States are Enacting Post-Penny Laws. Here's How They Work and What to Know.

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Penny production has stopped—and states are starting to clarify how cash payments will work without them.

At least five states, including Arizona, Oregon, Tennessee, Virginia and Washington, have passed laws that guide businesses and consumers on how to handle cash transactions after the U.S. minted its last one-cent piece last year. Florida and New York are weighing similar measures, according to government documents and press reports.

States generally instruct businesses to factor in sales tax and then round to the nearest five- or 10-cent increment. (Prices ending in one and two pennies round down, while those at three or four cents round up; prices ending in six or seven cents round down, while those at eight and nine cents round up.) The laws offer businesses some assurance by giving merchants and consumers consistency, but they often leave questions unanswered, according to retail and academic experts, who would like to see federal legislation on the matter.

Halting the production of pennies was “one of those low-hanging-fruit policies to say: 'Hey, we eliminated something, we saved the public money,'” said Andrew Keinsley, an economics professor at Weber State University’s Goddard School of Business & Economics. “But then they didn’t weigh in with much guidance [on the] actual execution of such policy.”

Most retailers are happy to accept cash, according to the National Retail Federation. It's more expensive for merchants to take cards, which often come with processing or "swipe fees."

Clear state guidance helps retailers and consumers avoid conflict and confusion, said Jason Powell, a member of the Tennessee House of Representatives who supported a law that allows rounding in cash transactions.

“It’s important for the state, in my view, to provide direction,” Powell said. If problems arise, “the business can say 'hey, look there’s a state law; this is how you’re supposed to do it.'"

Stores are asking customers who want to use cash to pay with exact change as the number of pennies in circulation dwindles. That’s the method recommended by the U.S. Treasury and favored by state laws. Powell said stores cannot refuse exact change since it remains “legal tender” in the U.S.

But government officials and academic experts weren't always in agreement on whether businesses must accept pennies. If a teacher brings exact change for her $2.33 morning coffee, for example, does the cafe have to accept it? Can it instead adopt a no-penny policy and ask for $2.35?

“The one or two bills that I've read would allow stores to round to $2.35,” said Robert Whaples, a Wake Forest University professor who has studied pennies.

Yet, charging $2.35 may run afoul of consumer protection laws that prevent businesses from saying an item costs one price, and charging another, said Jay Zagorsky, a professor at Boston University’s Questrom School of Business.

Further complications may arise in the dozen or so states with laws requiring businesses to accept cash, said Dylan Jeon, vice president of government relations at the National Retail Federation. These states often bar stores from charging customers more if they are using cash, which could be an issue if retailers are instructed to round up, Jeon said.

“We are hopeful that we can get a federal standard passed by Congress in the very near future,” Jeon said.

There may be some time to work it out. The Treasury estimates that some 114 billion pennies remain in circulation, and it urges Americans to spend them.

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