Key topics covered in this article:

  • North Carolina’s Sales Tax Directive 26-1 requires sales tax to be calculated on the actual sales price before any rounding of cash totals occurs, ensuring compliance with state tax laws.
  • Retailers must adjust cash transactions by rounding to the nearest five cents but ensure that tax liability remains based on the original sales price.
  • Proper POS system configuration and detailed record-keeping are essential for compliance and transparency in handling cash rounding adjustments.

When the United States Mint announced on November 12, 2025, that it would suspend penny production for circulation, it created an immediate operational question for retailers that still accept cash. With pennies no longer available, how should businesses round cash payments, and what does that mean for sales tax calculations?

The North Carolina Department of Revenue answered by issuing Sales and Use Tax Directive 26-1. The guidance makes clear that while cash totals may be rounded at the register, sales and use tax must still be calculated on the actual sales price before any rounding occurs. The handling of physical currency may change, but the state’s tax calculation rules do not.

Cash Rounding Under Directive 26-1

Without pennies in circulation, retailers can’t always make exact change on cash transactions. To handle this, most retailers are rounding cash totals to the nearest five-cent increment after tax has been calculated.

The NC DOR has identified two primary rounding approaches that businesses are using. The first is symmetrical rounding, where cash totals are rounded either up or down to the nearest five-cent increment. For example, a total of $10.12 would round down to $10.10, while $10.13 would round up to $10.15. The second approach is always rounding down to the nearest five cents, which some retailers have chosen as a customer-friendly policy.

Rounding only applies to cash transactions. When customers pay with credit cards, debit cards, electronic payment methods, checks, or gift cards, the exact total including tax should be charged without any rounding adjustments. If a customer provides exact change using available denominations, no rounding occurs.

Sales Tax Calculation Requirements

Directive 26-1 explains that sales and use tax must always be calculated based on the actual sales price or gross receipts from the transaction, before any rounding of cash totals takes place. North Carolina requires that sales and use tax be calculated to the third decimal place on the final sales price of taxable items, then rounded to the nearest cent. Retailers may compute tax on either an item-by-item basis or on the total invoice amount, with rounding applied to the aggregate tax due.

For example, take Durham County’s combined rate of 7.5%, which includes the 4.75% state rate, a 2.25% county rate, and an additional 0.5% transit rate.

Let’s say there’s a purchase totaling $19.87 before tax. The sales tax calculates to $1.49, making the total $21.36. If the customer pays cash and the total rounds down to $21.35, the tax liability remains $1.49, calculated on the original $19.87 sales price. The one-cent difference is absorbed by the retailer and does not reduce what is owed in sales tax.

The same logic applies when rounding up. For a purchase price of $30.22 before tax, the sales tax calculates to $2.27, making the total $32.49. If the customer pays cash and the total rounds up to $32.50, the additional one cent collected does not increase the taxable sales price or gross receipts. The tax due is still $2.27.

Compliance and Record-Keeping

North Carolina expects retailers to be able to show how sales tax was calculated and reported. When cash rounding is part of the process, that means being able to demonstrate that tax was computed on the actual sales price before there’s any rounding.

Retailers will want to make sure point-of-sale (POS) systems are set up to calculate tax before applying any rounding to cash transactions. Receipts should show the pre-rounded total and the rounded cash amount, if applicable. For businesses using older systems, upgrades or configuration changes may be needed.

Retailers will also want to keep careful records. Retailers should be able to demonstrate that tax is calculated on the actual sales price and that any cash rounding happens afterward. This might involve keeping daily summaries of rounding adjustments and other records that make the practice transparent and traceable. All charged sales and use taxes must be reported and remitted to the Department as required by law.

How Other States Are Responding

There has not been federal guidance on this matter. Many states have taken the same approach as North Carolina, with sales tax being calculated on the actual sales price before any rounding occurs. This includes Florida, Georgia, New Jersey, among others. However, most states are still in the beginning phases of legislation.

Because each state administers its own sales and use tax laws, retailers operating in multiple states may see slight differences in documentation or implementation rules. Watching for updates will be important for compliance purposes.

Next Steps

Directive 26-1 does not change how sales tax is calculated, but it does require retailers to develop a policy for how cash transactions are handled. Customers appreciate consistency, and it will be critical for record-keeping as well. Retailers should also confirm that POS systems calculate tax before any rounding occurs and that reports reflect the pre-rounded amounts. A quick review can help prevent reporting issues and maintain compliance with sales and use tax laws. For more information on this topic, contact Charles Dean Smith, Jr., Partner on PBMares’ Tax team.