March 27, 2024
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the period February 2016 through February 2022.
FACTS
As a result of the Department’s audit, the Taxpayer, a custom home builder, was assessed the use tax on various items purchased for its own use. The Taxpayer filed an application for correction contending that dirt and sand purchased during the audit period was not tangible personal property, but real property, and, thus, is not subject to the sales and use taxes.
DETERMINATION
Contractor
Virginia Code § 58.1-610 provides:
Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption.
Furthermore, Title 23 of the Virginia Administrative Code (VAC) 10-210-410 A interprets the statute and stipulates that “the law treats every contractor as the user or consumer of all tangible personal property furnished to the contractor or by the contractor in connection with real property construction, reconstruction, installation, repair, and similar contracts.” As a using and consuming contractor, materials purchased for use in real property construction, reconstruction or any of the aforementioned, are subject to tax unless exempted by statute.
As defined in Virginia Code § 58.1-602, tangible personal property means “personal property that may be seen, weighed, measured, felt, or touched, or is in any other manner perceptible to the senses.” Virginia Code § 45.2-1101 provides that a “mineral” is “clay, stone, sand, gravel, metalliferous or nonmetalliferous ore, or any other solid material or substance of commercial value excavated in solid form from a natural deposit on or in the earth...” [Emphasis added].
Under Virginia law, once excavated, sand in its natural state has been removed from realty. In its state separate from the earth, it meets the definition of tangible personal property in that it can be seen, weighed, measured, felt, and touched. The same principle would apply to dirt or other materials excavated from the earth. When such items are made available for sale, they become subject to the retail sales and use tax.
If a supplier to the Taxpayer does not collect the Virginia sales tax from the Taxpayer, the Taxpayer will be liable for the payment of the use tax on its purchases from the supplier. Therefore, the Taxpayer’s purchases of sand are taxable, and the assessment of the use tax in the audit was proper. The Department has previously addressed the application of the sales and use taxes to sand. See Public Document (P.D.) 94-4 (1/5/1994).
To support that the tax is not due, the Taxpayer cites Texas Private Letter Ruling, No. 201901045L (1/25/2019), in which the Texas Comptroller of Public Accounts concluded that the sale of unprocessed sand, gravel, and similar materials are not taxable for Texas sales and use tax purposes... While rulings of other states can be instructive when evaluating sales and use tax policies, they have no precedent in Virginia. As indicated above, Virginia considers materials extracted from the earth that can be weighed, measured, felt, or touched, or is in any other manner perceptible to the senses to be tangible personal property and subject to Virginia sales and use tax.
Based on this determination, the assessment is correct. The assessment at issue has been paid in full and no further action is required by the Taxpayer.
The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR\4639.f