to be taxed as an S corporation on any Corporation Business Tax return other than Form CBT-100S.

2. Can S corporation returns be changed to C corporation returns or vice versa? If so, what are the appropriate procedures?

   For privilege periods beginning on and after December 22, 2022, taxpayers cannot amend their Corporation Business Tax return to change the entity type. The statute provides a fixed window of time to revoke the C corporation tax status election as detailed in TB-105 .

   For privilege periods beginning before December 22, 2022, an entity that had been granted S status in New Jersey would not be permitted to amend and file as a C corporation. An entity that filed as a C corporation would need to make a retroactive election to be treated as an S corporation before an amended return could be filed. Generally, taxpayers cannot amend if there were a series of privilege periods in which the business filed as a C corporation. However, the Division will review these requests on a case-by-case basis.

How does a federal S corporation that owns a federal Qualified Subchapter S Subsidiary (QSSS) file its New Jersey tax return?

Scenario 1 – If neither is electing to be taxed as a C corporation, both corporations will file a CBT-100S return and follow the instructions for the QSSS and its parent S corporation. The QSSS annually files Form CBT-100S with page 1 reflecting zero income, the Annual General Questionnaire, and if applicable Schedule PC (Professional Corporation), along with the required minimum tax. The parent S corporation will report all assets, liabilities, income, and expenses of the QSSS on a consolidated basis on its Form CBT-100S.

Scenario 2 – If the parent federal S corporation elects to be taxed as a C corporation for New Jersey purposes, the QSSS annually files Form CBT-100S with page 1 reflecting zero income, the Annual General Questionnaire, and if applicable Schedule PC (Professional Corporation), along with the required minimum tax. The parent S corporation will report all assets, liabilities, income, and expenses of the QSSS on a consolidated basis on its Corporation Business Tax return, which is not Form CBT-100S. A federal S corporation that chooses C corporation tax status is subject to the statutes and rules governing combined reporting.

Scenario 3 – If both the parent S corporation and the QSSS elect to be taxed as a C corporation, the parent S corporation and the QSSS must file a New Jersey combined return together.

While both the water's-edge combined return (which is the mandatory default filing method) and the elective worldwide group combined return requires a unitary business relationship to exist, the elective affiliated group combined return method, does not require a unitary business relationship to exist.

1. How does a federal S corporation that becomes a federal QSSS of a new holding company file in New Jersey when the S election carries to the new holding company for federal purposes as the result of a federal tax-free "F reorganization"?

   For privilege periods beginning on and after December 22, 2022, taxpayers file the appropriate Corporation Business Tax returns reflecting the same income and months in the same manner that they reported it for federal tax purposes. (The federal S corporation and new holding company must be properly registered with the Division of Revenue and Enterprise Services.) If the S corporation was part of a New Jersey combined group, a short-period return would generally not be necessary since the months would be included in the combined group return. See N.J.A.C. 18:7-12.1(d) for more information on short-period returns for combined groups.

   For privilege periods beginning before December 22, 2022, the federal QSSS and the new holding company must have elected to be treated as an S corporation (or QSSS) in New Jersey. If they did not, they will need to make a retroactive election for those periods. They do not need to include any full-year privilege period that begins on or after December 22, 2022, in the retroactive election. See "What steps are required for a federal Qualified Subchapter S Subsidiary (or QSSS) to be recognized as a New Jersey QSSS?" under "Registration and Jurisdictional Consent" for more information.

2. Same circumstances as detailed in Question 11 but the QSSS is shortly thereafter converted to a single-member limited liability company and sold to an unrelated party. What steps does New Jersey require to end the QSSS's filing obligations?

   For privilege periods beginning on and after December 22, 2022, taxpayers would file the appropriate Corporation Business Tax returns reflecting the same income and months in the same manner that they reported it for federal tax purposes. There are steps that need to be taken with the Division of Revenue and Enterprises services to record the merger and register the new business but those procedures have not changed under the new law.

   For privilege periods beginning before December 22, 2022, the federal QSSS will need to make a retroactive New Jersey QSSS election for any privilege periods beginning prior to December 22, 2022, in order to get the returns processed properly. If the S corporation was part of a combined group, a short-period return would generally not be necessary, as the months would be included in the combined group return. See N.J.A.C. 18-7-12.1(d) for more information on when short-period returns are necessary for combined groups.

