Sales and Use Tax Directive 26-1

On November 12, 2025, the United States Mint announced that it produced its last penny for circulation. The North Carolina Department of Revenue (“Department”) has been notified that retailers are experiencing a shortage of pennies. As a result of the shortage, many retailers are rounding cash transactions after the calculation of sales and use tax.

The Department has observed retailers using two rounding methods to round cash transactions due to the penny shortage (“After-Tax Rounding”). First, retailers have used symmetrical rounding by rounding cash transactions up or down to the nearest five-cent increment. Second, retailers have rounded all cash transactions down to the nearest five-cent increment.

After-Tax Rounding of cash transactions does not affect the amount of sales and use tax due on the transaction.

“Sales price”1 is defined, in part, as “[t]he total amount or consideration for which an item is sold, leased, or rented. The consideration may be in the form of cash, credit, property, or services. The sales price must be valued in money, regardless of whether it is received in money. ...”

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  N.C. Gen. Stat. § 105-164.3

Retailers must calculate sales and use tax on the sales price of, or gross receipts derived from, taxable sales. If a retailer engages in After-Tax Rounding, the rounding will not impact the calculation of the sales and use tax due. The retailer calculates the sales price or gross receipts from the transaction before rounding cash transactions.

If a retailer rounds a cash transaction down to the nearest five-cent increment after calculating tax, the rounding does not reduce the tax due. If a retailer rounds a cash transaction up to the nearest five-cent increment after calculating tax, the rounding does not increase the sales price or gross receipts from the sale.

This guidance does not impact non-cash transactions, such as payments made by electronic methods, checks, gift cards, credit cards, debit cards, other non-cash instruments, or when retailers accept exact change.

In addition, North Carolina continues to require sales and use tax to be calculated to the third decimal place on the final sales price of taxable items and rounded to the nearest cent. A retailer may elect to compute the tax due on a transaction on an item or invoice basis and the rounding of tax is applied to the aggregate tax due. All charged sales and use taxes must be reported and remitted to the Department as required by law.

North Carolina law requires taxpayers to keep records that establish their sales and use tax liability.1 As a result, a retailer that rounds cash transactions must keep records that document the rounding of cash transactions. For example, a retailer may update its point-of-sale system to record rounding transactions on customer receipts and in its internal accounting systems.

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  N.C. Gen. Stat. § 105-164.22

The following examples illustrate this guidance.

Example 1: Rounding to the Nearest 5-Cent Increment

A restaurant in Johnston County, North Carolina charges a customer $25.00 for a meal served in the restaurant. The restaurant calculates the tax due of $1.69 ($25.00 multiplied by the tax rate of 6.75%). The total due from the customer after tax is $26.69. The customer pays with $30.00 in cash. The restaurant has a policy of rounding cash transactions to the nearest five-cent increment due to the penny shortage.

The restaurant rounds the customer’s total up to $26.70. As a result, the customer receives $3.30 in change.

This rounding transaction does not impact the sales and use tax due on the transaction. The sales price subject to sales and use tax on this transaction is $25.00 and the tax due is $1.69. The restaurant must keep records of the rounding transaction in its books and records.

Example 2: Rounding Down to the Nearest 5-Cent Increment

A hardware store in Alleghany County, North Carolina charges a customer $77.00 for hardware sold in the store. The store calculates the tax due of $5.39 ($77.00 multiplied by the tax rate of 7.00%). The total due from the customer after tax is $82.39. The customer pays with $100.00 in cash. The store has a policy of rounding cash transactions down to the nearest five-cent increment due to the penny shortage.

The store rounds the customer’s total down to $82.35. As a result, the customer receives $17.65 in change.

This rounding transaction does not impact the sales and use tax due on the transaction. The sales price subject to sales and use tax on this transaction is $77.00 and the tax due is $5.39. The store must keep records of the rounding transaction in its books and records.