Division of TaxationA supplemental FAQ to support TB-105 (R) .
What steps are required for a federal S corporation or Qualified Subchapter S Subsidiary (QSSS) to be recognized as a 勛圖窪蹋 S corporation (QSSS)?
All companies doing business in 勛圖窪蹋 must be registered with the 勛圖窪蹋 Division of Revenue and Enterprise Services (DORES). Information on registration can be found in the publication 勛圖窪蹋 Tax Guide Starting a Business in 勛圖窪蹋 .
S Corporations and Qualified Subchapter S Subsidiaries with Federal Approval Letters Dated on and after December 22, 2022. Without exception, federal S corporations (or Qualified Subchapter S Subsidiaries (QSSS)) must be registered with DORES as a corporation, provide proof that they received federal S corporation (or QSSS) status, and submit the Shareholder Jurisdictional Consent. See What is a Shareholder Jurisdictional Consent and how does the taxpayer submit it? for more information.
If the business was previously registered with DORES as anything other than a corporation (meaning "Ownership Type" filing as "1120 Filer"), before the entity can be recognized as a 勛圖窪蹋 S corporation (or QSSS), the Ownership Type must be revised. After updating the Ownership Type, the business must then submit proof that they received federal S corporation (or QSSS) status and the Shareholder Jurisdictional Consent. For example: a Limited Liability Company registered with DORES as a 1065 Filer in Tax Year 2020 but the business then files Form 2553 with the IRS and is approved as a federal S corporation effective January 1, 2023. While the new law eliminates the requirement for a separate 勛圖窪蹋 S corporation (or QSSS) election, the entity is still required to be registered as an 1120 Filer in order to create its eligibility to submit Corporation Business Tax forms. Businesses must file the Business Entity Conversion/Domestication Filing forms, which can be found on the Division of Revenue and Enterprise Services' website (Note: if the resulting business will be a New Jersey entity, use Form CD-100. If the resulting business will be a non-New Jersey entity (i.e., foreign entity), use Form CD-101.)
S Corporations and Qualified Subchapter S Subsidiaries with Federal Approval Letters Dated Before December 22, 2022. Before the law change, if a federal S corporation (or QSSS) filed Form CBT-100S without making an affirmative election to be treated as an S corporation (or QSSS) for 勛圖窪蹋 purposes, the return was automatically converted to a C corporation return and taxed at that rate. If the federal S corporation (or QSSS) wants returns from privilege periods prior to December 22, 2022 accepted as 勛圖窪蹋 S corporation(or QSSS) returns, it will need to make a for those periods. The S corporation (or QSSS) does not need to include a payment for any full-year privilege period that begins on or after December 22, 2022, in the retroactive S corporation application. If the entity is not going to apply for retroactive S election (or QSSS election), it will owe the tax as if it was a C corporation for those periods. If the entity is not filing the retroactive S corporation (or QSSS) application but is going to file Form CBT-100S for privilege periods beginning on or after December 22, 2022, they must provide proof that they received federal S corporation (or QSSS) status and the Shareholder Jurisdictional Consent.
How does the business provide proof that they received federal S corporation (or QSSS) status?
Most businesses will submit a copy of their federal approval letter authorizing them to file as a federal S corporation or QSSS (the letter (notice) is denoted as CP261 or 385C by the IRS) when they complete their business registration with the Division of Revenue and Enterprise Services.
However, if the business did not submit their federal approval letter at the time of registration, they can either provide the documentation when filing the S corporation return (Form CBT-100S) or they can use the Division of Revenue and Enterprise Services S Corporation Election system to submit the documentation.
What is a Shareholder Jurisdictional Consent and how does the taxpayer submit it?
The Shareholder Jurisdictional Consent is the shareholders acknowledgement that 勛圖窪蹋 has the jurisdiction (right) to tax each shareholders S corporation income, regardless of the shareholders residency. Each shareholder who owns (or is deemed to own) stock, must be listed on the initial Shareholder Jurisdictional Consent with their stock ownership percentages.
When initially registering a new business through the Division of Revenue and Enterprise Services NJ-REG system, the taxpayer will be asked to indicate whether the business has received their federal approval letter authorizing them to file as a federal S corporation or QSSS. If the entity has received their approval letter, they upload a copy of the federal approval letter and complete the Shareholder Jurisdictional Consent while completing the NJ-REG. If the entity does not yet have a copy of the federal approval letter, they will not be able to reach the Shareholder Jurisdictional Consent during the registration process. In that case, they will need to provide a copy of the federal acceptance letter and complete the Shareholder Jurisdictional Consent once the letter is received.
