A recent opinion of the Kentucky Court of Appeals shines a light on how Kentucky’s property tax rules may apply to Kentucky Constitution Section 170’s “household goods” exemption. In an unpublished opinion arising from Notices of Tax Due for ad valorem tangible personal property taxes related to goods sold under rent-to-own agreements, pursuant to which “Rent-A-Center ‘retain[ed] title’”,1 the Kentucky Court of Appeals “strictly construed” the household goods exemption “against [its] application” in Rent-A-Center East, Inc. v. Dep’t of Revenue opinion.2 Instead, the Court endorsed the use of the favorable inventory tax rate under KRS 132.020(1)(n) for goods sold under rent-to-own agreements, rejecting a possession-based limitation and affirming that “a lease of property for valuable consideration qualifies as a sale under KRS 132.020(1)(n).”3
Why did the court narrowly construe the “household goods” tax exemption?
“The Kentucky Constitution mandates that property is subject to taxation unless exempted therefrom by a provision in the Constitution.”4 According to the Court, tax exemptions that are “deemed ambiguous … ‘must be strictly construed and any and all doubts resolved against [its] application’ if it exempts property from taxation.”5 The exemption at issue in Rent-A-Center was Section 170’s exemption for “household goods of a person used in his home.” The Court deemed “the pivotal language at issue” to be “the phrase ‘of a person’”.6
Relying on the dictionary, the Court stated that “the word ‘of’ is generally used ‘to indicate belonging or a possessive relationship.’ Likewise, in Black’s Law Dictionary, the word ‘of’ can mean ‘belonging to’ or ‘in possession of.’”7 “[T]he definition of ‘belong’ can mean ‘to be the property of a person or thing.’”8
Taken together, the Court found that “the phrase ‘of a person’ can denote mere possession of the household good … or can denote ownership…. However, as a constitutional provision exempting property from taxation, Kentucky Constitution Section 170 ‘must be strictly construed’ and ‘all doubts [must be] resolved against [its] application.”9 Based on the two possible definitions of the phrase “of a person” and Kentucky courts’ statutory construction, the Court “conclude[d] that the term ‘of’ denotes ownership … consequently, to claim the household goods exemption … the household goods must be owned by the person and used in their home.”10
Following this strict construction, the Court applied it to Rent-A-Center’s rent-to-own agreements under which Rent-A-Center “retain[ed] title to the property at all times and will pay any taxes which may be levied on the property.”11 The Court noted that “[t]he Rental Purchase Agreement also plainly stated that customers did not own the household goods, which would include any beneficial or equitable ownership. As the customer does not own the household goods, Rent-A-Center is not entitled to the household goods exemption….”12
How does the lower inventory tax rate apply to rent-to-own agreements?
“Under KRS 132.020(1)(n),13 ‘goods held for sale in the regular course of business’ are entitled to the reduced tax rate of $0.05 per $100 of value.”14 Because “‘held’ is the past tense and past participle of hold”, the court looked at the definition of “hold” which is defined as “to have possession or ownership of or have at one’s disposal.”15 Similarly, the word “sale” is commonly understood to mean “the act of selling”, which in turn is defined as “to give up (property) to another for something of value (as money).”16
Using these definitions, the court “reject[ed] the Department of Revenue’s assertion that ‘goods held for sale’ must be possessed by the retailer, and the retailer must offer to transfer ownership of said goods for consideration” in order to claim the favorable inventory tax rate.17 The court stated that “[s]uch a reading of KRS 132.020(1)(n) is overly narrow and disregards the plain terms contained therein.”18
When Rent-A-Center enters into a rent-to-own agreement, Rent-A-Center, by the terms of its agreement, “retains complete ownership” and then “transfers possession of the goods to customers for valuable consideration.”19 This, the court found, was sufficient for “the goods rented by Rent-A-Center [to] qualify for the inventory tax rate”.20
What do Kentucky businesses need to know about the taxation of rent-to-own agreements following Rent-A-Center?
Although the Court held that Section 170 household goods exemption was unavailable where the customer does not own the property, because the opinion is designated “not to be published”, the interpretation outlined above is generally not considered binding precedent.21
1 Id. at 5-6 ([ ] in original).
2 Id. at 4 ([ ] in original).
3 Rent-A-Center East, Inc. v. Dep’t of Revenue, No. 2024-CA-1162-MR, 2025 BL 455442 at 7-8 (Ky. Ct. App. Dec. 19, 2025).
4 Id. at 4 (emphasis in original).
5 Id. (first citing Children’s Psychiatric Hosp. of Northern Ky., Inc. v. Revenue Cabinet, 989 S.W.2d 583, 586 (Ky. 1999); and then citing Hancock v. Prestonsburg Indus. Corp., 365 S.W.3d 199, 201 (Ky. 2012)) ([ ] in original).
6 Id. at 5.
7 Id. (first quoting Merriam-Webster’s Dictionary, 804 (10th ed. 2002); and then quoting Black’s Law Dictionary, 1080 (6th ed. 1990)).
8 Id. (quoting Merriam-Webster’s Dictionary, 105 (10th ed. 2002)).
9 Id. (first citing Children’s Psychiatric Hosp. of Northern Ky., 989 S.W.2d at 586; and then citing Hancock, 365 S.W.3d at 201) ([ ] in original) (emphasis added).
10 Id.
11 Id. at 5-6 ([ ] in original).
12 Id. at 6.
13 This section has been renumbered to KRS 132.020(1)(e), but is substantially unchanged. See also id. at 1, n.1 (“Throughout this Opinion, we utilize the version of Kentucky Revised Statutes (KRS) in effect during the years of 2008-2011, when the taxes were due. We note that the relevant subsection (1)(n) of KRS 132.020 was renumbered, but it is substantially unchanged.”).
14 Id. at 7 (quoting KRS 132.020(1)(n)).
15 Id. (quoting Merriam-Webster’s Dictionary, 551 (10th ed. 2002)).
16 Id. (quoting Merriam-Webster’s Dictionary, 1028, 1059 (10th ed. 2002)).
17 Id. at 8.
18 Id.
19 Id.
20 Id.
21 Kentucky Rules of Appellate Procedure 40(D)(1).
