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Jake Fair, a partner at Little Rock’s Wright Lindsey Jennings law firm, says the law isn’t clear on how to handle these situations.
Retailers and banks are figuring out how to navigate a world with fewer pennies.
In February, President Donald Trump directed Secretary of the Treasury Scott Bessent to stop producing new pennies, saying it was wasteful to continue minting pennies that cost more to produce than they are worth.
Because of overhead and production expenses, it costs 3.69 cents to make a single penny and the U.S. Mint projects an immediate annual savings of $56 million, according to a post by the Treasury Department in late December. The 114 billion pennies already in circulation will remain a legal form of payment.
While the government savings are clear, the practical implications of reducing the number of pennies at the checkout counter are complicated. Unless a transaction ends in 0 or 5, merchants will need to round the totals for cash transactions up or down to the nearest 5 cents.
The Treasury Department notes, however, that most states require their sales taxes to be calculated to the penny. How states and local jurisdictions reconcile their tax laws with the need for rounding the final sale price will be up to those states and local jurisdictions, the department said.
Scott Hardin, spokesman for the Arkansas Department and Finance and Administration, said the department has not issued guidance to taxpayers or retailers about how to handle the issue.
Hardin said Arkansas is one of more than 20 states that participate in the Streamlined Sales and Use Tax Agreement that provides taxpayers with clear processes for collection and payment. The agreement requires states to calculate to the third decimal place and round up to a full cent if the third decimal is above four.
The Treasury department said it anticipates sales tax will continue to be calculated based on the exact price of a purchase before rounding is applied but said individual states might address that issue differently.
Reducing the number of pennies also introduces an issue of fairness related to rounding what a customer owes on a purchase. If a merchant rounds up a purchase price ending in a 3, the customer would lose a couple of cents. If they round down, the merchant will lose a couple of cents. With enough transactions, a large nationwide retailer could gain hundreds of thousands of dollars a day by rounding in its favor.
Jake Fair, a partner at Little Rock’s Wright Lindsey Jennings law firm, says the law isn’t clear on how to handle these situations. A pair of bipartisan bills have been introduced in Congress to address the situation, calling for transactions to be rounded up or down to the nearest nickel.
The National Council of State Legislatures has issued a policy paper with some considerations for how to round prices and said states will lead the way on the issue without federal action.
Until the federal government acts on the issue, Fair, who recently briefed the Arkansas Bankers Association on the issue, believes the country will use a piecemeal approach with various states enacting their own laws addressing the issue.
About 10 states have already done so, but Arkansas is not among them, he said. Legislation would also give retailers legal cover in case of a lawsuit based on consumer protection issues related to rounding.
Jon Harrell, CEO and chairman of Generations Bank of Rogers, said everyone is trying to figure out how to handle the situation, including making sure the bank’s computers can handle the calculations for rounding up or down. Harrell said dealing with the changing situation is more difficult than the actual dollar amount that could hit the banks.
“I don’t think it’ll be a big dollar impact to the banking system even if we round everything up,” he said. “It’s just a process.”