I'm a home builder and bought sand and dirt for my projects -- since dirt and sand come from the ground and are basically real property, shouldn't my purchases of them be exempt from Virginia sales and use tax?

Plain-English summary

A custom home builder was audited for February 2016 through February 2022 and assessed use tax on various items it purchased for its own use, including sand and dirt used in its construction projects. The builder appealed the sand and dirt portion, arguing that this material was real property -- not tangible personal property -- and so shouldn't be subject to sales and use tax at all.

Contractors are treated as the ultimate consumers of materials they furnish. Under Va. Code § 58.1-610, anyone who contracts to build, repair, or otherwise work on real estate and furnishes tangible personal property in connection with that work is deemed to have purchased that property for their own use or consumption -- meaning the contractor, not their customer, generally owes the tax on those materials (23 VAC 10-210-410 A) unless a specific exemption applies.

Why excavated sand and dirt count as tangible personal property. Virginia defines tangible personal property as anything that can be seen, weighed, measured, felt, or touched (Va. Code § 58.1-602). Separately, a "mineral" -- including clay, stone, sand, and gravel -- is defined as material excavated in solid form from a natural deposit on or in the earth (Va. Code § 45.2-1101). The Department's key point: once sand (or dirt or similar material) is actually excavated, it has been physically removed from the realty. In that separated state, it plainly meets the definition of tangible personal property, and once it's made available for sale, it becomes subject to Virginia's sales and use tax just like any other purchased material -- its origin as part of the natural earth doesn't exempt it.

A Texas ruling didn't help. The builder pointed to a Texas Comptroller ruling finding unprocessed sand and gravel non-taxable under Texas law. The Department acknowledged that other states' rulings can sometimes be instructive on sales tax POLICY questions generally, but made clear they carry no precedential authority in Virginia -- Virginia applies its own statutory definitions regardless of how another state's rules happen to come out.

Outcome. Because the builder's supplier apparently hadn't collected Virginia sales tax on the sand purchases, the builder itself was liable for the use tax, and the Department upheld the assessment (which the builder had already paid in full, closing out the matter).

What this means for you

Contractors purchasing sand, dirt, gravel, or similar excavated materials for construction projects

Don't assume these purchases escape sales and use tax just because the material originated as part of the earth -- once excavated and sold, it's tangible personal property like any other purchased good, and as the using/consuming contractor you generally owe the tax if your supplier didn't collect it.

Anyone citing another state's tax ruling to support a Virginia tax position

Out-of-state rulings can be useful background on how other states approach similar policy questions, but they have no binding or precedential weight in a Virginia determination -- Virginia's own statutory definitions and prior rulings control.

Common questions

Q: I'm a contractor who purchased sand or dirt for a construction project -- is that purchase exempt from Virginia sales and use tax since it came from the ground?
A: No. Once excavated from a natural deposit, sand, dirt, and similar materials become tangible personal property and are subject to Virginia sales and use tax like any other purchased material.

Q: My supplier didn't charge me sales tax on materials like this -- am I off the hook?
A: No. As the contractor using and consuming the material, you generally owe the use tax directly if your supplier didn't collect the sales tax.

Q: Can I rely on another state's tax ruling that reached a different conclusion on similar materials?
A: Not as binding authority. Virginia will look to its own statutes and precedents; another state's ruling has no precedential effect here, even if it might be informative background.

Citations and references

Statutes:

• Va. Code § 58.1-610 -- a contractor furnishing tangible personal property in connection with real property construction is deemed to have purchased it for use/consumption
• Va. Code § 58.1-602 -- tangible personal property defined
• Va. Code § 45.2-1101 -- a "mineral" includes clay, stone, sand, gravel, and other solid material excavated from a natural deposit

Prior rulings the Department relied on (described here, not linked): P.D. 94-4 (1/5/1994) -- the Department's earlier ruling on the sales and use tax treatment of sand.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-36

Original ruling text

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

Related Documents

94-4