Connecticut Nonresident Contractor Tax Bond: Filing and Release

If you’re an out-of-state contractor on a Connecticut construction job worth $250,000 or more, Connecticut’s nonresident contractor bond requirements mean you must post a surety bond with the Department of Revenue Services equal to 5% of the total contract price, unless you already hold verified contractor status. Skip the bond and the party that hired you must hold back 5% of every payment and can be pushed onto the hook personally for your unpaid taxes.¹

Who the Bond Rule Applies To

Connecticut treats you as a nonresident contractor if you do not maintain a “regular place of business” in the state. That means a permanent office, factory, warehouse, or similar space that operates under your own name on an ongoing basis, staffed by your own employees who are regularly present.¹ A trailer or field office set up for one project doesn’t count. Neither does keeping a registered agent in the state, or piggybacking on office space maintained by a parent, subsidiary, or affiliate.

The definition applies independently to every contractor in the chain. If you’re the general contractor and you subcontract to another out-of-state firm, both companies evaluate their own status separately.

The bond obligation kicks in when the total contract price hits $250,000 or more.² “Contract price” is read broadly, and it includes deposits, retainage, change orders, and any add-on charges. A job that starts at $230,000 and grows past the line through change orders crosses into bond territory. One boundary worth flagging: an owner or tenant of property used exclusively for residential purposes is generally not treated as “doing business with an unverified contractor,” so the holdback and liability rules typically don’t reach a homeowner hiring for personal residential work.¹

Connecticut splits nonresident contractors into two camps. A verified contractor is registered for all applicable Connecticut taxes, has filed every return, owes nothing, and has been approved by the DRS commissioner. Verified status runs for two years and eliminates per-project bonding and holdback entirely.³ An unverified contractor is everyone else, and that’s where the compliance work lives.

Posting the Bond

An unverified prime or general contractor on a qualifying project files a surety bond with DRS for 5% of the total contract price.² The bond is project-specific, so each job over the threshold gets its own. Three things have to line up:

A surety company licensed to do business in Connecticut, which signs the bond and affixes its raised corporate seal alongside the contractor’s signature.²
Form AU-964, the official surety bond form.
DRS registration in place first. You must register with DRS using Form REG-1 and obtain a Connecticut Tax Registration Number before posting any bond.⁴

Make sure the contractor name, project address, and contract price on the bond match your registration and contract documents exactly. Mismatches get bonds rejected.

The bond jointly binds you and the surety. If the taxes owed from the project go unpaid, DRS can call the bond and collect directly from the surety company.² The bond secures your Connecticut sales, use, and income withholding tax obligations tied to the project.

Alternatives to the Surety Bond

Two other paths satisfy the same 5% obligation. A guarantee bond, filed on Form AU-766, also requires a Connecticut-licensed surety and covers 5% of the contract price.⁵ Or you can deposit cash equal to 5% of the contract price directly with DRS.⁴ The cash route is simple but ties up real money through the project and audit period. On large contracts a surety bond is usually more practical, since you pay a premium instead of locking up capital.

Filing Deadline

You have 120 days from the commencement of the contract, or 30 days after completion, whichever comes first, to file the bond with DRS. Commencement means the date you sign the contract, and in no case later than when work actually starts on site.⁴

Filing early protects your cash flow. Once DRS accepts the bond, it issues a Certificate of Compliance to the contractor, and the contractor gives that to the hiring entity to stop the 5% holdback.⁴

What Happens If You Skip the Bond

Without a bond, Connecticut extracts the 5% from the payment stream and shifts liability onto whoever hired you.

If you’re an unverified prime or general contractor, the customer (owner or developer) must confirm you have posted a bond with DRS. If none is on file, the customer becomes personally liable for your unpaid sales, use, and income withholding taxes from the project. That exposure is capped at 5% of the contract price they were required to pay you. Separately, the customer stays on the hook for any use tax it owes on purchases of services from you in connection with the project, and that piece has no cap.¹

If you’re an unverified subcontractor, the prime or general contractor must hold back 5% of every payment owed to you until you produce a Certificate of Compliance from DRS.⁶ The holdback isn’t optional, and primes who treat it as a technicality carry real exposure.

