Was a landowner's grant of the right to enter and remove rock, sand, or gravel a taxable sale of tangible personal property?

Plain-English summary

A landowner could grant another person the right to enter and remove rock, sand, or gravel still in the ground.

The memorandum treated that grant as a right affecting material still part of the realty, not as a sale of tangible personal property. Sales tax therefore did not apply to the grant itself.

Tax treatment changed after severance. If the landowner or another person holding the removal right extracted the material and then sold it to a contractor, that retail sale was taxable. If the contractor itself removed and used the material in a construction contract, the memorandum found no sale of tangible personal property.

This same complete memorandum also supports Annotation 150.0550, which focuses on the rock, sand, and gravel classification.

Common questions

Did payment for an in-place removal right trigger sales tax?

No. The memorandum did not treat the grant as a personal-property sale.

When could the material become part of a taxable sale?

When a removal-right holder first severed it and then sold the removed material at retail.

What if the contractor performed the severance itself?

The memorandum found no taxable sale of tangible personal property in that arrangement.

Citations and references

• California Attorney General Opinion NS-3526 (May 19, 1941) (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/150-0540.pdf

Original ruling text

State of California

Memorandum

To:

Mr. L. H. Wilson

From:

R. G. Hamlin

Subject:

Excavation and Removal of Gravel

Board of Equalization

150.0540
Sacramento
April 11, 1950

You have requested a copy of Attorney General’s Opinion NS-3526, dated May 19, 1941, and have inquired with respect to the application of the tax to sales of rock, sand and gravel. It is our opinion that the sale of rock, sand and gravel at retail is subject to the tax. Thus, if rock, sand or gravel is removed from the ground and sold at retail, the tax applies. As indicated by the above opinion of the Attorney General, however, the sale of rock, sand or gravel in place does not constitute the sale of tangible personal property. Therefore, where the owner of the land grants a right to another to remove rock, sand or gravel from the ground, the transaction does not constitute a sale of tangible personal property and is not subject to the sales tax. As rock, sand and gravel are “materials,” the tax does not apply if a contractor removes such “materials” from the land and used them in fulfilling a construction contract. This is for the reason that in such case there is no sale of tangilbe personal property involved. On the other hand, the tax will apply if the “materials” are removed by the owner of the property, or other person having the right of removal, and are sold to the contractor. We are enclosing a copy of Attorney General’s Opinion NS-3526.

RGH:HB