Connecticut taxes for trade contractors: a Fairfield County guide

Connecticut adds its own layer to a Fairfield County contractor's federal taxes: sales tax on some of your labor, a strict employee test, new 2027 payroll rules, add-backs on equipment write-offs, and a yearly filing with your town assessor.

Key numbers: sales tax 6.35% · 2026 UI wage base $27,000 · minimum wage $16.94, then $17.48 on Jan. 1, 2027 · CT Paid Leave 0.5%, employee-paid · pass-through entity tax 6.99% with an 87.5% owner credit · bonus depreciation added back 100%, Section 179 80% · personal property declarations due November 1.

Taxable contractor services

Connecticut taxes most renovation, repair, and installation work on existing commercial, industrial, and income-producing property at 6.35%, but generally not the same work on an owner-occupied home or new construction. A few services, plus repairs to equipment such as furnaces and AC units, are taxable on every kind of property.

• On commercial and rental property, electrical, plumbing, HVAC, carpentry, roofing, painting, masonry, paving, and similar work is taxable. A rental is income-producing, so a furnace replacement in a two-family the landlord doesn't live in is taxable even though the same job in an owner's home isn't.
• Owner-occupied means used only as a residence, one to three units, with the owner living there or moving in when the work is done.
• Landscaping (including paver, brick, or stone patios and walkways), snow plowing and other maintenance, janitorial, pest control, and pool maintenance are taxable on all property, homes included.
• Repair and maintenance of furnaces, boilers, central air units, and water heaters, including service-call and diagnostic charges, is taxable everywhere, even in an owner-occupied home. Installing a new system there is not.

On a taxable real property job, tax applies to the service charge, which is the contract price minus your materials cost, including the tax you paid on those materials.

Contractors as consumers of materials

Contractors are the consumers of the materials and supplies they install or use, so you pay sales or use tax on them even if the customer reimburses you. The main exception is integral parts for repair jobs, which you can buy for resale and then tax on the customer's bill.

Every contractor and subcontractor needs a $100 sales and use tax permit before starting work, even if none of its work is taxable. Because Fairfield County borders New York, the nonresident contractor rule also matters. A general contractor must hold back 5% of payments to an unverified out-of-state sub until the sub provides DRS Form AU-968. Owners and tenants living in a one- to three-family home are exempt from that rule.

Home Improvement Contractor registration

You need a registration if you contract directly with homeowners for residential work that your trade license doesn't cover. Licensed plumbing, electrical, and heating and cooling work within the license is excluded, as are subcontracted work, commercial property, and contracts under $200. The application and annual renewal are $220 each, registrations expire March 31, and you need at least $20,000 of general liability insurance.

When Connecticut treats a sub as an employee

For unemployment insurance, anyone you pay is your employee unless you prove all three parts of an ABC test: (A) the worker is free from your control and direction, by contract and in fact; (B) the work is outside the usual course of your business or outside all of your places of business; and (C) the worker is customarily engaged in an independently established business of the same kind.

Prong B is the usual problem for trade businesses. An electrician working for an electrical contractor is within its usual course of business, so the "places of business" alternative has to carry the case, and a customer's job site may not qualify. For 2026 the UI taxable wage base is $27,000 per employee, and new employers pay 1.9%.

Payroll changes in 2027

On January 1, 2027, the minimum wage rises from $16.94 to $17.48 an hour, and paid sick leave extends to every employer with one or more Connecticut employees, up from 11 or more in 2026.

• Under the paid sick leave law, one hour accrues for every 30 hours worked, up to 40 hours a year, with headcount based on payroll for the week that includes January 1. The law doesn't apply to an employer in a construction-trades multiemployer health plan under a collective bargaining agreement, and it excludes seasonal employees who work 120 days or fewer a year.
• For CT Paid Leave, withhold 0.5% of wages up to the Social Security wage base, $184,500 for 2026, and remit it quarterly. Employees fund the program, and the rate stays 0.5% for 2027.

The pass-through entity tax election

An S corp or partnership should elect only if the math works. Under Connecticut's optional pass-through entity tax (PET), the business pays 6.99% of its Connecticut income, and the owners get a refundable credit for 87.5% of it. Owners don't add the PET back, so it also lowers their Connecticut taxable income. The net Connecticut cost is roughly 12.5% minus each owner's Connecticut rate, or about 5.5% of the tax in the top bracket. That cost buys a federal deduction outside the owners' SALT cap, which is $40,400 for 2026 and phases down toward $10,000 above $505,000 of income.

• The election is annual and irrevocable. It is made by checking the box on a timely filed Form CT-1065/CT-1120SI, including an extended return, and never on an amended return. Calendar 2026 returns are due March 15, 2027, or September 15, 2027 on extension.
• Because the PET deduction lowers business income, it also trims the federal QBI deduction. Connecticut has no QBI-style deduction of its own.

