The US Penny Phase-Out: What Bookstores Need to Know

In 2025, due to increasing costs of penny production, the US Treasury announced the end of the production and distribution of new pennies for general circulation as a cost-reduction measure. While existing pennies remain legal tender and will continue to circulate, reports are that shortages are expected to begin by early 2026 as supplies decrease. This phase-out is relevant to cash transactions but has no impact on electronic payment methods such as credit cards or digital wallets.

Bookstores should begin preparing now for operational changes. At present, there is no federal legislation or uniform rounding rule, meaning there could be inconsistencies across states. Bookstores should monitor guidance issued by state and local authorities.

The US Department of Treasury has issued an FAQ on penny production cessation.

ABA supports legislation that would provide clarity on sales tax remittance and would allow retailers to round up/down to the closest nickel. The Treasury’s current stance that sales tax amendments are up to each jurisdiction is simply not workable. Democrats and Republicans are currently working on updated language for the “Common Cents Act,” a bill initially introduced in July 2025, that would hopefully provide that clarity for retailers. ABA will provide updates on the bill once it is re-introduced with new language.

Impact on Cash Transactions and Rounding

The absence of new pennies will ultimately necessitate rounding transaction totals to the nearest five cents (nickel) for total cash payments (including sales tax), especially as penny shortages become common. While rounding is currently optional, implementing a rounding rule is recommended, especially for cash-heavy bookstores. Again, be sure to check if your state or local community has issued guidance.

A. Common Rounding Protocol

The widely recommended approach for retailers is to adopt symmetrical rounding applied only to the final cash transaction total (after all taxes and fees).

• Symmetrical Rounding: This approach minimizes net impact over time, ensuring fairness to both consumer and retailer. Totals ending in 1, 2, 6, or 7 cents are rounded down to the nearest nickel, while those ending in 3, 4, 8, or 9 cents are rounded up to the nearest nickel.

• Point of Rounding: Rounding is applied after all sales tax, excise tax, and fees have been calculated and added.

• Tax Calculation: The sales tax you charge must still be figured out precisely, down to the last cent, based on the original price before any rounding. Any extra or fewer cents the store collects from rounding the final cash total is simply a gain or loss for the store, not a change to the amount of tax money you have to pay to the state.

• Electronic Payments: Non-cash transactions (credit cards, checks, etc.) are exempt from rounding and must continue to be processed to the exact cent.

Consumer and Legal Considerations

• Consumer Impact: Rounding will likely impose a “rounding tax” on consumers, estimated at approximately $6 million annually nationwide, driven by pricing tendencies that favor upward rounding. Be sure to explain your rounding policy to customers clearly to avoid any disputes.

Varying State and Local Approaches

The lack of a federal mandate has led to a confusing patchwork of rules that complicate compliance for national retailers:

• Administrative Guidance: Some states, like Utah, have taken the lead by issuing administrative guidance (not legislation) to recommend symmetrical rounding, which provides immediate, though non-statutory, clarity.

• Inconsistent Local & Retailer Practices: Absent a uniform rule, local jurisdictions (e.g., Barton County, Kansas, is considering an always round up mandate) and individual retailers (e.g., McDonald’s and ShopRite, always rounding in favor of the consumer) are implementing their own, potentially conflicting, methods.

• Industry Call for Federal Action: A number of major trade associations are actively petitioning Congress to establish a national, uniform rounding rule to prevent a compliance crisis, noting that many state and local laws currently prohibit such rounding.

• States/Cities/Counties Where You Can’t Refuse Cash: There are 10 states that have enacted laws which prohibit most retail businesses from refusing cash payments: Colorado; Connecticut; Delaware; Massachusetts (law in effect since 1978); Montana; New Jersey; New York; Tennessee; Oregon; and Rhode Island. Additionally, several major cities have their own local ordinances banning cashless businesses, including San Francisco, Philadelphia, West Hollywood, Miami-Dade County, and Detroit. Washington state also has similar bans in specific counties (King and Snohomish) that recently took effect. (Note: Booksellers thinking about prohibiting cash transactions should consider how this may impact their own and their customers’ costs due the Mastercard/Visa duopoly and ever-escalating swipe fees.)

Sales Tax and Regulatory Compliance

Sales tax calculations are not affected by the phase-out. Tax must be computed precisely to the penny (often to the third decimal place, then rounded to the nearest cent), regardless of the final payment rounding. Any additional amount collected from upward rounding is not considered tax and does not typically violate unjust enrichment rules, provided accurate records are maintained.

A. Illustrative Example

In both scenarios, the retailer remits only the accurately calculated tax amount to the state, essentially ignoring the rounding for sales tax remittance purposes. Booksellers should reach out to their POS vendor to be sure sales tax is reported correctly (see below).

Operational and Strategic Adjustments for bookstores

A. POS Systems and Pricing Strategy

• Point-of-Sale (POS) Updates: POS software must be updated to automatically manage rounding and clearly separate sales tax from any rounding adjustments. Modifying Point-of-Sale (POS) systems to incorporate new rounding logic for cash transactions is estimated to require a significant lead time of six to nine months, according to groups such as the National Association of Convenience Stores. This could include defining new system rules, engineering, and extensive testing.

• Pricing Review: With regard to ancillary items/non-book items, bookstores could adjust prices to end in 0 or 5 cents to minimize the need for rounding altogether and simplify transactions for both staff and customers.

Communication

• Transparency: Post signs and communicate rounding policies to customers clearly to manage shopper expectations, as the phase-out may cause confusion.
• Timeline and Immediate Action
  • Staff Training: Train staff on the new rounding policies.
  • Stay Informed: Closely monitor updates from official sources like the US Mint and state tax departments.

Legal and Economic Risks

While the overall economic impact is expected to be minimal (rounding effects averaging out over time), legal and perceptual risks remain:

• Legal Risks: The main risks would be potential fines from the state for under-collection of tax or class-action suits for over-collection, according to Avalara. Both are unlikely if the retailer correctly applies a clear, statutory, or regulatory rounding rule.