What does the end of the penny mean for businesses?

In February 2025, President Trump announced that he had directed the Secretary of the Treasury to discontinue minting pennies and as of November 2025, the federal government has stopped producing the penny. Consequently, federal legislation was previously introduced that would require the penny to still be considered legal tender, and all cash transactions to be rounded to the nearest 5 cents. However, nothing has passed at the federal level yet.

Nonetheless, the end of the penny has left many businesses, particularly in the retail space, in need of rounding guidance as exact change becomes more challenging for cash transactions. From a sales tax perspective, generally, retailers are required to calculate and remit sales tax to the exact cent for both cash and non-cash transactions and without the ability to remit exact change; uniform rounding procedures are critical.

Federal guidance

While federal legislation has yet to pass regarding rounding procedures, informal guidance has been issued as the circulation of pennies continues to decrease.

In particular, the U.S. Department of Treasury released a set of FAQs in December to address questions surrounding the penny shortage. The FAQ clarifies that pennies still remain a legal tender, and retailers should continue accepting pennies and providing exact change for cash transactions, while pennies are still available, when able. When considering questions around rounding policies, the FAQ defers guidance to state governments and state taxing authorities. In particular, with regard to the impact on sales tax calculations, the FAQ states “how states and localities will ultimately amend their sales tax laws is the right and responsibility of those jurisdictions.”

For questions around the impact to point-of-sale (POS) systems, the FAQ defers to each individual business on whether it chooses to update its POS system to automatically apply rounding for cash transactions while noting the Treasury Department is actively working with POS system providers “to ensure their systems are properly equipped to handle rounding and accurately calculate sales taxes.”

Ultimately, the FAQ directs businesses that enact rounding policies to do so in a “fair, consistent, and transparent manner.”

State guidance

From a state standpoint, guidance concerning the penny shortage, especially regarding rounding policies, has begun to be issued.

a. The National Conference of State Legislators’ (NCSL) guidance

On Nov. 21, 2025, the NCSL issued a report (the Report) aimed at providing clarity surrounding the penny shortage including rounding clarity, the federal role and other items.

From a rounding perspective, the Report advises that without pennies, cash transactions must total an amount ending in either 0 or 5 cents, ensuring that the amount can be paid using available currency. Further, the Report states that “the most recommended form of rounding is symmetrical rounding whereby if the final digit of the total transaction amount (including taxes) is 1, 2, 6, or 7 cents, the amount is rounded down to the nearest multiple of five. If the final digit is 3, 4, 8, or 9 cents, the amount is rounded up. Transactions totaling exactly $0.01 or $0.02 might be rounded up to $0.05. Rounding rules would not apply to payments made via electronic methods, checks, gift cards, or other non-cash instruments.”

For sales tax purposes, the Report notes that “rules and guidance may need to explicitly require that sales and excise taxes continue to be calculated on the actual sales price, prior to any rounding for cash transactions.”

Notably, the United States is not the first country to stop distributing pennies and the Report details Canada’s approach as an example for policymakers as they begin to draft penny shortage guidance.

Ultimately, the Report concludes noting that policymakers have the opportunity to utilize best practices along with stakeholder input to devise rounding policies that are both fair, and effective.

b. State rounding guidance examples

To date, multiple states have issued their own rounding guidance. Examples include:

• Texas: Texas was one of the earlier states to come out with guidance on the calculation of sales tax on cash transactions due to the shortage of pennies. The Texas Comptroller of Public Accounts (Comptroller) said that it will continue to accept pennies while they continue to be legal tender. The Comptroller advised taxpayers to “calculate sales tax on the sales price of the taxable item under sections 151.410 and 151.053 and Rule 3.286 (d)(1). Taxpayers must remit this amount to the Agency regardless of method of payment from the taxpayers’ customers.” The Comptroller continued to say that in cases that the sales price plus sales tax equals a total that cannot be collected without pennies, “retailers may round the transaction to the next lowest or next highest nickel, as they see fit, and the Agency will not adjust the sales price or recalculate tax due.” The guidance indicates that the change to tax calculations is limited to cash transactions. The practices described in the memo released by the Agency will be implemented immediately.
• New Jersey: The New Jersey Division of Taxation (the Division) has released rounding guidance for both sales tax and income tax. The New Jersey Division of Consumer Affairs directs that a “business or seller may choose – but is not required – to implement a policy of rounding cash transactions up or down to the nearest nickel. However, the rounding must be disclosed clearly and conspicuously prior to the consumer incurring any charge for the goods or services purchased.”

When related to sales tax, the guidance states that “the seller must collect Sales Tax based on the purchase price, regardless of whether the consumer or seller provided exact change.” For Corporation Business Tax and Gross Income Tax, businesses must use exact accounting when calculating gross receipts or total income. The Division further states that “if a business rounds up on a transaction, that revenue is treated as additional income to the seller. When a business rounds down, it reduces the gross receipt, or total income figure.”

• Florida: The Florida Department of Revenue (the Department) released guidance on cash transactions after the end of the penny production. The Department advises taxpayers that “if the total amount due cannot be collected or change cannot be provided on a cash transaction due to the penny shortage, the dealer may choose how to round the total amount due from the customer to the next lowest, next highest, or nearest nickel, so long as notice is provided to the customer.” The Department also informs taxpayers that sales tax remains due on the “actual sales price prior to the dealer applying rounding due to the lack of pennies.” Understanding this is an emerging federal and state issue, and the Department acknowledges that this guidance may change due to changes in federal or state law.
• Michigan: The Michigan Department of Treasury (the Treasury) issued guidance on how rounding of cash transactions will impact the General Sales Tax Act and the Use Tax Act. Notably, guidance states “the guidance in this Notice is also applicable to Retailers that may choose to apply this rounding convention to their credit transactions as well.”

The Treasury states that the seller “should calculate the tax based on the listed sales price of the property to the nearest cent and then any rounding needed to address a lack of pennies is in the seller’s discretion (i.e. rounding up, down or to the nearest $0.05)”. In order to maintain sufficient records, Treasury recommends “separately itemizing on the customer’s bill, receipt, invoice, purchase order, etc. any additional amounts collected from the customer due to rounding up to address the penny shortage.” The guidance also includes several examples for taxpayers to utilize when deciding how to implement the rounding guidelines.

• Washington: The Washington Department of Revenue (WA Department), issued guidance regarding the elimination of the penny as it relates to WA sales tax and the Business & Occupation Tax (B&O). From a sales tax perspective, the guidance indicates that “if a retailer chooses to round the total amount due to the shortage of pennies, this rounding does not alter the sales tax calculation itself.” From a B&O perspective, the guidance states that “when rounding results in a gain to the seller, the gain is gross income of the business subject to B&O tax under the Service & Other Activities classification. A rounding loss is a cost of doing business and may not be deducted from the seller’s gross income of the business.” The guidance also includes examples and additional information for taxpayers regarding rounding guidance and enforcement from the WA Department.
• Wisconsin: The Wisconsin Department of revenue issued guidance on the penny shortage and the impact on Wisconsin sales and use tax. Specifically, the guidance states that the penny shortage does not impact how sales tax is calculated on a retail sale. If a retailer chooses to round to the nearest nickel, it should occur after the sales tax is calculated.

Additional states have issued guidance including, Georgia, Iowa, Tennessee, Kentucky, North Carolina, and South Carolina.

What’s next?

Retailers should continue to monitor both state industry-specific and state-specific guidance relating to the penny shortage and resulting rounding policies. In addition, retailers should determine what their rounding policy will be and how it will be implemented within their point-of-sale and accounting systems. Companies should also evaluate the potential impact of transaction rounding across all aspects of their tax functions, including compliance, reporting and internal processes.

Please reach out to your Baker Tilly state tax advisor with any questions.