Skip to content
What is a Term-Based Software License?

What is a Term-Based Software License?

Definition:

A term-based software license is a software agreement that gives an organization the right to use a specific piece of software for a defined period of time, typically one to five years, without transferring ownership of the software. These licenses are often paid for through recurring fees and may include vendor-provided support, updates, and cloud hosting.

Unlike perpetual licenses (which grant indefinite use), term-based licenses expire unless renewed.


How Term-Based Licenses Relate to GASB 96

Under GASB 96, a term-based software license may qualify as a Subscription-Based Information Technology Arrangement (SBITA) if it meets the standard’s criteria, such as being an exchange or exchange-like transaction that conveys control of the right to use IT software for a specified subscription term.

If the license includes cloud-based access (ex. the software is hosted by the vendor), it almost always falls under GASB 96.

Term-based licenses can create long-term subscription liabilities and must be evaluated for proper accounting treatment. When they fall under GASB 96, organizations need to recognize a subscription asset and liability, and amortize related implementation costs over the subscription term.

  • Software updates and maintenance
  • Data storage
  • Security and uptime
  • Technical support

Example of a Hosted Service

A city enters into a three-year contract for a cloud-based permitting system, paying an annual fee for access and vendor support. Since the city doesn’t own the software and only has rights to use it during the contract period, this is a term-based license that likely qualifies as a SBITA under GASB 96.

What’s important here?

A term-based software license gives governments time-limited access to software without ownership. When the arrangement meets the definition of a SBITA under GASB 96, it triggers specific accounting and reporting requirements, making it essential to evaluate the license structure carefully.