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Q: Pricing Structiure of a Gallon of Gas ( Answered,   2 Comments )
Subject: Pricing Structiure of a Gallon of Gas
Category: Business and Money > Advertising and Marketing
Asked by: trafficticketguy-ga
List Price: $200.00
Posted: 16 Sep 2005 08:21 PDT
Expires: 16 Oct 2005 08:21 PDT
Question ID: 568724
Why is the price of gasoline priced to nine-tenths (9/10) of a penny
and is there any government permissions(s) received by the gas
stations or oil companies allowing them to structure their price in a
way that you cannot use U.S. legal tender to pay for exactly one
gallon of gas?  For example, if I purchase exactly one gallon of gas,
there is no U.S. legal tender that i can use to pay for the exact
amount of my purchase.  Also, are there any laws allowing this
practice?  or disallowing it?  Ask Yahoo! had this question asked
( and I am not satisfied with the
answer as I would like more information.  THANKS
Subject: Re: Pricing Structiure of a Gallon of Gas
Answered By: pafalafa-ga on 16 Sep 2005 17:54 PDT

Thanks for asking a question about something that I've sometimes
wondered about myself, but never had the impetus to look into, until

The prevalence of nine-tenths of a cent gasoline pricing seems to owe
its existence to several factors:

--a penny used to be worth something

--Uncle Sam wanted a piece of the gasoline action

--People want to *think* they're getting a bargain, even if they know better

--Old habits die hard, and after a while, just get built into the system.

In addition to the above, there is nothing I know of in the law
preventing gasoline (or just about anything for sale) from having a
fraction of a cent as part of its price.  Just the opposite, early
federal law actually encouraged such fractional pricing of gasoline.

In these days of $3-and-change gasoline, it seems a bit ludicrous to
be dealing in fractions of a cent.  But when the gasoline stations
first appeared to fuel the rapidly growing numbers of automobiles in
the US, a gallon of gas could be had for under 10 cents per gallon. 
At that price, even a fraction of a penny could mean a pretty
substantial difference in costs from one place to the next.

A newspaper article dated February 7, 1935, reported the following:


Reno Evening Gazette

To meet a one cent reduction in prices posted by major oil companies,
a portion of the independent dealers in the Los Angeles area today
began selling third grade gasoline at eight and nine-tenths cents a
gallon, the lowest level in the present gasoline war...


As you can see, even back in the 1930's, fractional-cent pricing of
gasoline was a routine matter.

In fact, it pretty much had to be!  If retailers were constrained, and
could only raise prices by a minimum of a penny, then a raise from,
say eight to nine cents a gallon would represent an increase of 12.5%.

If a penny were the minimum price hike, then gas stations of the
1930's would find it impossible to raise prices by, say, only 5%.  So
in the context of decades-old gasoline prices, pricing involving
fractions of a cent made perfect

The growth of the automobile, and the consequent use of gasoline, did
not escape the notice of a cash-strapped US government during the
1930's, when the federal excise tax on gasoline came into being.

You can read a history of the tax -- probably a lot more than you
really wanted to know - in this report by the Congressional Research
The Federal Excise Tax on Gasoline and the Highway Trust Fund: A Short History 

The section I most want to bring to your attention is this:

"As finally approved, Section 617(a) of the Revenue Act of 1932 (1)
imposed a federal tax on gasoline sold by a producer or importer at
the rate of one cent per gallon..."

A pretty hefty tax, given the cost of a gallon of gas at the time. 
However, the government -- not to be overly burdensome to the American
motorist -- assured the public that the gasoline tax was temporary

But when the tax was due to expire:

"Shortly before the tax was scheduled to expire, Congress enacted two
bills into law that extended this tax for an additional year and
increased its one and one-half cents per gallon, effective
June 17, 1933..."

So, now the federal government itself was adding a fractional-cent
amount to the cost of gasoline.

This point is worth emphasizing, since you had specifically asked the
question as to whether such fractional pricing is allowed by law.  As
you can see from the examples above, the federal law can almost be
said to have mandated such pricing!

In truth, there are many commodities that are bought and sold at
prices involving fractions of a penny, though perhaps none are as
commonplace as gasoline.

Until a few years ago, stocks were routinely traded in units of an
eighth of a dollar (12 1/2 cents) or even 1/16th of a dollar (6 1/4

Even today, now that trading has gone decimal, stocks can still be
bought and sold at prices that include a fraction of a cent.

While searching newspapers for gasoline prices, I came across an
article about a non-gasoline item from 1909:


The Perry Daily Chief
Perry, Iowa
June 30, 1909

The duty on structural iron and steel valued at more than nine-tenths
of a cent a pound was increased from three-tenths to four-tenths of a
cent per pound, being an addition to the house rate of one tenth of a


So again, you have an example of a commodity selling at prices
involving fractions of a cent, with an added duty imposed also in
small fractions of cent.

In the course of my research, I gathered a number of interesting
newspaper articles that provide some historical perspective on
gasoline prices, especially regarding fractions of a cent.

You can see a number of excerpts from these articles at these links: 


Please note that these links are only temporary, so if you are
interested in a permanent record of these article excerpts, please
download the files to your local computer.

We've established (to your satisfaction, I hope) that gasoline has a
long history of being sold at prices involving fractions of a cent. 
Far from being prohibited by law, the practice seems to have been
encouraged by levying taxes at fractions of a cent.

But from whence comes the common practice of retailing gasoline at
amounts invevitably ending in nine-tenths of a cent?

Here, a lot more conjecture is needed to provide a reasonable explanation.

One of the articles at the link above mentions gasoline prices in
Buffalo, NY in 1953 were 15 1/2 cents per gallon, retail, plus another
4 1/2 cents state tax, and 1 1/2 cents federal price at
the pump -- 21 1/2 cents per gallon.

After this time, though, it becomes progressively harder to find
prices that do not end in the ubiquitous nine-tenths fraction.

I believe this was a combination of several factors:  more
automobiles, growing population density, the interstate highway
system, and good old competitive pressure.

With the emergence of a good highway system, America was!  And one of the things they were cruising past were
the ever growing number of gas stations along the roads.

In order to attract customers, the stations began erecting large,
visible signs posting their prices.  So if the competition offers gas
at 25 cents per gallon, what better way to attract customers --
without taking too much of an economic hit -- than to drop your price
a tenth of a cent, especially if your signage posts the '24' in nice
large digits, while the '.9' part of the price is made tiny?

As gas prices continued to rise, the actual importance of a tenth of a
cent difference in prices took on less and less consequence (unlike
the 1930's, when it made a substantial difference in the overall

What remained, though, was the psychological appeal of offering gas
that appeared to be just a bit cheaper than it would without that
one-tenth reduction -- $1.09 (and nine tenths) just looks less
expensive than $1.10.

I wouldn't even be surprised if, these days, the practice is even
somewhat institutionalized.  The companies that make the signage that
gas stations use might not even offer an option to post a price of
seven-tenths, or half-a-cent.  Perhaps all they offer is the
nine-tenths signage, so that's what everyone uses.

Like I said, there's a bit (OK...mroe than a bit) of conjecture here. 
But I hope you'll agree it's a reasonable supposition for how the
nine-tenths tradition came into being.

I trust this information fully answers your question.  

However, please don't rate this answer until you have everything you
need.  If you would like any additional information, just post a
Request for Clarification to let me know how I can assist you further,
and I'm at your service.

All the best,



search strategy -- Searched a variety of newspaper databases for old
article that included the terms:  [ gas OR gasoline AND gallon AND
nine-tenths ]
Subject: Re: Pricing Structiure of a Gallon of Gas
From: justsayess-ga on 07 Oct 2005 23:56 PDT
I beleive this answer to be misleading.  I also know that there are
those that want to keep this matter under the rugs which is evidenced
by the laws that took place in Iowa regarding this matter.

It has nothing at all to do with taxes.  It has nothing at all to do
with a sales gimick.  It has nothing at all to do with "it sounds
better".  It has EVERYTHING to do with fraud.

There is no instrament, tool or method of measurement that measures
9/10 of a gallon.  It There IS a way to measure a sales gimmick as
$9.99.  You CAN receive a penny in return.  You cannot receive the
1/10 in return on the gasoline.  It is pure theft!

Why cant it be reversed if its only a unimportant matter?  How about
receive the remaining 9/10 cents back.  Figure how many gallons of
gasoline have been purchaced in the US in the last 70 years.  Multiply
that by 1/10 per gallon & see how much we have been defrauded!  AND it
is being supported by the US government!

Whay was this outlawed in Iowa?  AND why was it suddenly reversed if
it didnt matter?

Why Is it illegal in other countries?

Why are we being expected to be led around by the nose like a bunch of bling sheep?

Why dont we raise our voice & demand a refund??
Subject: Re: Pricing Structiure of a Gallon of Gas
From: lpe-ga on 25 Feb 2006 17:06 PST
Nope, don't buy it.  The fraud part I mean.  Consider this - if
everyone purchases an item using the exact same calculation for price
than everyone is charged the same.  This will hold true, for the most
part, even if the calculation causes one person to pay a few cents
less one day, then it is safe to assume that they will pay a few more
another day.

If someone (someone once suggested that "the man" meaning the
government) was sneaking a few extra $ out of this then what of it? 
Everyone still pays the same .009 cents.  Also, it is not "the Man"
that is setting the .009 price, it's the retailer, you don't mean to
tell me they are in on this conspiracy!

Common sense seems to point to the low price issue, I had long thought
that the .009 had something to do with a fraction of a cent tax, that
thought combined with the 8 cents a gallon price would make sense.

What evidence do you have to support your claim?

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