It is well known that in order to properly make an election to be taxed as a New Jersey S corporation, all of the shareholders must timely consent to the election, which is done by indicating their consent on a timely-filed Form CBT-2553. However, what is sometimes overlooked is that when a new shareholder is added to the corporation after the initial election was filed, that shareholder must also file a consent to the election and to the jurisdictional requirements of the State of New Jersey. N.J.A.C. 18:7-20.1(c). This is accomplished by filing another Form CBT-2553 and completing the requisite sections of that form.
If a new shareholder does not sign the consent, that shareholder is referred to as a "nonconsenting shareholder" and the corporation is required by New Jersey law to make payments of gross income tax on his/her behalf. N.J.S.A. 54:10A-5.23. The payment must be calculated at the highest marginal income tax rate on the pro rata share of the S corporation income allocated to New Jersey for each nonconsenting shareholder and must be submitted with a Form NJ-1040-SC. The New Jersey Division of Taxation has recently issued a reminder about this procedure in its Winter 2010 issue of New Jersey State Tax News (Volume 39, Number 4).