Usage-based subscriptions are increasingly common for cloud-based or software-as-a-service (SaaS) products, and they require special consideration when evaluating whether a contract qualifies as a Subscription-Based Information Technology Arrangement (SBITA) under GASB 96.
As a result, many month-to-month software arrangements are not considered SBITAs under GASB 96 and do not need to be recorded as subscription assets and liabilities.
How Do Usage-Based Subscriptions Work?
Instead of paying a flat monthly or annual fee, organizations are billed based on actual usage.
For example:
- A city’s finance system may charge based on the number of transactions processed
- A nonprofit’s CRM may bill by active users or data storage volume
- A school district’s online learning platform might bill per student login
Some contracts include a minimum commitment with additional usage billed separately, while others may be fully variable with no fixed payments.
Are Usage-Based Subscriptions Considered SBITAs?
It depends. Under GASB 96, a contract is only a SBITA if:
- The organization controls the right to use the software
- The contract is non-cancellable and extends beyond 12 months
- The arrangement includes measurable subscription payments
If a contract is entirely usage-based with no fixed or predictable payment stream, it may not meet the definition of a SBITA and would not be reported as a subscription asset or liability. However, any minimum usage commitments or fixed fees included in the contract would be included in the SBITA calculation.
Accounting Considerations
- Fixed components: Included in the subscription liability and amortized over the subscription term.
- Truly variable components: Not included in the liability; expensed as incurred.
- Hybrid contracts: If a contract includes both fixed and variable fees, each component must be evaluated separately for reporting purposes.
What's Important Here
Usage-based software subscriptions charge based on actual system use and may or may not qualify as SBITAs under GASB 96. If the arrangement includes fixed payments or minimum commitments, it likely needs to be reported as a subscription liability.
Organizations must carefully review each contract to determine what qualifies for recognition and what should be expensed. Proper classification ensures compliance, transparency, and accurate budgeting.
