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The extra "tenths" is a very old tradition that's never gone away. In 1935, a Reno Nevada newspaper wrote about "selling third grade gasoline at eight and nine-tenths cents a gallon."
In those times, a penny had considerable value. To raise the price of gasoline from 8 to 9 cents would be more than a 12 percent hike. To compete, gas stations raised prices by tenths of a penny. Around this time, federal and state excise taxes were also introduced in increments of tenths of a cent, so it made sense to keep the decimal value.
Perpetuated for Profit?
The tradition stuck. The U.S. Energy Information Administration, 'prime suppliers' of 'motor gasoline' reported sales of 372,833.5 thousand barrels sold in February 2007. These gas sales collected US$ 141 million in nine-tenths-of-a-cent increments. With gasoline prices in the US$ 2.00 to US$ 4.00 range, the 9/10 no longer serves a constructive purpose, and occasionally measures have been introduced to abolish it. From 1980 to 1984, the state of Iowa experimented with even cents, but eventually returned to the 9/10 pricing.
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Why is gas priced at 9 10ths?
I've always assumed that it was due to some weird federal tax. But the truth is, nobody knows for sure. Theories abound, but none are definitive. The Mail Tribune newspaper in Medford, Oregon, quotes Craig Randolph, an oil company's V.P. of retail operations. He says the nine-tenths of a cent is just a marketing gimmick that likely begun during the 1970 "gas wars." Over the years, it became the standard. This site on Arizona gas prices offers a different theory. It argues that the precision of nine-tenths gives motorists a "false sense of accuracy" over their purchase. It goes on to state that this method of pricing "requires that almost all purchases be rounded to the nearest whole cent," which benefits oil companies
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