If they need to complete the Shareholder Jurisdictional Consent and provide a copy of the federal acceptance letter outside of the registration system, the business 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 to submit the documentation.
What if a nonresident shareholder does not consent to 勛圖窪蹋 jurisdiction?
The requirement for an S corporation to remit the tax on behalf of nonconsenting shareholders did not change under P.L. 2022, c. 133 nor did the law add any new exceptions.
If a nonresident shareholder does not consent to 勛圖窪蹋 jurisdiction, they are a nonconsenting shareholder and the S corporation must consent to the assumption of any tax liabilities on their behalf when filing Form CBT-100S (pursuant to N.J.S.A. 54:10A-5.22 and N.J.S.A. 54:10A-5.23).
However, there are two exceptions in which the S corporation is not required to make a tax payment on behalf of the nonconsenting shareholder:
How does the taxpayer remove or add a shareholder or report a change in stock ownership after filing the original Shareholder Jurisdictional Consent?
N.J.S.A. 54:10A-5.22(e) requires that all 勛圖窪蹋 S corporations report any change in their shareholders or stock ownership to the Director of the Division of Taxation. This is done directly on the Corporation Business Tax return using Schedule SJC, which is contained in Form CBT-100S.
What steps are required for a federal S corporation (or QSSS) to not be taxed as a 勛圖窪蹋 S corporation?
After properly registering the business, an entity can opt out of being treated as an S corporation by making a C Corporation Tax Status Election, which requires the C Corporation Tax Status Election Consent of 100% of the shareholders. A federal S corporation (or QSSS) that chooses C corporation tax status is subject to the statutes and rules governing combined reporting. See "Hybrid Corporations(Federal S Corporation filing as 勛圖窪蹋 C Corporation)" for more information.
If there is any change in shareholders or stock ownership during a tax year in which the shareholders consent to be taxed as a C corporation (C Corporation Tax Status Election Consent), is a revised Shareholder Jurisdictional Consent required?
No. Businesses that are taxed as C corporations (regardless of how they are taxed for federal purposes) do not have to report changes in their shareholders. However, changes of ownership that impact whether a business is required to be part of a combined group must be reported on the combined return by updating the member information stating the date the member left or joined the combined group.
If the shareholders decide to file as an S corporation, the entity would need to provide an updated Shareholder Jurisdictional Consent to report any changes at that time. See What is a Shareholder Jurisdictional Consent and how does the taxpayer submit it? for more information.
How does the corporation notify 勛圖窪蹋 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 勛圖窪蹋 purposes. There is no formal notification that needs to be sent to 勛圖窪蹋 to elect either tax filing status but the following steps must be taken.
勛圖窪蹋 C Corporation Tax Status. To have the C corporation tax status recognized, the federal S corporation (or QSSS) must do the following:
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.
Note: 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.
勛圖窪蹋 S Corporation Tax Status. To have the S corporation tax status recognized, the federal S corporation (or QSSS) must do the following:
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 勛圖窪蹋 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 勛圖窪蹋 tax return?
Scenario 1 If neither is electing to be taxed as a C corporation, the parent S corporation will report all assets, liabilities, income, and expenses of the QSSS on a consolidated basis on its Form CBT-100S and will calculate the tax owed using Schedule Q. (Note: For Tax Years 2023 and before, the Form CBT-100S did not account for an S corporation with a QSSS. For those Tax Years, the parent corporation will file Form CBT-100S listing the attributes and activities of the QSSS, but the QSSS is also required to file Form CBT-100S, including only page 1 reflecting zero income, the Annual General Questionnaire, and when applicable Schedule SJC and Schedule PC, and remit the minimum tax.)
Scenario 2 If the parent federal S corporation elects to be taxed as a C corporation for 勛圖窪蹋 purposes, both entities are required be included as members of a combined group and file Form CBT-100U. If the federal S corporation and its QSSS are the only members of the combined group, the parent will need to register as the managerial member of the group. See Combined Group Managerial Member Procedures for more information.
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.
