eMinutes Blog

Electing S Corporation Status in New Jersey

December 15, 2017

In our Comprehensive Guide to State S Election Requirements, we identified the few remaining states that still require S corporations to file separate elections, or something else, for the federal S corporation election to be recognized in those states. New Jersey is one of only two states (New York being the other) that definitely require something specifically delineated as a separate state S corporation “election” to be filed.

Under New Jersey law, a corporation that has made a valid election to be treated as a federal S corporation may elect to be a New Jersey S corporation, if it meets certain criteria.[1] For example, the corporation must be or have applied to be an S corporation under federal law, and the corporation and each shareholder holding shares on the day the election is made must consent to the election and to New Jersey’s right and jurisdiction to tax and collect the tax on each shareholder’s S corporation income.[2]

To elect treatment as a New Jersey S corporation, the federal S corporation must file a Form CBT-2553 (New Jersey S Corporation or New Jersey QSSS Election) with the Division of Taxation.[3] Form CBT-2553 includes the shareholders’ and corporation’s consent statements, although shareholder elections may be made on separate consent statements attached to Form CBT-2553.[4]

The fully completed and duly executed Form CBT-2533 must be filed within one calendar month of the time at which a federal S corporation would be required.[5] Specifically, Form CBT-2533 must be filed at any time before the 16th day of the fourth month of the first tax year the election is to take effect.[6] An election made after the 15th day of the fourth month but before the end of the tax year is treated as having been made for the next year.[7] No filing extensions are available,[8] but the Division of Taxation may accept a retroactive election to be recognized as a New Jersey S corporation if the corporation: is authorized to do business in New Jersey; is registered with the Division of Taxation; and has filed Form CBT-100S tax returns with New Jersey.[9]

Once a state election is made and accepted, the corporation remains a New Jersey S corporation as long as it is a federal S corporation.[10] A federal S corporation that has not filed Form CBT-2533 or been approved as a New Jersey S corporation is subject to the New Jersey corporate tax rates for ordinary corporations.[11]

[1] See N.J. Stat. Ann. § 54:10A-5.22(a); N.J. Admin. Code § 18:7-20.1(c)(1); see also N.J. Stat. Ann. § 54:10A-4(p) (defining a “New Jersey S corporation” as an S corporation that has (1) made a valid election under N.J. Stat. Ann. § 54:10A-5.22, and (2) been an S corporation since making the election); N.J. Admin. Code §§ 18:7-1.19, 18:7-20.1(a)(2) (same). Access to the New Jersey Administrative Code is available through LexisNexis®.

[2] See N.J. Stat. Ann. § 54:10A-5.22(a), (b)(1); N.J. Admin. Code § 18:7-20.1(c)(1)(i), (ii); Instructions for Form CBT-2553 (instruction no. 2).

[3] See N.J. Admin. Code § 18:7-20.1(c).

[4] See id. § 18:7-20.1(c)(1)(vi).

[5] See id. § 18:7-20.1(c)(2).

[6] Id. The federal S election must be filed on or before the 16th day of the third month of the first tax year the election is to take effect. See 26 C.F.R. § 1.1362-6(a)(2)(ii)(A). If the tax year has 3½ months or less remaining, and the state election is made not later than three months and 15 days after the first day of the tax year, it will be treated as timely made during such year. See N.J. Admin. Code § 18:7-20.1(c)(2).

[7] See N.J. Admin. Code § 18:7-20.1(c)(2).

[8] Id. § 18:7-20.1(c)(2)(i).

[9] See id. § 18:7-20.3(a); Xylem Dewatering Sols., Inc. v. Dir., Div. of Taxation, 30 N.J. Tax 41, 55 (2017). A retroactive application is made by filing Form CBT-2533-R (Retroactive S Election Application) together with Form CBT-2553.

[10] See N.J. Dep’t of the Treasury, Div. of Taxation, Electing S Corporation Status, S Corporation Questions & Answers (answer no. 9); Instructions for Form CBT-2553 (instruction no. 6). The corporation may revoke an election by filing a letter of revocation with the Division of Taxation.

[11] See N.J. Admin. Code § 18:7-20.1(c)(3); N.J. Dep’t of the Treasury, Div. of Taxation, S Corporation Questions & Answers (answer no. 6).

Our attorneys are admitted to practice law in California, New York, and Texas.
css.php