The End of Penny Production: How New Rounding Rules Affect Sales Tax

Ending penny production has been debated for decades—but in November 2025, it officially became reality.

The U.S. Mint marked the moment with a ceremony in Philadelphia on November 12, 2025, striking the final one-cent coin and closing a 232-year chapter in U.S. currency. While an estimated 114 billion pennies remain in circulation as legal tender, the long-term trajectory is clear: the penny is being phased out.

And without a one-cent coin in active use, rounding is becoming an operational necessity.

States have already begun responding with new sales tax rounding rules aimed at cash transactions. But for businesses, the real question is: what does the penny phase out mean for sales tax compliance?

Let’s break down the federal guidance, state-level laws, and what sales tax filers need to do now.

The Federal Baseline: Where Sales Tax Rounding Begins

Before diving into state legislation, let’s start with the federal position.

The U.S. Department of Treasury outlined key guidance in its Penny Production Cessation FAQs:

• Penny production has ended
• Existing pennies remain legal tender
• Rounding applies only to cash transactions
• Rounding should occur only after taxes and fees are calculated

For this article, that last point is especially important. It suggests that sales tax calculations should still be performed to the exact cent, and that rounding applies only to the final cash total. Non-cash payments remain unchanged and unrounded.

However, there is some important nuance here: this is guidance, not federal law. The Treasury explicitly notes that states may approach the issue differently. And in the world of sales tax, “different” happens all the time.

States Leading the Way on Penny Rounding Laws

With no uniform federal mandate, states are building their own frameworks. The result is a growing patchwork that businesses must monitor closely.

Arizona: Mandatory Swedish Rounding

Arizona was one of the first to enact a mandatory cash-rounding statute, and the approach is highly structured.

Key provisions:

• Requires rounding to the nearest $0.05 for cash transactions
• Applies when pennies are not used at the point of sale
• Rounding occurs after all taxes and fees are calculated
• Businesses must post clear signage informing customers

Compliance impact:

Arizona draws a firm line: rounding is a payment adjustment—not a tax adjustment. And it is a requirement. Retailers must ensure their POS systems calculate tax on the pre-rounded amount and apply rounding only at the final step.

Tennessee: Optional Rounding, Exact Tax Required

Tennessee authorizes—but does not require—cash rounding.

Key provisions:

• Non-cash payments are excluded
• Rounding allowed for cash transactions
• Applied to the final transaction total
• Exact tax must still be remitted

Compliance impact:

Tennessee is explicit: rounding is about making change easier—not changing tax liability. Retailers cannot use rounding to inflate or reduce reported sales tax.

Indiana: DOR Guidance Clarifies Accounting Treatment

Although Indiana initially considered requiring rounding, the law which was finalized in March 2026 made it optional.

Key provisions:

• Rounding applies only to cash transactions
• Tax is calculated first
• Businesses may round up or down to the nearest nickel
• Rounding differences are treated as income

Compliance impact:

This is a critical accounting distinction. If you use rounding, the variance belongs in your income statement, not your sales tax reports.

Other States to Watch

While Arizona, Tennessee, and Indiana are early movers, many states have not yet formalized rules. Per a detailed article from MultiState, the following map shows penny rounding legislation policies per state as of March 2026:

Until laws are finalized, retailers in states without enacted legislation face a familiar problem: navigating operational necessity without clear statutory guidance.

What Sales Tax Filers Should Do Now

If there’s one principle that cuts across nearly every state’s guidance, it’s this: calculate sales tax first, round later (if at all).

Departments of Revenue in states like Texas, Kentucky, North Carolina, Wisconsin, and Utah have all reinforced variations of the same rule:

• Calculate sales tax on the exact sales price
• Any rounding applies only to the final cash total
• Remit the full, unrounded sales tax collected

In other words, rounding belongs at checkout—not on your sales tax return.

For filers, that distinction is critical. Your returns should always reflect the exact taxable sales amount and the exact tax due under state and local law.

To stay ahead of the penny production phase out, retailers should implement a clear, standardized policy. At minimum, it should:

• Calculate tax on the unrounded sales price
• Apply rounding only to cash transactions
• Keep card, ACH, and other non-cash payments exact
• Disclose rounding practices where required
• Train staff and configure POS systems to apply rounding after tax is calculated

Just as important: track the financial impact correctly.

In states like Indiana and Utah, rounding differences are treated as income adjustments, not tax adjustments. That means gains or losses from rounding should flow through your books—not your sales tax payable account. As more states formalize guidance, expect this treatment to become the norm.

The Bigger Picture: A Mosaic (For Now)

The U.S. penny production stopped—but the U.S. hasn’t stopped being a state-driven sales tax system.

That means:

• No single national rounding rule
• Continued state-by-state laws
• Ongoing legislative and administrative updates

For multi-state retailers, this creates a familiar challenge: compliance isn’t just about knowing the rules—it’s about knowing which rules apply where.

Unless Congress steps in (and history suggests it probably won’t), sales tax rounding rules will continue to evolve at the state level. That makes monitoring changes—and adapting quickly—a core part of staying compliant.

SalesTaxSolutions.US monitors state-level changes so you don’t have to. If you’re managing compliance across multiple jurisdictions, we can help you stay current, consistent, and audit-ready—without getting lost in the patchwork.