This Week in State Tax

Governor Dunleavy has vetoed S.B. 113, state legislation that would have shifted the state to a market-based sourcing regime, standardized statutory language related to apportioning income, and created a new carve out requiring certain “highly digitized businesses” to apportion income to the state using a single sales factor sourcing method. Due to the veto, Alaska will continue to determine its share of a taxpayer’s business income for corporation income tax purposes under an equally-weighted three-factor apportionment fraction, with the sales factor using a greater costs of performance sourcing method for determining which sales other than tangible personal property (i.e., services) are performed within Alaska. [For details on S.B. 113 as passed by the legislature, see our TWIST of June 2, 2025.]

In striking down the legislation, Governor Dunleavy cited concerns about whether the bill considered a “comprehensive fiscal approach.” The Governor specifically addressed the provision of S.B. 113 creating a single sales-factor sourcing requirement for highly digitized businesses, stating that it would have created a potential constitutional issue in that the provision “singles out” a particular category of taxpayers and subjects them to less favorable tax policies. The Governor also stated that the bill may have violated the federal Internet Tax Freedom Act, which bars states from applying discriminatory taxes on e-commerce. For questions about S.B. 113 or Governor Dunleavy’s Veto Message please contact Jonathan Edmonds.

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The Colorado Department of Revenue recently issued a General Information Letter (GIL 25-005) clarifying that Public Improvement Fees (PIFs) are considered to be included in the “purchase price” and are therefore subject to sales tax in Colorado.

In Colorado, the purchase price is defined as the price to the consumer for a good or service, excluding “any direct tax imposed by the federal government, any state, local, or special district sales tax, and any retail delivery fee and enterprise retail delivery fees imposed or collected.” Some retailers and shopping centers may impose a PIF on customers to help pay for the upkeep and improvement of certain infrastructure, such as landscaping and parking. Since a PIF is a private fee rather than a government-imposed tax or fee, a PIF is considered part of the taxable purchase price and subject to sales tax for items on which the fee is imposed. For additional questions or concerns regarding the taxable base or other Colorado sales tax issues, please contact Steve Metz.

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The Pennsylvania Supreme Court issued an opinion striking down a tax imposed by the City of Pittsburgh on nonresident individuals who use any of the City’s publicly funded sports stadiums for income-earning purposes. Under Pennsylvania law, certain cities which have publicly funded sports stadiums are statutorily enabled to impose a tax on nonresidents using those facilities “to engage in an athletic event or otherwise render a performance for which they receive remuneration.” Additionally, City ordinances provide that athletes subject to this facility tax are not subject to the City’s general earned income tax unless the state statute which enables the facility fee is struck down as unconstitutional. The City imposes the facility tax on nonresident athletes and performers at a 3 percent rate, and the earned income tax is imposed at a 1 percent rate. While City residents are not subject to the facility tax, they are subject to the earned income tax, as well as a 2 percent school district tax. School districts are prohibited by law from imposing an earnings tax on nonresidents. In the aggregate, City residents and nonresident athletes and performers are taxed at a similar rate but under two different regimes.

The taxpayers, a group of current and former professional athletes and players’ associations from several professional sports leagues, argued that the facility tax is unconstitutional under the Uniformity Clause of the Pennsylvania Constitution because it treats nonresident athletes less favorably by subjecting them to a 3 percent tax rate when resident athletes are taxed at a 1 percent rate. The City, on the other hand, argued that resident players are subject to the same tax rate as nonresidents, when the separate school earnings tax is considered. At the trial level, the court agreed with the taxpayers, comparing the facility tax to only the earned income tax, and found the two to be non-uniform because the facility tax is plainly 2 percent higher than its earned income counterpart. On appeal, the Commonwealth Court agreed with the trial court, also excluding the school district tax from the analysis, and stated that the City did not provide justification for treating nonresident athletes differently from resident athletes, such that the two groups should be subject to different tax burdens. The Pennsylvania Uniformity Clause requires that every tax “operate alike on the classes of things or property subject to it” and when a tax creates “arbitrary, unjust, or unreasonable discriminatory results,” the uniformity clause has been violated. The Supreme Court agreed with both lower courts that the facility tax violated the Pennsylvania Constitution. It cited Danyluk v. Bethlehem Steel Co., stating that the case stands for “…the proposition that a city cannot use a tax which, of necessity, only applies to residents to cover up the discriminatory effect of a separate, disuniform tax on nonresidents.” In other words, without any additional reasoning for treating nonresident athletes differently from resident athletes, the City’s justification that the combination of the City and school district taxes made the rates on residents and nonresidents essentially the same, was insufficient, and the facility tax is unconstitutional under Pennsylvania law. For questions on National Hockey League Players’ Association v. City of Pittsburgh, contact Mark Achord.

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The Texas Comptroller recently determined that a taxpayer’s fee charged to fuel stops based on the total sale of discounted fuel facilitated through the taxpayer’s mobile app is taxable as a sale of data processing services. The taxpayer operated a mobile app that enabled independent owner-operator truck drivers to locate fuel stops offering discounted fuel to app users, as well as amenities such as showers, parking, and dining options. The app was provided at no charge to the drivers, but fuel stops agreeing to participate in the system were charged a fee based on the volume of fuel sales facilitated by the app.

When a driver wished to purchase fuel at a participating fuel stop, the app would generate a numeric code unique to that driver and the designated fuel stop and display the guaranteed discounted price. To claim the discounted price, the driver provided the code to the fuel stop clerk. Once the driver finished fueling, the clerk inputted the number of gallons pumped into taxpayer’s system, and the taxpayer charged the driver’s debit or credit card on file. The taxpayer then transferred the appropriate proceeds to the fuel stop in payment for the fuel. In addition to facilitating purchases, the app provided fuel stops with detailed financial reports that tracked transaction histories, which the fuel stops could view and download. Importantly, the taxpayer’s Master Services Agreement with fuel stops specified that the taxpayer was not acting as a money transmitter, payment instrument seller, or money services business. Neither did the taxpayer operate as a seller fuel; only the fuel stop sold fuel and was subject to all taxes applicable to fuel sales.

Texas imposes sales tax on the sale of tangible personal property and enumerated taxable services, including data processing. Data processing encompasses activities such as data entry, retrieval, search, compilation, and other computerized storage or manipulation of information. However, it excludes the settlement of electronic payment transactions by certain payment processors and financial institutions. The Comptroller concluded that the taxpayer’s app performed data compilation, manipulation, and information storage by listing fuel stop locations, fuel prices, and amenities; generating codes to confirm purchases; and producing transaction reports. These activities fall squarely within the definition of data processing, and as the taxpayer did not qualify for the exclusion applicable to payment processors or financial institutions, the fee the taxpayer charged the fuel stops represented a data processing service subject to sales and use tax. Thus, the fee paid by the fuel stops to the taxpayer based on the amount of fuel purchased was taxable. Contact Karey Barton or Sarah Vergel de Dios for more information on PLR No. 20241031152954. 

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