Summary: As penny production winds down, retailers must understand how cash rounding affects sales tax compliance and cash transactions. While sales tax generally should still be calculated on the actual taxable sales price, states are adopting different cash-rounding rules, creating compliance challenges for multistate businesses. This article explains emerging state approaches in Indiana, New York, Ohio, and Illinois and outlines practical considerations for retailers operating in a post-penny economy.

With penny production winding down and pennies becoming harder to find in cash drawers, retailers are beginning to face a deceptively simple question: What happens when exact change is not available for cash transactions? A “penny for your thoughts” may soon be a “nickel for your thoughts,” and businesses should expect to hear more about cash-rounding rules as states respond with legislation and guidance.

From a sales tax perspective, the emerging consensus is that rounding generally should not change the sales tax calculation itself. Sales tax generally should still be calculated on the actual sales price under the applicable state and local rate, with any rounding applied to the final cash amount due after tax is added. Electronic payments, checks, and card transactions generally remain payable to the exact cent. However, states are taking different approaches to cash rounding, creating additional compliance considerations for multistate retailers.

How States Are Addressing Cash Rounding Rules

States have begun taking different approaches to cash rounding, with some enacting legislation while others continue to rely on existing sales tax rules. The following examples illustrate how this regulatory landscape is evolving.

• Indiana (law enacted): Indiana enacted legislation permitting cash transaction rounding to the nearest nickel. Rounding applies only to cash transactions and occurs on the total purchase price, including sales tax. The sales tax itself must still be calculated and remitted on the actual taxable transaction amount.
• New York (legislation passed; implementation pending): New York’s “New Yorkers for Common Cents Act” would require merchants to round cash transactions to the nearest five cents after sales tax is added. Amounts ending in 1¢, 2¢, 6¢, or 7¢ would round down, while amounts ending in 3¢, 4¢, 8¢, or 9¢ would round up. Electronic payments would continue to be processed to the exact cent.
• Ohio (no penny-rounding law enacted): While proposed legislation has been introduced, Ohio has not adopted a dedicated cash-rounding statute. Existing guidance focuses on proper sales tax calculation, collection, and remittance, meaning retailers should continue following Ohio’s current tax computation requirements unless future legislation provides otherwise.
• Illinois (no penny-rounding law enacted): Illinois likewise has not enacted statewide penny-rounding legislation. Retailers remain responsible for collecting and remitting the correct amount of state and local tax, regardless of any operational decisions regarding cash handling.

Sales Tax Compliance Considerations in a Post-Penny Economy

The disappearance of the penny may be a national trend, but the regulatory response is developing one state at a time. The practical impact extends beyond the cash register to point-of-sale configuration, customer communication, accounting procedures, and audit documentation. Businesses should review how their systems calculate tax, apply cash rounding, document any differences, and remit sales tax to ensure that any rounding adjustment occurs appropriately. As additional states evaluate their own responses to a post-penny economy, retailers should expect this issue to remain a developing area of sales tax compliance.

KSM’s tax professionals can help assess the impact of these changes, identify potential compliance risks, and develop practical strategies for multistate operations. For assistance, reach out to your KSM advisor or fill out the form below.

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