The U.S. penny might lastly be on its means out. Producing every coin now prices the U.S. Mint about 3.7 cents, at a complete taxpayer price of greater than $100 million per yr. Ending manufacturing might make financial sense, however it is going to even have penalties for accountants, retailers and tax directors who should adapt to a brand new actuality of rounded transactions and potential compliance inconsistencies.
New York’s proposed “New Yorkers for Widespread Cents Act” gives an early have a look at what may come subsequent. The invoice would require retailers to spherical the ultimate complete of any money transaction to the closest 5 cents. Totals ending in a single or two cents spherical right down to the closest nickel, whereas totals ending in three, 4, 5, six, seven, eight or 9 cents spherical up. Digital funds would stay unchanged.
At first look, this seems to be a easy step to simplify funds. In follow, it raises new questions for gross sales tax calculation, recordkeeping and reconciliation. When rounding turns into a part of each money transaction, even small variations between money and card totals can create confusion for purchasers and issues for accounting groups.
The place foreign money meets compliance
Below most rounding proposals, gross sales tax would nonetheless be calculated earlier than rounding happens. Tax charges, formulation and exemptions wouldn’t change, however money totals may differ barely from these of card or digital transactions. For retailers processing 1000’s of transactions every day, even small rounding variations can have an effect on monetary information, reporting and buyer notion.
Different nations have already confronted this subject. When Canada eradicated the penny in 2013, it directed companies to calculate gross sales tax first after which apply rounding solely to the ultimate money complete. That method helped preserve tax math constant and minimized disputes. America may gain advantage from following an analogous mannequin, however early proposals like New York’s don’t but deal with this degree of element.
Having two bill totals for a similar buy, one for money and one for digital fee, may create each customer support and client safety considerations. Legislators might be able to remedy a kind of points however not each, which suggests retailers might want to develop new rounding procedures which might be compliant and buyer pleasant.
The danger of fragmentation
The better problem is what occurs if every state takes a special method. America already has greater than 13,000 gross sales and use tax jurisdictions, every with its personal guidelines and reporting necessities, together with completely different financial nexus thresholds. Including inconsistent rounding practices on prime of that complexity would make compliance extra advanced for multistate retailers.
A nationwide rounding commonplace would make sense, however reaching settlement amongst states, native governments and Congress wouldn’t be simple. With out coordination, retailers may face an uneven patchwork of rounding guidelines that create confusion, audit threat and operational errors.
Why this issues to accountants and finance leaders
For accountants and auditors, the elimination of the penny just isn’t a novelty. It’s a change that may have an effect on reconciliation, system configuration and compliance reporting. Accounting groups might want to be certain that rounding happens solely after tax calculation, and that information clearly present each pre- and post-rounding totals for audit transparency.
Expertise suppliers can even want to regulate. Level-of-sale techniques, ERP platforms and tax engines should embrace constant rounding logic throughout all jurisdictions. Even small inconsistencies between techniques may trigger mismatched information, reconciliation delays or errors in tax filings.
Whereas digital funds dominate, money stays an vital a part of on a regular basis transactions. The Federal Reserve’s 2024 client fee research discovered that 83% of People used money a minimum of as soon as within the earlier month and that 18% of all in-person transactions had been cash-based. Which means thousands and thousands of purchases every day may quickly be affected by new rounding necessities.
A name for coordination
Eliminating the penny might cut back waste, however it mustn’t create inefficiency elsewhere. State income companies, retailers and expertise suppliers want to start coordinating now to ascertain clear, constant rounding requirements. Companies ought to begin testing how completely different rounding fashions may have an effect on pricing, accounting and gross sales tax reporting earlier than the modifications take impact.
If dealt with effectively, retiring the penny could be a easy transition and even an opportunity to modernize compliance techniques. If dealt with poorly, it dangers including pointless complexity to an already intricate gross sales tax atmosphere.
