Article 9-A─Franchise tax on S corporations

To qualify for New York S corporation treatment, a 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 the 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 the following items, to the extent such items would be includable in the corporation's federal gross income for the tax year [Tax Law § 660(i)(3)] : 
  • interest,
  • dividends,
  • royalties,
  • annuities,
  • rents, and
  • gains derived from dealings in property, including the corporation's share of such items from:
    • a partnership,
    • estate, or
    • trust,

• 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 that is 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 tax purposes.  However, 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.

• To make the New York S election, file Form CT-6, Election by a Federal S Corporation to be Treated As a New York S Corporation, (instructions).
• To terminate the New York S election, file Form CT-6.1, Termination of Election to be Treated As a New York S Corporation.

• For Article 9-A franchise tax, 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.
• An S corporation may qualify to earn certain tax credits that flow through to its shareholders to be claimed on their 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.

For tax years beginning before January 1, 2026, 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:

• Use Corporation Tax Web File to submit Form CT-400. You'll need to first create an Online Services account.
• Use tax preparation approved software to submit Form CT-400. Or
• File paper CT-400.

Additionally, your corporation may be required to pay estimated income tax on behalf of certain shareholders. See Form IT-2658, Report of Estimated Tax for Nonresident Individual Partners and Shareholders, and its instructions.

• New York S corporations that are general business corporations file Form CT-3-S, New York S Corporation Franchise Tax Return.
• Most general business corporations are mandated to e-file returns.

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.

• Use Corporation Tax Web File to submit Form CT-5.4. You will need to first create an Online Services account. Or
• Use tax preparation approved software to submit Form CT-5.4.