1. Will a taxpayer that has historically filed as a hybrid corporation automatically default to S corporation status for New Jersey purposes under the new law?

   Although the law includes an automatic default to a New Jersey S corporation, the Division is not creating a new "opt-out" form. See "How does the corporation notify New Jersey that it wants to file a return as a C corporation or an S corporation for privilege periods on or after December 22, 2022?" under "Filing Returns" for more information.

2. Can a taxpayer (calendar year filer) that filed as a hybrid corporation prior to the law change begin to file as a New Jersey S corporation in Tax Year 2023?

   Yes, the entity can begin filing a New Jersey S corporation return (Form CBT-100S) for Tax Year 2023. However, the hybrid corporation must provide proof that they received federal S corporation status and submit the Shareholder Jurisdictional Consent.

3. How does a hybrid corporation revoke a C Corporation Tax Status Election Consent in a subsequent privilege period (i.e., after Tax Year 2023)?

   There is no formal notification required to be submitted to New Jersey but a Revocation of C Corporation Tax Status Election Consent must be retained by the entity. In addition, the entity must provide proof that they received federal S corporation (or QSSS) status and a Shareholder Jurisdictional Consent. For example, in 2024, a hybrid corporation decides to file as an S corporation. To be effective on January 1, 2024, the shareholders' finalized vote on the Revocation of C Corporation Tax Status Election Consent must be dated on or before the 15th day of the 3rd month (or March 15, 2024) of the current privilege period. If the finalized vote is after March 15, 2024, the S corporation filing would be effective on January 1, 2025. The shareholders may vote to rescind the Revocation of C Corporation Tax Status Election Consent at any time during the current period (or up to December 31, 2024, in this example).

4. How is the income from a hybrid treated for Gross Income Tax purposes?

   The treatment of a hybrid corporation has not changed. See GIT-9S for information on the treatment of a hybrid corporation's income for Gross Income Tax purposes.

Only pass-through entities can elect to pay a Pass-Through Business Alternative Income Tax (PTE, also called BAIT) and the election is due on or before March 15 of the following year (calendar year filers). Since a federal S corporation has until the later of the original due date (or extended due date, if applicable) of the Corporation Business Tax return to decide which New Jersey return to file, can a retroactive PTE/BAIT election be made?

No, retroactive PTE/BAIT elections are not permitted under N.J.S.A. 54A:12-3. If the entity wants to make the PTE/BAIT election, it must be done by March 15 (calendar year filers). However, the Division of Taxation is reviewing the procedures for S corporations and more information will be made available before the end of Tax Year 2023.

1. A taxpayer is a federal S corporation that has not previously filed but recently determined that the corporation has a taxable presence in New Jersey and would like to enter into a Voluntary Disclosure Arrangement (VDA) for the corporation and the shareholders. Is that an option?

   Yes, a VDA is allowed where the VDA eligibility requirements are met. S corporation status may be agreed upon under the VDA. See: Voluntary Disclosure Program.

2. A taxpayer is a federal S corporation that has not previously filed with New Jersey but believes that the activities of the S corporation are limited to those allowed by P.L.86-272. What should they do?

   The taxpayer must submit proof that they received federal S corporation status and the Shareholder Jurisdictional Consent, file Form CBT100S completing Schedule N and paying the minimum tax. If the entity wants to be treated as a C corporation for New Jersey purposes, see "Hybrid Corporation (Federal S Corporation filing as New Jersey C Corporation)" for more information on filing.

1. Suppose an S corporation shareholder that is an Electing Small Business Trust (ESBT) fails to make a New Jersey ESBT election. Would it result in the entity losing its S corporation status for New Jersey purposes?

   The failure to make a New Jersey ESBT election would not by itself cause the entity to lose its New Jersey S corporation status as long as the ESBT has properly filed to be a federal ESBT. However, a New Jersey corporation that loses its federal S corporation status due to a failure to file a federal ESBT election will also lose its New Jersey S corporation status.

2. What terminates an entity's S corporation status in New Jersey?

   An entity's S corporation status is revoked in New Jersey if:

   • The entity elects to be taxed as a C corporation; or
   • The company dissolves or merges out of existence (the business must follow the normal processes for dissolutions, mergers, tax clearance, and short period returns to terminate S corporation status); or
   • The entity loses its federal S corporation status.