Are Ghost Assets Haunting Your Bottom Line?

Would you pay property taxes on a home you no longer owned? Of course not! Nor should a business pay property taxes on assets that were disposed of and replaced years ago. But this happens more often than you think, in the form of ghost assets.

Many companies meticulously track capital expenditures. However, the same companies may not track obsolete equipment that has been replaced or disposed with the same vigor. As a result, companies continue to pay property taxes on equipment that is long gone.

Ghost assets like these may be lurking on your company’s balance sheet unnoticed. They are easy to overlook, but they can have a significant effect on your bottom line.

Ghost assets can be any property typically found on a business’s fixed asset listing, such as furniture or equipment, vehicles and software. They typically exist on a general ledger but are no longer under the ownership of the business due to loss, disposal, or sale. 

Ghost assets usually occur when it is difficult and complex to track your fixed assets, their movements, or disposals, often as the result of a disconnect between the accounting team and the operations team..

For some businesses, ghost assets may not be significant enough to affect the property tax bill. But others may see a real impact. Most taxing jurisdictions have floor depreciation percentages of 10-20%, and they are never written down to zero the way they might be for other accounting purposes.

This means companies with significant ghost assets could be paying property taxes indefinitely on equipment they don’t own, or at least until the ghost assets are identified and removed. For companies with large volumes or high cost equipment, the cost can be significant.

As the old saying goes “An ounce of prevention is worth a pound of cure.”

Companies should take the following steps to stay on top of ghost assets:

  • Meet with plant level employees responsible for communication with corporate accounting team. Make this a periodic exercise. Annually communicate the needs of the accounting team, processes to follow, and why it is important to address best practices.
  • Develop processes for tracking additions, disposals, rebuilds, stolen assets, transfers, and idle or unused equipment.

Implement process to identify if additions are new or replacing other assets that need to be disposed. While prevention is key, it will also be important to review your fixed assets in detail every few years to ensure all assets are accounted for and any ghost assets  are removed. If ghost assets are identified after assessments have been received for a particular year, check with your property tax professionals or your local appraisal district to see if an appeal may be filed.

For example, Texas taxpayers have an avenue to correct assessments that include equipment not owned by the taxpayer. Through a 25.25c roll correction request, taxpayers often can have corrections made for the previous five years. Many states offer corrective measures for taxpayers. If previous years can be addressed, there may be significant tax savings available in the form of refunds for prior periods, and more importantly, correcting these errors on a go forward basis.

This is a good time to find out if you have over reported and overpaid prior year property taxes related to “ghost” assets. For information about conducting a property tax evaluation to determine if savings exist or to discuss your unique situation, please contact us.

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