Key Takeaways
- President Trump ordered the halt of penny production in 2025, and pennies are already becoming scarce in everyday commerce.
- Businesses that accept cash must now round transactions to the nearest nickel — but how that rounding works for sales tax is still being sorted out state by state.
- Many states have issued guidance or passed legislation clarifying that sales tax should be calculated on the pre-rounded amount
- Even more states have yet to issue any guidance, leaving cash-heavy businesses in a compliance gray zone.
- Federal legislation (H.R. 3074, the Common Cents Act) could establish a national rounding standard, but it hasn’t passed yet.
- If your business operates in multiple states or handles significant cash volume, now is the time to review your point-of-sale processes and sales tax procedures.
- Your point-of-sale system will likely need to differentiate between a cash transaction and a noncash transaction, the rounding rule to be applied, and the net amount due from the customer may be different.
It was only a matter of time. The penny, long derided as more trouble than it’s worth, is officially on its way out. In 2025, President Trump directed the U.S. Treasury to stop minting the one-cent coin, and the shortage is already being felt at cash registers across the country.
For most consumers, losing the penny is a minor inconvenience. For business owners, especially those in retail, food service, and other cash-intensive industries, it raises a surprisingly thorny question: when you round a transaction to the nearest nickel, what happens to the sales tax?
The good news is that the picture is starting to come into focus. The not-so-good news is that it isn’t fully clear yet, and the rules aren’t the same everywhere.
What the Guidance Says So Far
Many states, including Michigan, New Jersey, and Florida, have issued administrative guidance on how to handle rounding. The consensus emerging from those states is straightforward: calculating sales tax on the original, pre-rounded price, then rounding the final transaction total when making change for cash transactions.
Washington state took it a step further, with Governor Bob Ferguson signing House Bill 2334 into law on March 23, 2026. The legislation specifies exactly how rounding works: amounts ending in 1, 2, 6, or 7 round down to the nearest nickel; amounts ending in 3, 4, 8, or 9 round up. Customers who have exact change can opt out of rounding altogether. Importantly, the law also addresses mixed payment transactions — when a customer pays partly in cash and partly by card, only the cash portion is subject to rounding. And consistent with guidance from other states, Washington’s law is explicit that rounding applies only to the total transaction amount and does not alter the amount of tax owed or collected.
There are different approaches in others state. As an example, Texas has said sales tax will only be adjusted on a rounded price if the transaction is rounded by more than four cents. This would require a custom point of sales system rule looking at whether a particular invoice would have sufficient rounding to trigger this rule.
In Connecticut, meanwhile, ALL cash transactions must be rounded down — not up — due to a state law prohibiting retailers from charging cash customers more than those paying other methods. Unlike Washington, Connecticut would round cents ending in a 1, 2, 3, OR 4 down to the nearest 10 cent mark. It would round 6, 7, 8, OR 9 down to the mid amount (e.g. down 15 cents not up to 20 cents)
As you can see from these state examples, the potential headaches for taxpayers operating in multiple states is about to get substantially worse due to different state approaches to handling the sunsetting of the penny.
Where It Gets Complicated
Here’s the challenge: dozens of states haven’t issued guidance yet. If your business operates in those states and you accept cash, you’re in a gray zone — doing your best to comply without a clear rule to follow.
The Council on State Taxation (COST), a multistate business trade group, has been actively engaging with states on this issue and advocating for a consistent standard. Their position is clear: rounding should happen at the end of the transaction when change is actually provided, and it should have no effect on the sales tax calculation itself.
COST has also pushed back specifically on Indiana’s Senate Bill 243, which proposed rounding the sales tax itself down to the nearest nickel — before the final transaction total is rounded. That approach would create a double-rounding scenario, require costly updates to point-of-sale systems, and put Indiana out of compliance with the Streamlined Sales and Use Tax Agreement (SSUTA), the compact that governs sales tax rules for 24 member states. Indiana’s legislature has since amended the bill, though the situation continues to evolve.
