When did California tax earth as tangible personal property, and when was a landowner merely granting a nontaxable right to remove it?

Plain-English summary

Tax counsel distinguished a right to remove earth from a sale of earth that was already tangible personal property.

When a landowner merely let a buyer enter the land and remove earth, the transaction was not a sale of tangible personal property because the buyer's severance converted the earth into personal property.

If the landowner had already removed the earth, or otherwise sold it in personal-property form, a retailer's sale was taxable. The letter identified potential historical exceptions when a nonretailer made no more than two sales in 12 months or when a retailer of other goods could qualify for occasional-sale treatment under section 6006.5.

Tax treatment could also change if the seller applied the earth to real property at the new location and thereby acted as a construction contractor under Ruling 11.

Common questions

Was every payment for earth taxable?

No. A grant of the right to enter and sever earth was not treated as a personal-property sale.

What if the landowner removed the earth before selling it?

The sale was generally taxable when made by a retailer, subject to the historical exceptions described in the letter.

Did delivery and placement at the new site matter?

Potentially. Sufficient work applying the earth to real property could change the seller's status to that of a construction contractor.

Citations and references

• California Revenue and Taxation Code section 6006.5 (as cited)
• California Sales and Use Tax Ruling 11 (historical, as cited)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/150-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/150-0140.pdf

Original ruling text

150.0140

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

August 18, 1964

“R:
In answer to your letter of August 13, we advise that sales tax applies to the sale of earth if the sale is made in the form of tangible personal property by a retailer. Sometimes a landowner will grant a person the right to enter upon his land and remove earth therefrom. This does not constitute a sale of tangible personal property since the earth is converted to personal property by the act of severance performed by the purchaser. The Attorney General has ruled this type of transaction not to be subject to the sales tax. On the other hand, a landowner may sell earth which he has removed or which exists in the form of tangible personal property. Such a sale is taxable unless the seller is a nonretailer and makes not more than two sales in any 12-month period. Again, the seller could be a retailer of other commodities, and if the earth were not held or used in the activity requiring the holding of a seller’s permit, the sale could be an exempt occasional sale under Section 6006.5 of the Sales and Use Tax Law. Other circumstances affecting the application of the tax relate to whether the seller also undertakes to apply the earth to real property in its new location sufficiently to constitute him a construction contractor under sales and use tax ruling 11. As you will see, there are several factors entering into the determination of taxability. We are enclosing copies of the Sales and Use Tax Law and Ruling 11. Very truly yours,

E. H. Stetson
Tax Counsel

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