Why Are Gas Prices Shown With a 9/10th at the End?

Daniel Ganninger
June 25, 2024
gas price sign showing 9/10th

When you pull into a gas station, you’ve probably noticed that the gas prices displayed on a sign or the gas pump have a 9/10th following the gas price. What is the purpose of this 9/10th fraction, and what does it have to do with the price you pay at the pump?

The origin of the 9/10th fraction in gas prices can be traced back to a significant event in the United States-the enactment of the first federal gas tax. This occurred in 1932, during the challenging times of the Great Depression. The Revenue Tax Act of that year established a gasoline excise tax of 1 cent per gallon. However, the price of gasoline during this period plummeted to 20 cents per gallon, and even as low as 10 cents per gallon in some areas.

Retailers found that adding a full cent when gas was only 10 cents a gallon equated to a 10% increase in the gasoline price, which was a substantial additional expense for already cash-strapped motorists during the Great Depression. Instead of rounding up, retailers began using a fraction of a cent instead. 

The gasoline excise tax was increased to 1.5 cents a gallon under the Revenue Act of 1940 and further increased to 2 cents a gallon under the Revenue Act of 1951. By this time, it became customary for gas stations to set the end of gas prices at 9/10ths of a cent.

Despite the minimal value of 9/10th of a cent, the practice continues today. This is largely due to the influence of marketing and the perception that prices slightly below a whole number appear significantly less expensive. Fuel retailers discovered that reducing the price by 1/10th of a cent led to increased sales. The concept that gas priced at $2.999 seems much less than gas priced at $3.00 was born.

Though you will commonly see a 9/10th or 9 at the end of gas prices, even in European and other non-American countries, Iowa banned fractional gasoline pricing in 1985. The law didn’t last long and was repealed in 1989. Some retailers even experimented with not using the 9/10ths and rounded their prices down. This was done by a Palo Alto, California, gas retailer in 2006. The station charged $2.99 a gallon instead of $2.999 a gallon. They saw a drop of $23 per day in profits, and the customers of the gas station reacted negatively, thinking the price had been rounded up.

Fuel retailers make most of their profits from selling things in the gas station, such as drinks and food, and only make about 10–15 cents per gallon selling gas. The 9/10th of a cent they charge at the end of a gas price helps these retailers make a little more at the pump, and the consumers get what they pay for. The gas pump totals are rounded up if the price is above 0.5 of a cent or rounded down if it is below 0.5 of a cent.

Sources: NACS, WKYT, CNN, IRS