In large bowl, beat butter and powdered sugar with electric mixer on medium speed until fluffy. On low speed, beat in flour, lemon extract and zest.
On plastic wrap, pat dough into 6-inch square, about 3/4 inch thick. Wrap completely with plastic wrap and refrigerate for at least 2 hours. I leave it in the fridge overnight.
Heat oven to 325°F. On cookie sheet, cut dough into 8 rows by 8 rows, making 64 squares. With knife, separate rows by 1/4 inch.
Bake 28 to 35 minutes or until set and edges are just starting to turn golden. Meanwhile, in small bowl, mix powdered sugar, lemon juice and vanilla.
Do not remove cookies from cookie sheet. Drizzle glaze over cookies. Before glaze sets, sprinkle sanding sugar over cookies. Place cookies to cooling racks. Cool completely, about 30 minutes.