X. S Corporations (G.S. 105-131)
- Corporations Required to File
Every corporation required to file a franchise and income tax
return in North Carolina which has a valid "S election"
in effect under the Internal Revenue Code Section 1362, must file
a North Carolina S corporation return. The filing status is mandatory.
- Forms to be Used for Filing
All S corporations doing business in North Carolina use Form CD-401S
to report activities.
- Return and Payment Due
The due date of the S return is the 15th day of the third month
following the close of the income year. The liability for franchise
tax is payable at the time the return is due and filed. Any income
tax payment made on behalf of nonresident shareholders included
in a composite return is also due at the time the return is due
An extension of time to file the S corporation's franchise and
income tax return will be granted for seven (7) months provided
the application is timely filed and the corporation's records
reflect no delinquent returns or outstanding tax liability.
There is no separate election to be made for a corporation which
is or wishes to be an S corporation for North Carolina purposes.
The federal election authorizing S corporation status is recognized
for state purposes. There is no provision to elect a different
filing status for State purposes; each S corporation must file
as an S corporation for State income tax purposes. The S corporation
status will terminate for North Carolina purposes at the same
time and for the same taxable period(s) such termination is effective
for federal filing purposes.
- Nonresident Shareholder Agreement (Form NC-NA)
A S corporation with nonresident shareholders is required to submit
with the first North Carolina S return an agreement for each nonresident
shareholder. The agreement, Form NC-NA, is to be signed by the
shareholder who agrees to be subject to the income tax laws of
this State and to be liable for the tax on the pro rata share
of S corporation income attributable to such individual in this
State. The individual is liable at the individual rate(s) on the
portion of North Carolina income attributed to those nonresident
shareholders who have filed Form NC-NA.
Note: If the S corporation fails to timely file the shareholder
agreement(s) for nonresidents, the corporation becomes liable
for income tax at the individual single rate on the portion of
the North Carolina income attributed to those shareholders not
complying with this requirement.
- Franchise Tax (G.S. 105-122)
Schedules A, C, D and E of CD-401S S corporations determine their
franchise tax liability in the same manner as all other general
business corporations. Franchise tax schedules A, C, D and E pertain
to the corporation franchise tax base and the amount of tax liability.
There is no difference between an S corporation and a C corporation
with respect to the franchise tax requirement, liability, etc.
Although some of the "net worth" accounts are different
due to the labels placed on certain accounts, the fundamental
concept of determining the taxable values from the corporation's
assets less definite legal liabilities will prevail for all corporations
subject to the "general business" franchise tax.
Additional information concerning the computation of the franchise
tax schedules can be found under the subject, "General Business
Corporations," of the franchise tax section of this publication
and in the Corporation Franchise and Income Tax Instructions,
CD-415, used by all other corporations.
- Corporate Income of S Corporations Taxed to Shareholders
The S corporation's income and expenses are divided among and
passed through to its shareholders, who then must report the income
and expenses on their State individual return.
- Composite Return for Nonresident Shareholders
If the S corporation has shareholders who are nonresidents of
North Carolina, the corporation may file a composite return which
reflects the state taxable income of each nonresident and the
amount of tax due. The composite return is available for nonresident
shareholders only. A remittance of the total tax due on behalf
of nonresident shareholders is made with the return, CD-401S,
A nonresident shareholder is not required to file a North Carolina
individual income tax return if the only income in North Carolina
is reported by the S corporation.
- Computation of Net Income on Composite Returns
The computation of net income on a composite return is basically
the same as for C corporations; i.e., all income subject to tax
and all allowable deductions permitted under the Code and under
the corporate income tax law of this State will be considered.