NJ Division of Taxation - Types of Corporations

Types of Corporations

C Corporations

A corporation, sometimes called a C corp, is a legal entity that is separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable.

Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.

Corporate profits are generally taxed twice when the company makes a profit. A corporation pays Income Tax by filing a CBT return and their shareholders pay tax on dividends they receive on their Individual Income Tax returns.

Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corp can continue doing business relatively undisturbed.

S Corporations

An S corporation, sometimes called an S corp, is a special type of corporation that is designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' individual income without ever being subject to Corporation Business Tax rates.

S corps must file with the IRS to get S corp status, which is separate from registering for New Jersey.

An S corporation can have no more than 100 allowable shareholders. All initial shareholders must agree to pay taxes to New Jersey in this manner (electing S corporation status) when they form an S corporation and register it in New Jersey. The corporation must be fully registered with the New Jersey Division of Revenue and Enterprise Services, and have a Certificate of Incorporation or a Certificate of authority to do business in this State. Shareholders may include individuals, estates, certain trusts, and certain exempt organizations.

S corps also have an independent life, just like C corps. If a shareholder leaves the company or sells his or her shares, the S corp can continue doing business relatively undisturbed.

Hybrid Corporation

A New Jersey hybrid corporation is a federal S corporation that has not elected to be treated as an S corporation for New Jersey purposes.

For Corporation Business tax purposes, the corporation files as a C corporation and calculates its New Jersey allocation factor to determine its net income or loss allocated to New Jersey.

Qualified Subchapter S Subsidiary (QSSS)

A QSSS is a wholly owned corporate subsidiary of a federal S corporation that has elected to have the subsidiary treated as a QSSS for federal income tax purposes. A New Jersey S corporation election requesting to operate as a New Jersey QSSS must be filed.

The QSSS must file CBT 100S annually, including only page 1 reflecting zero income, the Annual Questionnaire, and when applicable Schedule PC, and remit the minimum tax. The parent company must consent to filing and remitting New Jersey Corporation Business Tax which would include assets, liabilities, income and expenses of its QSSS and its own.

Failure of the parent either to consent or file a CBT-100 or CBT-100s for a tax period will result in the disallowance of the New Jersey QSSS election and require the subsidiary to file and remit a CBT-100S determining its own liability.

Nonprofit Corporation

New Jersey tax laws include provisions that exempt qualifying nonprofit organizations and government entities from paying tax.

If your organization is properly incorporated and operated as a nonprofit corporation, your organization is automatically exempt from the New Jersey Corporation Business Tax.

Unless the corporation's operations or activities make the taxpayer a profit making corporation, no Corporation Business Tax returns or federal returns are required to be filed with us. We do not require a copy of Federal Form 990.

For a nonprofit corporation to request a letter of exemption from the Corporation Business Tax Act, the applicant organization must submit all of the following:

Copy of the organization's Certificate of Incorporation;
A copy of the organization's bylaws; and
An affidavit, signed by an officer of the corporation.

The signed affidavit must indicate the corporation is:

A nonprofit corporation that is not operated to make a profit, without regard as to whether there is profit or loss for a particular year;
Organized without capital stock;
Incorporated under the provisions of Titles 15, 15A, 16, or 17 of the Revised Statutes of New Jersey, or under a special charter, or under any similar general or special law of this or any other state; and
Not conducted for the pecuniary profit or benefit of any private shareholder or individual.

Send the exemption letter request to: