Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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190.0000 CONSTRUCTION CONTRACTORS—Regulation 1521

Annotation 190.0521


190.0521 Material Excavated from Quarry Owned by the Contractor. A licensed California contractor owns a rock, sand and gravel pit as well as the machinery to crush and screen the native rock, sand and gravel into materials used in constructing roads, bridges and like structures. The contractor enters into a contract to construct a highway in California with another party, other than the United States, and supplies and installs all the construction materials using its own rock, sand and gravel pit reserves, labor and equipment.

The construction contractor is generally the consumer of materials it furnishes and installs in the performance of a construction contract, and either sales tax or use tax applies to the sale to, or use of, the materials by the contractor. The contractor owes tax with respect to its purchases to perform the contract measured by the purchase price of such material, unless the contractor previously paid tax or tax reimbursement on its purchase of that material. The tax or tax reimbursement reported or paid is measured by the sales price to the contractor and not by the contractor's gross receipts from its sales to its customer. However, the contractor does not acquire the rock, sand and gravel by purchase when it produces these materials by excavating its own quarry. In such cases, the use tax does not apply to the contractor's use of its own rock, sand and gravel.

Tax also does not apply to amounts related to the crushing of rock when the contractor crushes rock it excavates from its own quarry or purchases from a third party for use in performing a lump sum construction contract for its customer. The processing that the contractor performs on its own rock is not part of the amounts the contractor may pay to acquire the rock. Consequently, the contractor's cost of crushing the rock it owns is not subject to tax when the contractor thereafter consumes this rock in the performance of a construction contract. If the contractor however subcontracts the crushing of the rock to a subcontractor, the subcontractor is performing taxable fabrication. The subcontractor is required to report and pay tax measured by its charges and may collect tax reimbursement from the contractor if the contract of sale so provides. 4/30/03. (2004–1).