DEFY S. McQUAID! $73: Why charge a Mill?

The Question

Becky asks:

Why does every gas station charge an extra $.009 per gallon? I vaugly remember hearing something about taxes. However, why don’t the stations just round it up and keep the extra fraction of a cent? Personally, I’m happy they don’t round up, but it bothers me that they use a nonexistant monitary unit.

Also, is there anything else in the world that is sold like this?

The Answer

It’s an intriguing question, isn’t it? Why would anyone do this? And what else does this?

First, let’s answer the “why”.

It turns out, the reason that gas stations add tenths of a cent on to their price is purely marketing; nothing to do with taxes, nothing to do with esoteric gasoline laws – it’s simply a marketing ploy. Gas stations feel that customers are more likely to select them if they advertise their price as $2.899 than $2.90. And nothing prohibits them from doing so. Also, keep in mind that gas stations round UP the final price, so if your final pump price is $32.982, it’s really $32.99. (There may be exceptions to this rule, but I haven’t found them).

So, the “why” is pure marketing.

Interestingly enough, in 1786, a unit of currency was legislated into legality, equal to “1000th of a dollar” or “a tenth of a cent”, known as a “Mill”. However, this currency was never minted by the federal government. Some states and local townships did use the mill for some time to settle taxes on really cheap stuff, but the practice fell out of use fairly quickly.

The mill is still legal today, but you’d be hard-pressed to find it commonly used in sales anywhere other than gas stations. HOWEVER, many municipalities use the mill when calculating their property tax. Property tax can be expressed in terms of mills per dollar. For example, a millage rate for property taxes of 2.094 mills per dollar will cost the homeowner of a $200,000 dollar home 0.002094 * 200000 = $418.80. (The mill rate for my town is currently 9.93, assessed bi-annually).

So, there’s more than just gas that uses the mill, but not much more. Enjoy your mill knowledge!

4 thoughts on “DEFY S. McQUAID! $73: Why charge a Mill?

  • 7/12/2006 at 5:42 am

    They do this in the UK too – petrol is priced (for example) 97.9p per liter and (I presume) the total is rounded up since no-one deals in 10ths of a penny.

  • 7/15/2006 at 2:55 pm

    Over in Bucks petrol is a penny cheaper Roland!


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