Connecticut Nonresident Contractor Tax Bond: Posting and Release

An out-of-state construction company working in Connecticut on a project of $250,000 or more must file a Connecticut nonresident contractor tax bond with the Department of Revenue Services equal to 5% of the contract price, unless the company already holds verified contractor status. The bond secures sales, use, and income withholding taxes tied to the job. Skip it and the customer is required to hold back 5% of every payment, and the entity that hired you can be put on the hook for your unpaid taxes.¹

Who the Rule Applies To

Connecticut treats you as a nonresident contractor if you don’t maintain a “regular place of business” in the state. The same definition catches general contractors and subcontractors, so every tier of a project has to assess its own status.¹

A regular place of business is a permanent office, factory, warehouse, or similar space you operate under your own name on an ongoing basis, with your own employees regularly present. Three things specifically do not count: a temporary field office or job trailer used only for a contract, a registered agent address for service of process, and space maintained by a parent, subsidiary, or affiliate rather than by you.¹ The statute sets no minimum duration for how long the office must have existed; what matters is that it’s genuine and continuously operated.

Being a nonresident contractor isn’t the end of the question. Connecticut splits nonresident contractors into “verified” and “unverified,” and the split controls everything that follows. A verified contractor is registered for all applicable Connecticut taxes, has filed every required return, owes DRS nothing, and has been approved by the commissioner. Verified status runs for two years and removes both the per-project bond and the holdback for its duration.² Everyone else is unverified, which is where the bonding rules bite.

When the Bond Is Required

The bond requirement is triggered by a single number: a total contract price of $250,000 or more.³ Contract price is read broadly to include deposits, retainage, change orders, and any add-on charges, so a job that starts at $230,000 and grows through change orders crosses the line the moment it reaches the threshold.¹

One boundary worth noting: an owner or tenant of property used exclusively for residential purposes is generally not treated as a person “doing business with” an unverified contractor under the statute, so the holdback and hiring-entity liability rules typically don’t apply when a homeowner hires a contractor for personal residential work.¹

Posting the Bond

If you’re an unverified prime or general contractor on a qualifying project, you file a surety bond with DRS worth 5% of the total contract price. The bond is project-specific; each qualifying job needs its own.³ You’ll need three things:

A surety company licensed to do business in Connecticut.³
Form AU-964, the official surety bond, signed by both you and the surety and carrying the surety’s raised corporate seal.
A Connecticut Tax Registration Number. Before posting any bond you have to register with DRS using Form REG-1.⁴

The bond jointly binds you and the surety. If the project taxes go unpaid, DRS can call the bond and collect directly from the surety.³ Make sure the contractor name, project address, and contract price on the bond match your registration and contract documents exactly, because discrepancies get rejected.

Guarantee Bond or Cash Deposit

You have two alternatives to the standard surety bond. A guarantee bond on Form AU-766 works similarly, also requires a Connecticut-licensed surety, and also covers 5% of the contract price.⁵ Or you can skip the surety entirely and 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 job and the audit period that follows. On a large contract, a surety bond is usually cheaper because you pay a premium rather than locking up capital.

Filing Deadline

You have 120 days from 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 any event no later than when work actually begins on site. Filing early is the practical move: once DRS accepts the bond, it issues a Certificate of Compliance you can hand to the customer to stop the 5% holdback.⁴

What Happens If You Don’t Post a Bond

When an unverified contractor hasn’t bonded the project, money gets held back and liability shifts up the chain.

For an unverified prime or general contractor, the customer (owner or developer) is expected to verify that a bond is on file. If none is, the customer becomes personally liable for the contractor’s unpaid sales, use, and income withholding taxes from the project, capped at 5% of the contract price. On top of that cap, the customer separately owes any use tax due on purchases of services from the unverified contractor connected to the project, and that use-tax liability has no cap.¹

For an unverified subcontractor, the prime or general contractor must hold back 5% of every payment until the sub produces a Certificate of Compliance from DRS.⁶ If DRS later directs the prime to remit held-back funds to the state and the prime doesn’t do so within 30 days of DRS mailing a Certificate of Compliance, a 10% penalty on the unpaid amount applies.¹

The holdback isn’t optional, and treating it as paperwork to clean up later creates real exposure for whoever hired the contractor.

Releasing the Bond After the Project

The bond doesn’t dissolve on its own when the job finishes. You have to send DRS a written request asking the agency to audit the project. To qualify for the audit, you must have filed every Connecticut tax return that came due during the contract term and have your records ready for inspection.⁴

The deadline is firm. DRS must receive the 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. Miss it and recovering a cash deposit or releasing the surety bond gets complicated.⁴

Two outcomes are possible. A Certificate of No Tax Due means DRS releases the surety bond or returns your cash deposit within 90 days. A Certificate of Tax Due means DRS has identified unpaid taxes, and it may return only the amount by which your bond or deposit exceeds what you owe, including interest and penalties. If you posted a guarantee bond and the taxes stay unpaid after your appeal rights run out, DRS can call the bond and collect from the surety.⁴

Verified Contractor Status: The Long-Term Fix

If you work in Connecticut regularly, posting a separate bond on every project over $250,000 gets expensive fast. Verified contractor status solves that. Apply on Form AU-960, and once approved, you’re exempt from the per-project bond and the 5% holdback for a two-year period running 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 all applicable Connecticut taxes.
Every required return has been filed.
You owe DRS nothing.
You’ve been registered with DRS for at least three years and are current on filings and payments. If you haven’t hit three years yet, you can still qualify by posting a verification bond on Form AU-961 along with your application.

For contractors with any ongoing Connecticut pipeline, getting verified early is almost always worth the setup time. It replaces a recurring project-by-project bonding obligation with a two-year clean slate.

1
Justia Law. Connecticut Code Title 12 – Taxation, Chapter 219, Section 12-430
2
Connecticut Department of Revenue Services. Form AU-960 Nonresident Contractor Request for Verified Contractor Status
3
Connecticut Department of Revenue Services. Form AU-964 Surety Bond and Release
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