Primes who hold back funds face a separate penalty for failing to remit those funds when DRS directs them to. If DRS mails a Certificate of Compliance authorizing partial payment to DRS and the prime doesn’t pay over within 30 days, the penalty is 10% of the amount that should have been paid.¹

Getting Held-Back Money Released

For an unverified subcontractor, the Certificate of Compliance (Form AU-968) is what unlocks the withheld funds. DRS issues it once the sub’s sales, use, and income withholding tax obligations from the project are satisfied.⁶

The sub furnishes the certificate to the prime, and the prime releases the money as DRS directs. If DRS authorizes a full release, everything goes to the sub. If DRS authorizes only partial release, the prime pays the released portion to the sub and remits the unreleased portion to DRS.⁶ Partial releases typically mean DRS found the sub still owes some project-related tax.

Releasing the Bond After the Job

The bond doesn’t automatically dissolve when the project ends. You have to send DRS a written request asking the agency to audit the project records.⁴ To qualify for the audit, you must have filed every Connecticut return due during the contract term and have your records available for inspection.

The deadline is firm. DRS must receive your written request within three years after the date of final payment of any withheld amounts, or within three years from the end of the month following the reporting period in which the bond was filed.⁴ Miss it and recovering a cash deposit or releasing a surety bond gets complicated.

After the audit, DRS issues one of two outcomes. A Certificate of No Tax Due means you’re clear, and DRS releases the bond or returns the cash deposit within 90 days. A Certificate of Tax Due means DRS found unpaid taxes; the agency may return only the amount by which your deposit or bond exceeds what you owe, including interest and penalties. If you posted a guarantee bond and the taxes stay unpaid after your appeal rights expire, DRS can call the bond against the surety.⁴

Verified Contractor Status Is the Long-Term Fix

If Connecticut is a regular part of your book, per-project bonds get expensive and slow. Verified status is the escape hatch. Apply on Form AU-960, and if DRS approves, you’re exempt from the 5% holdback and per-project bonding for a two-year period running from January 1 of the requested year through December 31 of the following year.⁷

Four conditions have to be met:⁷

You’re registered with DRS for every applicable Connecticut tax. Which taxes depends on your entity type; S-corps and LLCs generally register for sales and use tax, income tax withholding, business entity tax, and composite income tax, while C-corps typically register for sales and use tax, income tax withholding, and corporation business tax.
Every required return has been filed.
You owe DRS nothing.
You’ve been registered with DRS at least three years and are current, or if you haven’t hit three years, you post a verification bond on Form AU-961 with your application.

Mail the completed AU-960 to the Department of Revenue Services, Public Services Unit, 450 Columbus Blvd, Suite 1, Hartford, CT 06103-1837. A false declaration on the form carries a possible fine of up to $5,000, imprisonment for up to five years, or both.⁷

1
Justia Law. Connecticut Code Title 12 – Taxation, Chapter 219, Section 12-430
2
Connecticut Department of Revenue Services. Form AU-964 Surety Bond and Release
3
Connecticut Department of Revenue Services. Form AU-960 Nonresident Contractor Request for Verified Contractor Status
4
Connecticut State Department of Revenue Services. SN 2005(12) Nonresident Contractor Bonds and Deposits
5
Connecticut Department of Revenue Services. Form AU-766 Connecticut Guarantee Bond
6
Connecticut State Department of Revenue Services. SN 2011(17) 2011 Legislative Changes to the Procedures Governing Nonresident Contractors
7
Connecticut Department of Revenue Services. Form AU-960 Nonresident Contractor Request for Verified Contractor Status