Gas prices were insane in 2022. Even though they’ve seemed to have leveled off a bit, it still ain’t cheap to fill up. So, as you’re contemplating taking a second mortgage to pay for a tank of gas, have you ever wondered, “hey, what’s the deal was with the price per gallon ending in 9/10"? Even if you haven’t, here’s the story!
Blame it on taxes….and marketing
Way back when, taxes used to be levied in 1/10 of a cent increments as part of the original Coinage Act of 1792. The pricing was based on 1/1,000th of a dollar - aka, 1/10th of a cent or a “mill.” The best example that many of us will be familiar with is when we talk about property taxes. The “mill” rate is the tax rate that’s applied to the assessed value of a property. One "mill" is one dollar per $1,000 dollars of assessed value. I know, esoteric.
Back to gas. In the 20th century, incremental taxation was applied to gas. The federal gas tax came into existence as part of the Revenue Act of 1932, during the Great Depression. While it was supposed to expire in 1934, you know what happens to taxes – they never go away once they’re in place! In fact, it increased. The intended purpose of the tax - to help fund roads projects during the Depression.
As a result of that 1/10 taxation, gas stations passed along that cost to customers in fractions of a cent. Why, you ask, wouldn’t you just charge a penny? I mean, it’s a penny, right? Nope. Because, also back in the day, gas prices were around 10 cents a gallon. So, an increase of 1 cent from 10 cents to 11 cents would be a 10% increase in gas prices. Think about it. In today’s terms, with gas at $4 a gallon, a 10% price increase is 40 cents (yikes)!
Here’s where the marketing bit comes in. Who really looks at that 9/10 at the end of the gas price? Nobody, that’s who. If we see a gas price of $4.01 9/10, nobody thinks, "oh, that's $4.02". We’re all thinking $4.01, and that we’re getting a deal (marketing at its sneakiest). But if you’re buying 20 gallons of gas, the difference between $4.01 and $4.02 becomes more measurable the more frequently you fill up and that 1 cent starts to add up.
So since the 1970’s, the whole 9/10 of a cent nonsense has become the norm.
Side note: Those of us who were around in the 1970’s have commented about the similarity between the long gas lines in 2022, and the odd/even gas rationing lines of the 1970’s oil crisis. I won’t dredge up those nightmares, but for if you’re curious, here are a couple links that may help fill in the details – one from the Washington Post and one from Yale University.
Bucking the system
Over the years, many have tried to take on that 9/10 cent tax with zero success. In 2006, a gas station owner in California, tried “full-cent pricing” instead of fractional pricing. Iinstead of $3.00 9/10 per gallon, he charged $3 per gallon (not 9/10 of a cent). The result? He lost money. Nobody even noticed the price difference.
In 1985, Iowa passed a law eliminating that pesky 9/10 pricing. Yeah, that law got repealed just four years later.
Canada didn’t fare much better. Even though Canadian gas prices are listed with a 9/10, the country sells fuel in liters. So that works out to a a 4-cent swing. But since Canada stopped producing its penny, most gas stations now just list prices to the nearest nickel.
So, there you have it. While it doesn't make the price of gas any less painful, at least you know the ugly backstory!