Summary: Metering usage in tokens, credits, and compute units has quietly turned pricing into an accounting, tax, and legal question. When prepaid usage becomes revenue, how to treat unused balances, and whether those balances escheat to the state all sit within ASC 606 and state law. Get it wrong and you can overstate revenue, trigger surprise tax bills, and create hidden liabilities.
Introduction
As AI providers move from flat subscriptions toward consumption-based pricing, their finance teams are confronting revenue recognition questions that look deceptively familiar but carry real complexity. Many AI services now meter usage in “tokens,” “credits,” or “compute units.” This is a direct reflection of the underlying GPU, TPU, and custom AI chip costs (think NVIDIA H100s, Google TPUs, or AWS Trainium) that make inference expensive to deliver. Customers increasingly prepay for blocks of that usage.
How and when those dollars become revenue, and what happens to the balance a customer never uses, sits squarely within ASC 606 and, in some cases, state unclaimed property law.
Usage-based pricing (UBP) and the timing of revenue recognition
Under ASC 606, revenue is recognized when an entity satisfies a performance obligation by transferring control of a good or service. For pure pay-as-you-go (PAYG) arrangements where a customer is billed in arrears for the tokens they consumed, the analysis is straightforward: the service is delivered and consumed simultaneously, and revenue is recognized as usage occurs. Many of these contracts qualify for the “right to invoice” practical expedient, which lets a company recognize revenue in the amount it has the right to bill because the invoiced amount corresponds directly to the value delivered.
Prepaid tokens are where it gets interesting.
Prepaid tokens: deferred until consumed
When a customer pays upfront for a bucket of credits, the AI company has received cash but has not yet fulfilled its performance obligation. That payment is a contract liability (i.e., deferred revenue) and not yet revenue. The performance obligation is the future delivery of AI services, and revenue is recognized only as the customer draws down the balance through actual usage.
So, the revenue recognition trigger is consumption, not purchase. Selling a million compute units generate a liability; running the inference that burns those units generate revenue. This distinction matters enormously for AI companies booking large prepaid commitments because aggressive recognition at the point of sale would overstate current period revenue and misrepresent the obligation still owed to customers.
The tax alignment question
AI companies receiving prepaid token fees under ASC 606 will create deferred revenue for GAAP purposes. The ASC 606 deferral does not exist in a vacuum. Under IRS Code Section §451, as amended by the Tax Cuts and Jobs Act, accrual basis taxpayers must generally recognize revenue for federal income tax purposes no later than when it is recognized for financial reporting purposes. However, for tax purposes, the revenue cannot be deferred for longer than one year. Otherwise, the GAAP deferral should carry over to the tax return, meaning the company is not taxed on cash it has not yet earned. But that outcome is not automatic.
Companies need to confirm their specific contract structures to support the tax position, document it, and apply it consistently. A company that defers revenue for GAAP but fails to carry that treatment through to its tax return can create unnecessary taxable income that it can otherwise defer, and that compounds quickly as prepaid commitments scale.
Do tokens follow a use-it-or-lose-it policy?
Contractually, many of them do. Token and credit packages frequently carry expiration dates, and unused balances often lapse. From an accounting standpoint, those lapsed balances are “breakage” or the portion of a prepaid right the customer never redeems.
ASC 606 addresses that breakage directly. If a company expects to be entitled to a breakage amount, it recognizes that expected breakage as revenue in proportion to the pattern of usage the customer does exercise and not all at once at expiration. If the company cannot reliably estimate breakage (i.e., often because it lacks historical data a mature business normally would have), it recognizes breakage revenue only when the likelihood of the customer using the remaining token balance expires. Either way, breakage estimates are subject to the variable consideration constraint: revenue is recognized only to the extent it is highly probable a significant reversal will not occur.
For young AI companies without years of redemption history, the conservative and “remote” method often applies, deferring breakage revenue until they expire.
The unclaimed property wrinkle
Here is the trap that catches many finance teams off guard: breakage and unclaimed property are not the same, and one can override the other.
ASC 606 contains an explicit carveout. A company may not recognize breakage as revenue if the unredeemed amount is subject to escheatment under unclaimed property law. In that case, the company does not get to keep the money as it must return it to the customer. If the customer cannot be located and was in the United States, after varying periods of time (e.g., three years in many states), the funds are returned to the last known state of residence of the customer. In such cases, the return of funds would be the deferred liability. For tax purposes, the funds would have already been recognized as taxable, and in a subsequent year if returned to the customer or a state, those amounts would reduce taxable income.
Whether prepaid AI tokens are subject to escheat is a genuinely open question. State unclaimed property statutes were written with gift cards, stored value, and customer credits in mind, and only recently started to address virtual currencies. Several states exempt certain types of transactions or treat prepaid service credits differently from cash equivalent instruments. The key legal question is whether a token is a stored value instrument or simply consideration paid under a service contract, which is a characterization that may drive very different outcomes.
Complicating matters, the priority rules from Texas v. New Jersey send unclaimed property first to the state of the owner’s last known address and, absent an address, to the holder’s state of incorporation. Because so many AI startups incorporate in Delaware, a state known for aggressive unclaimed property enforcement and audits, the default landing spot for unidentifiable balances can be unforgiving.
Sales tax: the same question, a different regulator asking it
The stored value vs. service contract characterization question does not stay in the accounting department. State sales tax authorities are asking the same question and reaching their own answers. In states that tax SaaS or digital services, the token sale itself may be subject to sales tax. A company that incorrectly characterizes its token product as exempt from sales tax won’t be collecting and remitting tax. As physical or economic nexus is established in new states, that exposure can surface quickly. Given that prepaid token packages are often sold in high volumes at meaningful dollar amounts, the exposure on an incorrect taxability position can be significant. The analysis depends on the users’ jurisdiction as well as other factors.
Aprio can assist you upfront to ensure you are properly identifying revenue streams which are subject to sales tax in jurisdictions around the country.
Practical takeaways
AI companies selling prepaid usage should defer revenue until tokens are consumed, build a defensible breakage methodology grounded in actual redemption data as it accumulates, analyze sales tax implications, and consider if their token agreements could trigger escheatment in the states where they and their customers operate. Treating unused tokens as earned revenue is tempting, but it can simultaneously overstate the top line and create undisclosed liabilities.
Final thoughts
What looks like a pricing decision is also an accounting, tax, and legal one. A token isn’t just a unit of usage; it can be deferred revenue, subject to sales tax, breakage estimate, or property that ultimately belongs to a customer or state. These issues sit at the intersection of different accounting, tax, and legal considerations, and the same instrument can be treated one way for GAAP, another for income tax, and a third for sales tax or escheatment.
The answers depend on the details of how your contracts and pricing are structured, which is why these questions are best resolved before a compute unit model goes to market, not after an audit or a nexus study surfaces them. Choices made early, like whether tokens expire and how they’re described, get more expensive to unwind as prepaid volumes grow, and the cost of a wrong call rarely stays small.
Aprio helps AI companies Account for Anything™
Our accounting, tax, and sales tax specialists advise AI companies through exactly these decisions, helping you set up a pricing model that holds up under a financial statement audit, on the tax return, and in front of a state revenue department. Contact our team today.