Connecticut treatment of bonus depreciation and Section 179

Connecticut doesn't allow federal bonus depreciation and allows only 20% of Section 179 up front, so a truck you write off in full federally is deducted over several years on the state return.

• Pass-through owners and sole proprietors add back 100% of bonus depreciation and subtract 25% of it in each of the next four years. For Section 179 they add back 80% and subtract 25% of that add-back in each of the next four years. Individuals report this on Schedule 1 of Form CT-1040, and a PET business makes the same adjustments on Form CT-PET.
• C corporations figure Connecticut depreciation as if bonus didn't exist and follow the same 80% Section 179 rule.

For an asset that qualifies for both, a pass-through owner who elects Section 179 rather than bonus gets a 20% Connecticut deduction now instead of none. The federal result is the same if the business has enough income for Section 179.

Connecticut 1099 and W-2 filings

Connecticut wants a copy of each Form 1099-NEC you issue to a Connecticut resident, or to a nonresident for work done in Connecticut, even with no Connecticut withholding. DRS asks for a copy of the federal form and lists no dollar threshold of its own, so the federal $2,000 threshold should control, although DRS hasn't said so directly. Under that reading, a New York sub you paid for jobs in Stamford still gets reported. Forms for 2026 are due February 1, 2027, along with W-2s for everyone paid Connecticut wages, filed electronically through myconneCT. Filing 1099-NECs through the IRS Combined Federal/State program covers Connecticut when no Connecticut tax was withheld.

The apprenticeship credit

Only C corporations can claim Connecticut's apprenticeship credit. For the construction trades, it is $2 for each hour an apprentice completes in a registered program of at least four years, up to the lesser of $4,000 or 50% of wages over the first four years, and is awarded when the apprentice finishes. It applies only against the corporation business tax, not PET.

Personal property declarations for your town assessor

Each year you file a declaration of the business personal property you owned on October 1. It is due by November 1, or the next business day if that date falls on a weekend. The declaration covers tools, unregistered equipment such as mini-excavators, furniture, computers, and leasehold improvements. Registered vehicles are taxed separately, but nonpermanent modifications and attachments to commercial vehicles count as personal property, so ask how to report upfits.

• A late or missing declaration adds a 25% penalty to the assessment, as does property you leave off. If you need more time, ask in writing by November 1. The assessor can grant up to 45 days for good cause.
• There's no general small-business exemption. State law exempts an item with an original value of $250 or less only after ten full assessment years, and towns may waive bills under $100.
• Starting with the October 1, 2026 list, every assessor must use the state's uniform depreciation schedule for personal property.

A worked example: a Norwalk HVAC shop

Dana and Luis own a hypothetical HVAC company in Norwalk, an S corporation with eight technicians that does all of its work in Connecticut. The numbers are an illustration and do not reflect a client result.

Three jobs show how the sales tax rules apply. The shop prices the same furnace replacement at $11,000 for two customers. Materials cost $5,000 plus $317.50 of sales tax paid to the supplier, or $5,317.50 in total.

A new van shows how the depreciation rules interact with the PET. In November 2026 the shop buys a $70,000 cargo van rated over 6,000 lbs GVWR and takes 100% bonus depreciation, leaving $330,000 of federal ordinary income before any PET deduction. The shop elects PET. Connecticut adds back the $70,000, so with no other adjustments the PET base is $400,000 and the tax is $27,960. Owner credits total $24,465, leaving $3,495 uncredited, a cost the owners partly recoup because the PET deduction also lowers their own Connecticut taxable income. If both owners are in the 32% federal bracket and already over the SALT cap, the deduction cuts federal taxable income by $22,368 after the smaller QBI deduction ($27,960 less 20%), saving about $7,158. Connecticut then allows the $70,000 back at $17,500 a year from 2027 through 2030.

If the shop instead elects Section 179 on the van, it keeps the $70,000 federal deduction, but Connecticut adds back only $56,000, so $14,000 is deductible in Connecticut for 2026. The PET base drops to $386,000 and the PET to $26,981.40, and the $56,000 comes back at $14,000 a year from 2027 through 2030.

Common mistakes

1. Treating every residential job as exempt. Rentals the owner doesn't live in are income-producing, and unit repairs are taxable in any home.
2. Reimbursing yourself for materials tax out of the sales tax you collected, which is held in trust for the state.
3. Paying an unverified out-of-state sub in full without the 5% holdback or Form AU-968.
4. Forgetting to claim the Connecticut depreciation recovery in later years.
5. Missing the November 1 declaration and incurring the 25% penalty.
6. Deciding on PET after filing the return, even though the election can't be made on an amended return.

How Summer Associates helps

Summer Associates works with Connecticut trade businesses from its Stamford office. Its enrolled agents review worker classification, set up payroll for the 2027 changes, time truck and equipment purchases with the state add-backs in mind, and model the PET election against the owners' federal returns.

This guide is general education based on federal and Connecticut law as of 2026-11-15. State rules differ and facts matter. Before acting, get advice for your situation from Summer Associates or another qualified advisor.