Looming Penny Shortage Has Sales Tax Officials Racing the Clock

The US Treasury will stop minting pennies within the next month, leading to shortages at cash registers as soon as January and leaving little time for state tax administrators to respond to a heap of potential problems, state and federal officials said Wednesday.

One state official said he was shocked there hadn’t been more outreach before the change, which will require states to deal with complexities such as rounding transactions to the nearest nickel and how to treat cash and noncash transactions for tax purposes. He added that any new rounding rules could impact state revenue.

Another said most state legislatures had already adjourned for the year, meaning statutory remedies wouldn’t occur until after retailers exhaust their stocks of pennies. A third warned state responses on rounding might not be uniform, creating confusion for multistate retailers.

“To ask a state legislator to suddenly say we are going screw our constituents out of money because of this rounding rule—I don’t think it’s going to be an easy thing,” said Rhode Island state Rep. Brian Kennedy (D), who also serves as president of the Streamlined Sales Tax Governing Board.

The comments came during the 24-state sales tax harmony group’s semi-annual meeting in Providence, R.I, in response to a presentation by John York, assistant secretary for management at the Treasury Department.

York told state officials Treasury had already made its final order of “blanks,” the zinc and copper disks needed before the final coin is stamped with a design, and production of pennies would halt in the next month. Without new pennies and exhaustion of the current coins under federal control, York said Treasury anticipates retailers will “stock out” of pennies by January or February.

To avoid any crisis at cash registers, York said Treasury may launch a public campaign to get people to “clean out their piggy banks and wishing wells,” and pull some of the 114 billion one-cent coins back into circulation. He pledged Treasury would work with state legislatures and tax administrators to ease any transitional issues.

At the same time, York said full elimination of the penny shouldn’t come as a surprise, adding retirement of the coin meshes with the Trump administration’s goals of reducing federal spending and boosting efficiency.

“I think people have been discussing eliminating the penny for many years,” York said. “I don’t think there would have been a time at which people took practical steps to address the possibility of the penny going out of circulation until we made a near-term announcement.”

Craig Johnson, executive director of the Streamlined board, said his organization is coordinating a response together with the Federation of Tax Administrators and the National Conference of State Legislatures. In many cases the states will have to modify their sales and use tax statutes with regard to rounding to the nickel to ensure equitable and efficient tax administration.

Ideally, such rounding rules would be consistent across the states, Johnson said.

Legislative responses, however, will take time, said Brian Wanko, NCSL’s senior legislative director for budgets and revenue.

“You are looking at March, April, or May before states respond legislatively,” Wanko said.