Card payment processors charge the merchant some premium. Usually their contract with the merchant prevents passing the fee along to the customer. A cash discount could be a way to get more customers to pay in cash, which avoids the credit card company's cut. This is probably violating the terms of the merchant/card company contract, but I dunno, hard to resent the merchant here given the power imbalance between them and the card processors.

How would using cash would be an effective way of denying the gas station's staff a proper wage? I suspect most gas station staff is hourly, rather than... I dunno, tipped or commission.

Cash could certainly be a way of avoiding some taxes.

To save on the credit card fees. Gas stations are one of the few businesses which are allowed to offer cash discounts in their merchant agreements.

A lot of places do this, whether it is "allowed" or not. But my understanding is that after much push and pull between merchants and processors, most processors do allow it.

Interesting! Any idea why that is?

Because the margins on gas are tiny.

The gas stations would have never had any credit card uptake without it and people have to buy gas and are extremely price sensitive so would have continued shopping at cash only gas stations.

Unlike say a clothing store where the convenience of credit overcomes the price sensitivity, you can defer the purchase and the merchant has higher margins.