How does a federal S corporation that becomes a federal QSSS of a new holding company file in 勛圖窪蹋 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. While the attributes and activities of the QSSS are included as part of the holding company’s (i.e., parent corporation) attributes and activities, the parent must also include any minimum tax for the QSSS on the return. See Schedule Q in Form CBT-100S for more information. (Note: The federal QSSS and new holding company must be properly registered with the Division of Revenue and Enterprise Services (DORES). In addition, if there is a conversion (e.g., the S corporation becomes a single member LLC), Forms CD-100 or CD-101 must also be completed with DORES.) If the S corporation was part of a 勛圖窪蹋 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. (Note: For Tax Year 2023 only (privilege periods ending on or after July 31, 2023, through June 30, 2024), the Form CBT-100S did not account for an S corporation with a QSSS. For Tax Year 2023, the parent corporation will file Form CBT-100S listing the attributes and activities of the QSSS, but the QSSS is required to file Form CBT-100S, including only page 1 reflecting zero income, the Annual General Questionnaire, and when applicable Schedule SJC and Schedule PC, and remit the minimum tax.)
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 勛圖窪蹋. If they did not, they will need to make a retroactive election for those periods. They do not need to include a payment for 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 勛圖窪蹋 QSSS?" under "Registration and Jurisdictional Consent" for more information.
Will a taxpayer that has historically filed as a hybrid corporation automatically default to S corporation status for 勛圖窪蹋 purposes under the new law?
Although the law includes an automatic default to a 勛圖窪蹋 S corporation, the Division is not creating a new "opt-out" form. See "How does the corporation notify 勛圖窪蹋 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.
Can a taxpayer (calendar year filer) that filed as a hybrid corporation prior to the law change begin to file as a 勛圖窪蹋 S corporation in Tax Year 2023?
Yes, the entity can begin filing a 勛圖窪蹋 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.
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 勛圖窪蹋 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 2026, a hybrid corporation decides to file as an S corporation. To be effective on January 1, 2027, 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, 2026) of the current privilege period. If the finalized vote is after March 15, 2026, the S corporation filing would be effective on January 1, 2026. 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, 2026, in this example).
How is the income from a hybrid corporation 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.
My C corporation, which is registered and has been filing as a C corporation for 勛圖窪蹋 purposes, recently acquired S corporation status for federal purposes. How do I report this information to 勛圖窪蹋?
Assuming the Federal Acceptance Letter is dated on or after December 22, 2022, the business submits their Shareholder Jurisdictional Consent (Schedule SJC) and proof of their federal S corporation status (i.e., a copy of the federal acceptance letter) as part of their CBT-100S. If the business wants to submit the information in advance of filing their return (i.e., in order to make a PTE election), they can use the Division of Revenue and Enterprise Services
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 勛圖窪蹋 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).
A taxpayer is a federal S corporation that has not previously filed but recently determined that the corporation has a taxable presence in 勛圖窪蹋 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 if the VDA eligibility requirements are met. S corporation status may be agreed upon under the VDA. See: Voluntary Disclosure Program.
What should an out-of-state S corporation that has nexus with 勛圖窪蹋 do if they have not previously filed with 勛圖窪蹋?
The taxpayer must register the business with the Division of Revenue and Enterprise Services and submit proof that they received federal S corporation status and file the Shareholder Jurisdictional Consent. Then the S corporation files Form CBT100S for the privilege period. If the S corporation is also claiming P.L. 86-272 protection, they must file Form CBT100S, complete Schedule N, and pay the minimum tax. In such situations where the S corporation is claiming P.L. 86-272 protection and they have an amount that is taxable for federal purposes during a privilege period, they will not be taxed on that portion for 勛圖窪蹋 purposes that they would otherwise be liable to pay pursuant to N.J.S.A. 54:10A-5(c)(3). If the entity wants to be treated as a C corporation for 勛圖窪蹋 purposes, see Hybrid Corporation (Federal S Corporation filing as 勛圖窪蹋 C Corporation) for more information on filing.
Suppose an S corporation shareholder that is an Electing Small Business Trust (ESBT) fails to make a 勛圖窪蹋 ESBT election. Would it result in the entity losing its S corporation status for 勛圖窪蹋 purposes?
The failure to make a 勛圖窪蹋 ESBT election would not by itself cause the entity to lose its 勛圖窪蹋 S corporation status as long as the ESBT has properly filed to be a federal ESBT. However, a 勛圖窪蹋 corporation that loses its federal S corporation status due to a failure to file a federal ESBT election will also lose its 勛圖窪蹋 S corporation status. The S corporation return must include the ESBT as a shareholder in the shareholder consents.
Is a Subchapter S Trust (QSST) required to take any steps to be recognized as such in 勛圖窪蹋?
There is not a separate election process for a QSST for NJ purposes. The trust files Form NJ-1041 and maintains a copy of the federal QSST letter as part of its books and records. The S corporation return must include the QSST as a shareholder in the shareholder consents.
What terminates an entity's S corporation status in 勛圖窪蹋?
An entity's S corporation status is revoked in 勛圖窪蹋 if: