Knowledge Center: Why Is 9/10 Added To Gas Prices?

Saturday, February 23, 2019

Why Is 9/10 Added To Gas Prices?

Fractions abound in U.S. gas prices, thanks to a 1932 tax that never expired. MCCAIG/E+/Getty Images

In a country where people vigorously debate the merits of keeping the penny around, it seems odd to pull up to a gas station and see a fraction of a cent included in the price.

The practice of tacking 9/10 of a cent on the end of a gas price goes back to when gas cost only pennies per gallon and was a tax imposed by state and federal governments. Gas stations added the fraction of a cent on the end of the price instead of rounding up the price. Back then, a full penny would have been a budget-buster for customers. The federal tax was implemented in 1932 as part of the Revenue Act of 1932 and was supposed to expire in 1934 — except it never did.

Marketplace wrote the tax was intended to help prop up budgets for roads and infrastructure during the Great Depression. Gizmodo reported the tax was supposed to reduce overall budget deficits. In any case, instead of killing off the tax, Congress raised the fraction a little more. By then, it was clear that consumers weren't really deterred by it.

That 9/10 remains decades later, even though gas taxes are well over a penny. As of January 2017, federal, state and local taxes accounted for 19.5 percent of the price of a gallon of gas, according to Investopedia. On average:

Federal tax is about 18.4 cents.
State tax is about 27.3 cents.
Local tax is about 4.3 cents.

Still fractions of a cent, but the 9/10 figure to account for it is long outdated.

Today, U.S. gas prices tend to fluctuate between two and three bucks a gallon. Consumers have tons of options for buying gas and innovative technology options to help them find the cheapest prices, via smartphone or built right into the car's infotainment system. Rounding up that fraction to a full extra penny would barely matter to most drivers. So why is it still there?

Look at it this way. If you're shopping for other products, like groceries or clothes, you probably tend to disregard the cents after the dollar price. Even if the price ends in .99, most consumers mentally round down instead of up. The practice of ending prices with ".99" dates back to the 1860s, according to Gizmodo.

Gas prices benefit from the same phenomenon, except on an even smaller scale, fractions of a penny instead of fractions of a dollar. Most consumers disregard the 9/10 completely, as it only adds 13 cents to the cost of filling up a 15-gallon tank.

So how much of a difference does that extra 9/10 of a cent make across the industry as a whole? Marketplace reports those extra penny fragments add up to half a billion dollars per year.

Now That's Interesting :- An intersection may have several gas stations, but not all of them are competitors. Typically, station owners say, they're concerned only with other stations on the same side of the road. Many consumers will drive longer to find a cheaper station on the same side of the street, but generally won't cut across heavy traffic just to save a few cents a gallon, particularly if there's a median.

Thanks to Cherise Threewitt / HowStuffWorks / 12 February 2019
https://auto.howstuffworks.com/fuel-efficiency/fuel-consumption/why-is-9-10-added-to-gas-prices.htm

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