Phasing out the penny: Lessons, legalities, and practicalities

Canadian rounding framework

In Canada, rounding is only required for cash payments. Non-cash payments (credit, debit, checks, electronic) are processed to the nearest cent. Rounding applies to the entire cash purchase total after taxes, not individual items. While retailers typically apply this approach, there have been instances in which it has been challenged by the authorities in the course of audits.

• Amounts ending in 1 or 2 cents are rounded down to the nearest 0 ($X.00).
• Amounts ending in 3 or 4 are rounded up to $X.05.
• Amounts ending in 6 or 7 are rounded down to $X.05.
• Amounts ending in 8 or 9 are rounded up to $X.10.
• Amounts ending in 0 or 5 remain unchanged.

No Canadian business is legally obliged to refuse the penny; technically, it remains legal tender, though rarely accepted. Surveys and follow-ups showed little negative impact or inflationary effect. Businesses, especially larger chains, updated systems accordingly, while smaller merchants faced steeper technical hurdles. Consumer protection laws provide a safety net to address bad faith or unfair rounding.

Legalities and practicalities for the United States

Individual state approach

In the US, states are starting to focus on the consequences of the penny going away. While there will still be pennies in circulation, even before the decision by Treasury to discontinue production, merchants and banks were dealing with shortages. Thus, many states have issued guidance allowing rounding on certain transactions while providing rules for how to handle tax payments. Other states, such as New York and Texas, have introduced or adopted legislative guidelines for dealing with the penny shortage and ultimate phaseout.

Does rounding require legislation?

In states that have cash/credit parity laws, it may be necessary to enact new legislation to deal with rounding. While legislation is not always strictly necessary, it is often preferred because it creates uniformity, legal certainty, and recourse for consumers and businesses. Policy-guided frameworks (like Canada’s) can, and do, work but require robust administrative authority, transparency, and ongoing oversight. The federated nature of the United States may create unique issues around rules about commerce and currency handling, thus we may see more patchwork legislation among the states.

Sales and use tax consequences of rounding

Rounding raises nuanced issues related to sales and use taxes at state and local levels in the United States. In the US, sales tax is normally calculated before rounding. If the transaction is subject to rounding for cash payment, the total (including tax) is rounded—not the pretax amount. Some states have highly specific rules for how tax is calculated, reported, and remitted. Careful adherence is necessary to avoid compliance issues. While many models suggest that small over- and under-collections even out over many transactions, authorities may require systematic documentation.

Point-of-sale (POS) system limitations

The practical success of penny elimination may depend on retail infrastructure. Many modern POS systems already support rounding options due to multinational deployment, but smaller or older systems may require patches or upgrades. Rounding likely requires recalibrating cash drawers and accounting reconciliations and systems must show pre- and post-rounding totals in receipts, particularly to satisfy consumer protection requirements. Staff should be trained to communicate and execute rounding policies clearly.

Parity between cash and credit: Regulatory considerations

A final, often overlooked issue is the requirement that cash and credit customers be treated alike. In the US, there is currently no federal law mandating parity between cash and electronic payments, but some states like Ohio and localities such as San Francisco have passed legislation mandating parity. Many retailers who implement rounding policies apply such policies to cash payments only; electronic payments are debited to the cent. Retailers should remain vigilant to avoid creating unlawful disparities between cash and credit transactions. If rounding could be seen to disadvantage unbanked or cash-preferred populations, regulators may step in to protect these consumers.

A feasible transition—with the right approach

Canada shows that penny retirement can work without legislation when there’s official guidance, consumer protection guardrails, and consistent merchant behavior. The US faces a different landscape—state powers, local parity rules, and varied sales tax mechanics—which can make consistency harder, but not impossible. The organizations that prepare now—across policy, systems, and training—may be better prepared to reduce disruption even if the regulatory path remains uneven.

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