Closer to home, Ohio businesses should be paying close attention to H.B. 737, currently under consideration in the state legislature. As introduced, the bill would require vendors to treat rounding adjustment amounts on taxable cash transactions as sales tax — and remit that additional amount on their sales tax return, allocated proportionally between state and local tax rates. That approach stands in direct contrast to the guidance issued by Florida, Michigan, New Jersey, Tennessee, and most other states, which consistently hold that rounding does not affect the sales tax calculation. If H.B. 737 passes as written, Ohio vendors would face significant changes to their sales tax software, reporting obligations, and compliance processes. The bill raises a number of open questions that have yet to be resolved, and Rea’s SALT team is monitoring its progress closely.
Could Congress Step In?
Absolutely! This kind of different interpretation by the states is one of the best use cases for the federal government to step in to regulate interstate commerce. H.R. 3074 (the Common Cents Act) passed the House Financial Services Committee in 2025 and would formally codify the end of penny production while establishing a federal rounding rule for cash transactions. An earlier version of the bill included specific language requiring the total transaction amount (including taxes) to be rounded to the nearest nickel. That language was removed in committee, but the bill’s sponsors have indicated work on the legislation is ongoing.
For businesses hoping for clarity, federal action would be the cleanest solution. Until Congress acts, though, businesses are left navigating whatever their state has — or hasn’t — put in place. As Washington Governor Ferguson noted at the bill signing, the federal government discontinued penny production without providing guidance on how businesses should adjust — leaving states to fill the void on their own.
What This Means for Your Business
If you’re a business owner who accepts cash, here’s what to focus on right now:
Know your states. If you operate in multiple states, check whether each state has issued rounding guidance. Your sales tax obligations — and your point-of-sale setup — may need to be handled differently depending on where you do business. Ohio businesses in particular should monitor H.B. 737, which could impose sales tax remittance obligations on rounding adjustments — a requirement no other state is currently pursuing.
Review your POS systems. Some older or simpler cash register systems may not be equipped to handle the nuances of nickel rounding without adjusting how sales tax is calculated. If you’re unsure whether your system is handling this correctly, it’s worth a closer look. Make sure you also look at the state level rule regarding cash vs electronic payment methods. Many states have indicated that rounding is not required or permissible if the customer is paying via electronic means and not in cash. Your point-of-sale system needs to be able to handle both.
Document your approach. Until clear guidance exists in every state, documenting the rounding methodology your business uses — and how it aligns with available state guidance — is a smart risk management move. Don’t “set it and forget it,” keep up-to-date on new guidance that is issued OR updated in the states you operate in.
Stay informed. This is a fast-moving area. State guidance is being issued regularly, federal legislation is still in play, and the rules could change. Having a sales tax advisor who is tracking these developments is increasingly valuable.
The Bottom Line
The penny’s end was inevitable. Regulatory guidance hasn’t kept pace to provide clarity to businesses so they can deal with its elimination correctly. Most states are moving in the right direction — keeping sales tax calculations straightforward and allowing rounding at the transaction level — but gaps still exist. And for businesses that assume the rules are the same everywhere, the risk of noncompliance is very real.
If your business accepts cash and you have questions about how penny rounding affects your sales tax obligations — or how to make sure your current processes hold up to scrutiny — Rea’s State and Local Tax team is here to help.
About the Authors
Sharon Uecker is a Sr. Manager on Rea’s State and Local Tax (SALT) team, specializing in sales and use tax compliance, multi-state tax issues, nexus and taxability analysis, voluntary disclosures, and audit defense. She brings over 14 years of sales and use tax advisory experience serving clients across manufacturing, retail, hospitality, financial services, and healthcare. Connect with Sharon at reaadvisory.com/contact.
Joe Popp is a Principal on Rea’s State and Local Tax (SALT) team, where he focuses on helping businesses navigate complex multi-state tax obligations. With a JD and LLM in taxation, Joe brings deep expertise in sales and use tax compliance, nexus analysis, and multi-state filing strategy. He works with businesses of all sizes — from regional operators to companies doing business across all 50 states — to reduce compliance risk and stay ahead of a rapidly changing regulatory landscape. Connect with Joe at reaadvisory.com/contact.
