CT-3-S: New York S Corporation Franchise Tax Return

What Is the CT-3-S?

The CT-3-S is the New York S Corporation Franchise Tax Return. It is used by corporations that have elected to be treated as S corporations for federal tax purposes and do business in New York.

The franchise tax is not an income tax. It is a tax on the privilege of doing business in New York. S corporations pay this tax based on several different methods, and the state uses the one that results in the highest tax.

The CT-3-S is an annual return. You file it once per year, and you also make estimated tax payments throughout the year if your tax liability is expected to be over $1,000. The form has several parts: you report your federal income and deductions, make adjustments for New York law, calculate your tax using multiple methods, and then pay the tax or claim a refund.

Who Must File the CT-3-S?

Any corporation that has made a valid federal S corporation election and does business in New York must file the CT-3-S. This includes corporations incorporated in New York and corporations incorporated elsewhere that do business in New York.

You are considered to be doing business in New York if you have any of the following:

• A physical presence in the state, such as an office, store, warehouse, or factory
• Employees working in New York
• Property located in New York, including real estate and equipment
• Sales delivered into New York that exceed certain thresholds

If you are an S corporation but your only connection to New York is that you are incorporated there, you still must file. New York requires all domestic corporations to file a franchise tax return regardless of whether they do business in the state.

There is a small exception for very small corporations with no New York source income and no business activity in New York, but the rules must be checked carefully. The penalty for not filing when required can be significant.

CT-3-S vs. Other New York Returns

New York has several different franchise tax returns and it is easy to get confused:

• CT-3 — the franchise tax return for regular C corporations. If you have not made an S election, you file the CT-3.
• CT-3-S — specifically for S corporations. The S at the end stands for S corporation.
• CT-4 — for S corporations that are also subject to the New York City general corporation tax. Most S corporations in New York City file the CT-4 instead of the CT-3-S, as it combines state and city taxes into one form.
• CT-3-A — for insurance corporations. CT-3-NG — for natural gas utilities.

If your S corporation is in New York City, you likely need to file the CT-4 instead. You should check with a tax professional to determine which form applies to your situation.

When Is the CT-3-S Due?

For calendar year corporations, the CT-3-S is due on March 15 — the same as the federal S corporation due date. For fiscal year corporations, the return is due on the 15th day of the third month after the close of your fiscal year.

You can request an automatic six-month extension to file using Form CT-5.4. The extension gives you more time to file but does not give you more time to pay. Any tax owed must be paid by the original due date to avoid penalties and interest.

If you miss the deadline:

• Late filing penalty: 5% of the tax due per month, up to a maximum of 25%
• Late payment penalty: 0.5% per month on unpaid tax
• Interest accrues on top of both penalties

How Do You Calculate the Tax on the CT-3-S?

New York S corporations calculate their franchise tax using three methods and pay the highest of the three. This is called the maximum tax method.

1. Entire Net Income Method

You start with your federal ordinary business income from Form 1120-S, then make adjustments for New York law — such as adding back certain deductions that New York does not allow. The result is your entire net income.

You then allocate that income to New York using a three-factor formula based on your property factor, payroll factor, and sales factor. Each factor is a fraction where the numerator is the New York amount and the denominator is the total everywhere. If you do business only in New York, your allocation percentage is 100%.

Tax rate: 6.5% of New York allocated entire net income.

2. Business Capital Method

You calculate your total business capital — assets, cash, inventory, equipment, and real estate used in the business, excluding investments in other corporations and certain other items. You allocate that capital to New York using the same three-factor formula, then apply the tax rate.

Tax rate: 0.1875% of New York allocated business capital.

3. Fixed Dollar Minimum Method

You pay a flat amount based on your New York gross receipts — your total sales delivered into New York before any deductions, including sales of tangible property, services, and other items.

Which Method Applies?

You calculate the tax under all three methods and pay the highest. For most small S corporations, the fixed dollar minimum is highest. For profitable corporations with significant New York activity, the entire net income method usually wins. For capital-intensive businesses with low income, the business capital method may be highest.

