We're a home builder assessed use tax on purchases of sand — isn't sand part of the land (real property), not tangible personal property, so no sales or use tax applies?

Plain-English summary

A custom home builder was audited for February 2016 through February 2022, and the auditor assessed use tax on certain purchases — including purchases of sand. The builder appealed once, arguing the sand was real property (part of the land), not tangible personal property, and lost: the Department upheld the assessment in P.D. 24-36 (3/27/2024). This ruling is the builder's request for reconsideration of that determination, and it lost again.

The reconsideration argument: the builder contended that Va. Code § 58.1-602 requires something to first be personal property before it can be tangible personal property subject to sales and use tax — and that P.D. 24-36 never adequately addressed that step.

The Department's answer walked through the step explicitly:

• Virginia courts define personal property as "[a]ny movable or intangible thing that is subject to ownership and not classified as real property" (Henry v. Commonwealth, 753 S.E.2d 863, 874 (Va. Ct. App. 2014)). Property is personal if it is owned by a person or entity.
• The unprocessed sand was part of the land in its original location. But the land was owned by an entity in the business of digging up sand and dirt (or that entity had permission to remove the earth), and once the sand was removed from the land, the business exercised its ownership by selling it and delivering it where the builder directed.
• Once it became movable, the sand met the court's definition of personal property — and P.D. 24-36 had already determined it was tangible personal property under § 58.1-602.

The procedural clincher: a Department assessment is deemed prima facie correct (Va. Code § 58.1-205), so the burden was on the builder to prove it wrong — and the builder "cited no Virginia law to support its claim that the sand at issue was not tangible personal property once severed from real estate." The audit liability was upheld. The assessment had already been paid in full, so no further action was required.

What this means for you

Contractors and home builders buying fill dirt, sand, gravel, or topsoil

Materials that start out as part of the earth become tangible personal property the moment they're severed and sold — and a contractor's purchases of tangible personal property for use in real-property work are subject to sales or use tax. "It came out of the ground, so it's real estate" is not a defense the Department accepts.

Anyone considering a reconsideration request

A reconsideration needs new law or new facts that actually move the needle. Here the builder offered a definitional refinement of its original argument without citing "any legal theory or precedent" — and ran into both the court's broad definition of personal property and the § 58.1-205 presumption that the assessment is correct.

The burden of proof is real

Under Va. Code § 58.1-205, the Department's assessment stands unless the taxpayer proves it wrong with legal authority and evidence. An argument unsupported by any cited Virginia law leaves the presumption intact.

Common questions

Q: Sand in the ground is real property. When did it become taxable personal property?
A: When it was severed. Once the mining/excavating business dug it up, the sand became a movable thing subject to ownership — the Henry definition of personal property — and the seller exercised that ownership by selling and delivering it. From that point it was tangible personal property under § 58.1-602.

Q: Who owed the tax on the sand?
A: The builder, on its purchases. As a using and consuming contractor, it was assessed use tax in the audit on purchases where tax hadn't been paid — sand included.

Q: What was different about this ruling versus P.D. 24-36?
A: Only the argument's framing. The first appeal said the sand was real property; the reconsideration said sand must first qualify as "personal property" before it can be "tangible personal property." The Department addressed the added step head-on with the Henry definition and reached the same result.

Q: Does the builder owe anything more now?
A: No. The assessment was upheld, but it had already been paid in full — the ruling closes with "no further action is required."

Citations and references

Statutes:

• Va. Code § 58.1-1821 — administrative appeal (application for correction) to the Tax Commissioner
• Va. Code § 58.1-602 — definition of tangible personal property
• Va. Code § 58.1-205 — assessments are prima facie correct; taxpayer bears the burden of proof

Authorities the Department relied on (described here, not linked): Henry v. Commonwealth, 753 S.E.2d 863, 874 (Va. Ct. App. 2014) (personal property is any movable or intangible thing subject to ownership and not classified as real property); P.D. 24-36 (3/27/2024) (the prior determination in this same audit, holding the sand was tangible personal property under § 58.1-602).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-63

Original ruling text

April 2, 2025

RE: § 58.1-1821 Application: Retail Sales and Use Tax

Dear * :

This is in response to your letter submitted on behalf of *, Inc. (the “Taxpayer”) in which you request a reconsideration of the determination dated March 27, 2024, issued as Public Document (P.D.) 24-36.

FACTS

An audit was conducted on the books and records of the Taxpayer, a custom home builder, for the period February 2016 through February 2022 resulting in an assessment of use tax on certain purchases. The Taxpayer filed an application for correction of the assessment contending that purchases of sand because it was real property, not tangible personal property, and, therefore, not subject to the tax. In P.D. 24-36, the Department upheld the assessment. The Taxpayer requests a reconsideration of the determination contending that sand must first be personal property to meet the definition of tangible personal property.

ANALYSIS

The Taxpayer argues that P.D. 24-36 did not adequately address whether Virginia Code § 58.1-602 requires tangible personal property to first be personal property before it can be subject to Virginia’s retail sales and use tax. While the Taxpayer has failed to cite any legal theory or precedent to support such a claim, Virginia courts have defined “personal property” to include “[a]ny movable or intangible thing that is subject to ownership and not classified as real property.” See Henry v. Commonwealth , 753 S. E.2d 863, 874 (Va. Ct. App. 2014). As defined by the court, property is personal if it is owned by a person or entity.

According to the Taxpayer, the unprocessed sand was part of the land in its original location. This land was either owned by an entity in the business of digging up sand and dirt or such entity had permission to remove the earth from the land. In either case, once the sand at issue was removed from the land, the business exercised its ownership by selling the sand and delivering it to the location as directed by the Taxpayer. Based on these facts, the sand met the definition of personal property as defined by the court in Henry .

DETERMINATION

Having established that the sand, once it became movable, was personal property, the Department has satisfied the Taxpayer’s assertions. Further, in P.D. 24-36, the Department has already determined that the sand was tangible personal property as defined under Virginia Code § 58.1-602.

Virginia Code § 58.1-205 deems any tax assessment issued by the Department as prima facie correct. This means that the burden of proof is upon the Taxpayer to prove that the assessment is incorrect. The Taxpayer has cited no Virginia law to support its claim that the sand at issue was not tangible personal property once severed from real estate.

Accordingly, the tax liability assessed in the audit is upheld. The assessment at issue has been paid in full and no further action is required by the Taxpayer.

The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public document cited is available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If there are any questions regarding this determination, please contact * in the Department’s Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at , or via email at **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/4930.F

Related Documents

24-36