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In Pinkerton Tobacco Company LP v. Department of Revenue, File No. K11-R-20, Order No. K25033 (March 27, 2013), the Kentucky Board of Tax Appeals (Board) ruled on whether inventory stored at a Kentucky warehouse qualified for the state property tax exemption for inventory-in-transit as set forth in KRS § 132.097.

The exemption in KRS § 132.097 provides:

There shall be exempt from ad valorem tax for state purposes, personal property placed in a warehouse or distribution center for the purpose of subsequent shipment to an out-of-state destination. Personal property shall be deemed to be held for shipment to an out-of-state destination if the owner can reasonably demonstrate that the personal property will be shipped out-of state within the next six (6) months.

In Pinkerton, Pinkerton Tobacco Company LP (Pinkerton) was the owner of manufactured tobacco products (Property) that it had not yet sold to a buyer located out-of-state as of the assessment date. Pinkerton sold the Property to its parent company that took possession of the Property at Pinkerton’s Kentucky warehouse dock. The evidence in the case showed that in order for the Property to be fresh, the Property had to be shipped within six months of manufacture. Also, it was undisputed that 93 percent of Pinkerton’s Property was ultimately shipped (whether or not by Pinkerton directly) to an out-of-state destination and such Property was shipped out within six months from such Property leaving Pinkerton’s warehouse.


After a textual analysis of the underlying law, the Board reasoned that the statute does not require an out-of-state sale to take place in a certain manner, nor does it matter if the actual sale is first consummated in Kentucky, nor does it matter whether the owner is the one actually shipping the property out-of state. All the taxpayer must do, the Board stated, is show that the owner can reasonably demonstrate that the personal property will be shipped out-of-state within six months. The Board ruled Pinkerton made such a showing.


Despite the intervening sale of Pinkerton’s Property to its parent company in Kentucky, all that Pinkerton had to do was reasonably demonstrate that the Products were to be shipped out-of-state within the six month period.


Due to the parent/subsidiary relationship present in Pinkerton, it is not entirely clear how the Board would have ruled if Pinkerton would have sold the Property to an unrelated third party. So while this ruling provides some level of clarification, it also opens up many questions on the issue of permissible exclusion. As with virtually any tax situation, one seeking to exclude personal property in Kentucky under this law should consult with their tax advisor.