Three examples to illustrate:

• Example 1: $200,000 net income → income method = $13,000. $2M capital → capital method = $3,750. $2M gross receipts → fixed minimum = $1,500. Pays $13,000.
• Example 2: $10,000 net income → income method = $650. $500,000 capital → capital method = $937.50. $500,000 gross receipts → fixed minimum = $500. Pays $937.50.
• Example 3: Net loss → income method = $0. $200,000 capital → capital method = $375. $300,000 gross receipts → fixed minimum = $175. Pays $375.

CT-3-S vs. Federal Form 1120-S

The CT-3-S and the federal Form 1120-S are completely different returns filed with different governments. The 1120-S is filed with the IRS and is used to prepare Schedule K-1s for each shareholder. The CT-3-S is filed with the New York State Department of Taxation and Finance.

New York does not simply accept the federal numbers. Key differences include:

• New York has different rules for bonus depreciation and Section 179 expensing — these differences must be reflected on the CT-3-S
• New York has its own rules for what constitutes business income versus non-business income
• Allocation of income to New York uses a three-factor formula, while federal law uses a single sales factor for most businesses

You cannot simply copy numbers from your federal return to the CT-3-S.

Estimated Tax Payments

If your S corporation expects its franchise tax to exceed $1,000 for the year, you must make estimated tax payments using Form CT-400. Payments are due on the 15th day of the 3rd, 6th, 9th, and 12th months of your tax year.

For calendar year corporations, the due dates are:

• March 15
• June 15
• September 15
• December 15

Each payment should be at least 25% of the tax you expect to owe. Underpayments are subject to a penalty calculated as interest on the underpaid amount. Overpayments can be applied to next year's estimated taxes or refunded.

How the CT-3-S Interacts With Personal Income Tax

The CT-3-S is a corporate return, but it has important implications for shareholders. The S corporation itself does not pay income tax — shareholders pay tax on their share of the corporation's income on their personal returns, the same as at the federal level.

Each shareholder receives a New York Schedule K-1 as part of the CT-3-S filing. The shareholder uses that K-1 to report their share of S corporation income on their New York personal income tax return — Form IT-201 for full-year residents or Form IT-203 for nonresidents and part-year residents.

If the S corporation fails to file the CT-3-S, shareholders may have trouble filing their personal returns and the state may not have the information it needs to process them, leading to delays or audits.

Frequently Asked Questions

What is the CT-3-S?

The CT-3-S is the New York S Corporation Franchise Tax Return — the annual return that every S corporation doing business in New York must file to report its income, calculate its franchise tax, and pay any tax due.

Who must file the CT-3-S?

Any corporation with a valid federal S corporation election that does business in New York must file, including corporations incorporated elsewhere that have New York activity. Very small corporations with no New York activity may be exempt, but the rules must be checked carefully.

When is the CT-3-S due?

March 15 for calendar year S corporations. For fiscal year corporations, the 15th day of the third month after the close of the fiscal year. A six-month extension is available via Form CT-5.4, but any tax owed is still due by the original deadline.

How is franchise tax calculated on the CT-3-S?

Using three methods — entire net income (6.5%), business capital (0.1875%), and fixed dollar minimum ($25–$5,000 based on gross receipts) — and paying the highest of the three.

What is the difference between the CT-3-S and the CT-3?

The CT-3 is for C corporations. The CT-3-S is for S corporations. The forms are similar but the tax calculations and rules differ.

Do S corporations in New York City file the CT-3-S or CT-4?

Most S corporations in New York City file the CT-4, which is a combined state and city franchise tax return. Check with a tax professional to confirm which applies to your situation.

Does the S corporation or the shareholders pay tax on the CT-3-S?

The S corporation pays the franchise tax on the CT-3-S. Shareholders separately pay personal income tax on their share of the corporation's income on their individual returns. The franchise tax and the personal income tax are separate obligations.

What happens if I file the CT-3-S late?

A 5% per month penalty on the tax due (up to 25%), plus a 0.5% per month late payment penalty on any unpaid tax, plus interest on top of both.

Do I need to attach my federal Form 1120-S to the CT-3-S?

Yes. A copy of your federal Form 1120-S including all schedules and K-1s must generally be attached. The state uses the federal return to verify your New York numbers.