Are Perpetual Software Licenses Considered SBITAs?

No, perpetual software licenses are not considered SBITAs under GASB 96. A perpetual license grants an organization the right to use software indefinitely, rather than for a defined term. Since there is no specified subscription term, the arrangement does not meet the definition of a SBITA.

What Qualifies as a SBITA?

To be considered a SBITA under GASB 96, an arrangement must meet all of the following criteria:

• It is a contract: There must be a legally binding agreement.
• It gives the government control over the right to use IT software.
• The software is not owned by the government entity.
• It has a defined subscription term: The right to use the software is conveyed for a specific period of time in exchange for payment.
• It is exchange or exchange-like: The arrangement involves mutual consideration.

Examples of SBITAs include cloud-based software services, hosted applications, and software-as-a-service (SaaS) agreements that meet the above criteria.

It's important to distinguish perpetual licenses from subscription-based contracts because they are accounted for differently. Perpetual software licenses may fall under other accounting guidance, such as GASB 51, which addresses intangible assets. Misclassifying these types of arrangements could lead to inaccurate reporting and non-compliance.

What’s Important Here?

Perpetual software licenses do not fall under GASB 96’s guidance for SBITAs because they lack a subscription term. Instead, they should be evaluated under other applicable standards, such as GASB 51. Understanding the differences helps governments stay compliant and ensure accurate financial reporting for IT agreements.