§235-122 Taxation of an S corporation and its shareholders. (a) An election under section 1361(b)(3) and (e), or 1362(a) of the Internal Revenue Code shall be effective for the purposes of this chapter. Evidence of a valid election for federal purposes shall be submitted to the department in such form and at such time the department may prescribe.
(b) Except as provided in the following sentence, an S corporation shall not be subject to the tax imposed by section 235-71. If income of an S corporation is subject to federal income tax, then such income as modified by section 235-123, to the extent it constitutes income attributable to the State, shall be taxed at the highest marginal rate of tax imposed on the net income of corporations. If an S corporation is required to pay a tax to this State by reason of the preceding sentence, then the income attributable to the State of the S corporation shall be reduced by the amount of the tax.
(c) Each shareholder's pro rata share of income attributable to the State and each resident shareholder's pro rata share of income not attributable to the State, to the extent modified pursuant to section 235-123, shall be taken into account by the shareholder in the manner provided in section 1366 of the Internal Revenue Code for the purposes of section 235-4 and shall be taxable under section 235-51. [L 1990, c 16, pt of §1; am L 1997, c 297, §5]