Summary: A recent Texas private letter ruling reveals how the determination of whether a product or service is subject to sales tax is often influenced by how the state characterizes the transaction, which can differ from the taxpayer’s characterization.
In a recent private letter ruling, the Texas Comptroller concluded that a Taxpayer’s charge to fuel stops on the sale of discounted fuel to truck drivers through the Taxpayer’s mobile app constitutes a taxable data processing service.[1]
How the Fuel Discount App Works
The Taxpayer partners with fuel stops that want to increase their business from independent owner-operator truck drivers (Operators). Through the Taxpayer’s mobile app, Operators can purchase discounted fuel from fuel stops that partner with the Taxpayer. The app shows the fuel stop’s location, the discounted fuel price, and the fuel stop’s amenities (e.g., showers, dining options). The app also provides fuel stops with a financial reporting dashboard that allows the fuel stop to view and download transaction history.
Operators download the Taxpayer’s app for free. To receive the discounted fuel price, the Operator must use the app to generate a fuel code that is unique to the Operator and the designated fuel stop. The code is presented to the fuel stop clerk, who enters the number of gallons pumped into the Taxpayer’s system. After fueling, the app charges the Operator’s debit or credit card on file, and the Taxpayer then transfers the appropriate proceeds to the fuel stop.
Fee Structure and Tax Implications
The app itself does not sell fuel directly to the Operators. The fuel stop is responsible for all applicable taxes related to the fuel sale. Instead, the Taxpayer charges fuel stops a percentage-based fee on the total fuel sales to Operators. Pursuant to the ruling, Texas classifies this fee as a taxable data processing service.
Understanding Texas’ Data Processing Services
In Texas, data processing services include word processing, data entry, data retrieval, data search, information compilation, payroll and business accounting data production, and other computerized data and information storage or manipulation. Data processing, however, does not include the settling of an electronic payment transaction by certain payment processors and financial institutions.[2]
In its analysis, the Texas Comptroller notes that the activities that the Taxpayer’s app performs involve data compilation, data manipulation, and information storage which fall under the definition of data processing services. As such, the ruling concluded that the Taxpayer’s charge to the fuel stop is subject to sales tax as a data processing service.
Although the Taxpayer’s charges to fuel stops appear to represent a type of marketing service fee to drive truck driver traffic and fuel sales (perhaps analogous to a sales commission), Texas focused on the app’s data-driven functions. In other words, even if a business views itself as offering marketing services, the state may look to other activities performed which may result in a different tax classification.
Final Thoughts: The Debate of Marketing vs. Data Processing
This ruling presents an interesting case because the Taxpayer’s service, a discounted fuel program, ultimately cannot be performed without the Taxpayer’s app. Notably, the ruling focuses on the specific activities performed by the app rather than on the reasons why fuel stops contract with the Taxpayer or the basis for the Taxpayer’s fees. This leads the state to ultimately conclude that the fee represents taxable data processing instead of a nontaxable marketing service or commission payment.
While a business may view itself as providing a certain product or service, states may not always characterize the business in the same manner, particularly if an alternative characterization results in that product or service being subject to sales tax. Therefore, businesses should consult with their tax advisors to understand the risk of a state subjecting their products or services to sales tax, and whether it makes sense to seek a ruling from the state, as the Taxpayer did in this case.
[1] TX Private Letter Ruling No. 202508025L, 08/22/2025.
[2] TX Tax Code Ann. §151.0035
