Rounding up trouble: How the disappearing penny affects sales tax compliance

• U.S. retailers are running out of pennies. Businesses need to round cash transactions when pennies aren’t available.

• Businesses need guidance. Governments must provide clear guidance on how to handle sales tax and other taxes and fees when exact change isn’t available for cash transactions.
• The clock is ticking. The longer businesses go without guidance on when and how to round, and how to report rounding, the more sales tax compliance, enforcement, and fairness issues may arise.

The United States Mint produced the nation’s last penny on November 12, 2025. The federal government has yet to provide regulatory guidance related to rounding, but each chamber of Congress has passed a version of the Common Cents Act (S 1525 and HR 3074) that includes rounding rules. As of September 23, 2026, neither bill has made it into law. 

Both versions of the Common Cents Act: 

• Restrict rounding to cash transactions (rounding “shall not apply to any transaction for which payment is made by any demand or negotiable instrument, electronic fund transfer, check, gift card, money order, credit card, or other like instrument or method.”)
• Authorize (but do not require) rounding the “covered amount” of a cash transaction to the nearest five cents when exact change isn’t available — rounding down for cash totals ending in 1, 2, 6, or 7, and rounding up for cash totals ending in 3, 4, 8, or 9.
• Authorize (but do not require) rounding of the “covered amount” of a cash transaction totaling $0.01 or $0.02, up to $0.05.
• Allow (but do not require) rounding up or down, “in favor of the customer.”
• Require employers to round up to the nearest five cents if they provide a cash payment to an employee in an amount not divisible by five and if they choose to round (neither bill requires an employer to round in such situations).
• Include a safe harbor provision, stating that businesses using the authorized rounding provisions “shall not be in violation” of federal, state, and tribal law.
• Define ‘covered amount’ as:
  • The total transaction amount, including taxes; or 
  • The amount of change due to the customer if the customer provides a cash payment that exceeds the total transaction amount, including taxes.

Unfortunately, neither bill establishes a uniform national rounding framework, and both leave several issues unaddressed. For example, there’s no mention of payments made through the Supplemental Nutrition Assistance Program (SNAP), which are electronic and therefore presumably ineligible for rounding. This could run afoul of the SNAP Equal Treatment Rule, which requires retailers to offer eligible products at the same prices and on the same terms and conditions to SNAP customers as other customers (except that sales tax cannot be charged on SNAP purchases).

With no federal guidance, many states are tackling the rounding issue themselves. To date, 32 states have enacted laws and/or issued guidance on rounding. These vary widely from state to state.

Sales and use tax requirements are typically set by law, so in many states, the legislatures need to establish rounding provisions. Absent legislative activity, state tax departments may publish guidance, rules, and/or regulations.

Tax policy analysts and retailers generally favor calculating sales and excise taxes to the nearest penny then rounding the final transaction total up or down to the nearest nickel after the applicable taxes and fees have been added, according to the National Conference of State Legislatures (NCSL). This ensures tax is accurately applied, and that retailers remit the correct tax for both cash and electronic payments.

Symmetrical rounding, also known as Swedish rounding, is widely recommended. Under symmetrical rounding rules, round down when the final digit of the total transaction is 1, 2, 6 or 7, and up when the final digit is 3, 4, 8, or 9.

The sooner states publish guidance the better. For cash transactions, rounding to the penny will be difficult if not impossible for businesses experiencing a penny shortage.

States with penny-rounding laws

As of September 23, 2026, the following states have enacted penny rounding laws. 

• Alabama (see also the Alabama Department of Revenue)
• Arizona (see also the Arizona Department of Revenue)
• California (see AB 1793, SB 1005, and the California State Treasurer’s Office)
• Connecticut (see also the Business Advisory from the Connecticut Department of Consumer Protection)
• Florida (see also the Florida Department of Revenue)
• Georgia (see also the Georgia Department of Revenue)
• Hawaii
• Idaho
• Indiana (see SB 243, HB 1406, and the Indiana Department of Revenue)
• Kentucky (see also the Kentucky Department of Revenue Sales Tax Facts Summer 2026 and Winter 2025/2026, and Penny Shortage)
• Louisiana (HR 252 urges the attorney general to study the matter but does not establish a rounding policy)
• Maryland (see HB 1026, and SB 893, and the Comptroller of Maryland, Penny Shortage and Rounding Cash Transactions and Sales and Use Tax Updates 2026 - 2027)
• Minnesota (see also the Minnesota Department of Revenue)
• Missouri
• Nebraska (see also the Nebraska Department of Revenue)
• New Mexico (see also the New Mexico Taxation and Revenue Department)
• North Carolina (see also the North Carolina Department of Revenue)
• Oklahoma (see also the Oklahoma Tax Commission, End of Penny Production and 2026 Tax Legislation Summary)
• Oregon (see also the Oregon Department of Revenue)
• Tennessee (see also the Tennessee Department of Revenue)
• Vermont
• Virginia (see also the Virginia Department of Taxation)
• Washington (see also the Washington Department of Revenue, Interim Guidance Statement Regarding the Elimination of the Penny and Summary of 2026 Legislation)

All the above specify that cash rounding does not alter the calculation of taxes and fees. They all allow retailers to round up or down to the nearest nickel. Nevertheless, the laws do differ from state to state. For example:

• Alabama allows retailers to round the transaction amount or the change tendered to the purchaser.
• Connecticut law allows retailers to round up or down, but the Connecticut Department of Consumer Protection advises businesses to round down to the nearest five cents when unable to make exact change.
• Indiana notes that any gain or loss from rounding is added to or taken away from the retailer’s income.
• Minnesota requires businesses to post their cash rounding policy; Washington does not.

States with published guidance on rounding

As of September 23, 2026, the following states have published guidance (but not passed a penny-rounding law):

• Colorado (see also Cash Transaction Rounding for Pennies) 
• Iowa
• Massachusetts (see also the Massachusetts Division of Standards)
• Michigan
• New Jersey (see also the New Jersey Division of Consumer Affairs)
• Philadelphia, Pennsylvania
• South Carolina
• South Dakota
• Texas (see also Federal Government Ending Production of the Penny)
• Utah (see also the Business Advisory Regarding Penny Shortage)
• Wisconsin (see also the Wisconsin Department of Revenue, Wisconsin Tax Bulletin, Impact of the Penny of Property Tax Bills, and the Wisconsin Department of Agriculture, Trade and Consumer Protection)

These states also require rounding to occur after taxes and fees have been calculated to the nearest penny on the pre-rounded sales price.

As above, the guidelines differ a bit from state to state — and even between agencies in the same state. For example, the Wisconsin Department of Revenue explains that businesses should round to the nearest nickel, which could be up or down, while the Wisconsin Department of Agriculture, Trade and Consumer Protection suggests rounding down to minimize consumer harm and ensure fairness and consistency.

States with no rounding law or guidance

As of September 23, 2026, the following states have yet to pass a law or publish guidance:

• Alaska
• Arkansas
• Delaware
• Illinois
• Kansas
• Maine
• Mississippi
• Montana
• Nevada
• New Hampshire
• New York
• North Dakota
• Ohio (HB 737 is pending)
• Pennsylvania (HB 2388 is pending)
• Rhode Island
  
• West Virginia
• Wyoming
• Washington, D.C.

The Streamlined Sales and Use Tax Agreement (SSUTA) added uniform rounding rules in 2002, when there were plenty of pennies in circulation. SSUTA Section 324 requires member states to adopt a rounding algorithm that: 

• Calculates tax to the third decimal place.
• Rounds tax to a whole cent using a method that rounds up to the next cent whenever the third decimal place is greater than four.
• Allows sellers to elect to compute the tax due on a transaction on an item or an invoice basis.
• Allows the rounding rule to be applied to the aggregated state and local taxes.

No member state shall require a seller to collect tax based on a bracket system.

There are 23 full SST member states: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. Tennessee is an associate member.

In addition to deciding when and how businesses should round, it would be helpful for all states to answer the following questions: 

• Who will get the extra tax, the merchant or the jurisdiction, if a merchant rounds up? 
• Who will absorb the loss, the merchant or jurisdiction, if a merchant rounds down? 
  - At least one retailer will reportedly lose millions this year by rounding down.
• Should businesses be allowed to round non-cash transactions as well as cash transactions?

Regarding that last point, NCSL notes that some network payments, such as Mastercard and Visa, “require equivalent treatment of cash and card transactions.” Additionally, if a retailer rounds the tax instead of rounding the total, cash buyers could end up paying a rounded-down tax while non-cash buyers would pay the full rate. Discriminating against electronic payments could put a retailer at odds with the Internet Tax Freedom Act (ITFA). Conversely, states may end up collecting less tax or more tax than they’re due if a retailer rounds the total and not simply the tax.

“We’re seeing states require rounding for cash sales and prohibit rounding for electronic payments,” says Scott Peterson, VP of Government Relations at Avalara. “By design, this creates a total sales price differential that must be addressed.”

NCSL recommends adding taxes to the pre-rounded total then rounding the final amount symmetrically. “This approach ensures that the exact tax owed is always paid and that, over time, consumers and retailers each ‘win’ roughly half the time. Such balance is critical to maintaining trust and avoiding perceptions of bias or manipulation.”

Retailers need to update their processes and systems to align with new state rounding rules. According to NCSL, it will take retailers an estimated six to nine months to update cash acceptance and reporting systems to accommodate rounding functionality. Updates will include:

• Defining and designing new systems
• Clarifying distinctions between cash and digital costs
• Identifying operational risks
• Ensuring integration with related systems (e.g., payroll and tax)

In the meantime, retailers are managing penny shortages in clever ways. A mid-Atlantic convenience store chain offered a free soda to each customer who brought in 100 pennies. Grocery stores in Pennsylvania and Schenectady, New York, held special events when customers could exchange pennies for gift cards worth twice the value of the coins. Good stuff.

Phasing out the penny will require businesses to update pricing, point-of-sale (POS) systems, and reconciliation procedures for sales tax compliance. 

Unfortunately, some states still haven’t provided clear rounding guidelines. Without coordinated guidance, the penny’s disappearance could unintentionally create compliance friction and equity debates in sales tax administration. Lacking clear rounding rules, retailers will need to decide whether to round up or down in cash transactions, and whether to round per item or per invoice. This could lead to inconsistent practices or audit risks across businesses and jurisdictions.

Rounding prices to the nickel will not solve tax issues because state and local tax rates often include fractional percentages. In certain jurisdictions, rounding will be unavoidable for cash transactions and sales tax compliance.

Whatever happens with rounding, Avalara Agentic Tax and Compliance™ can help businesses streamline and improve tax compliance.