Directive  Directive 26-1: Elimination of the Penny - Effect on the Collection of Sales Tax

Date:	05/05/2026
Referenced Sources:	Massachusetts General Laws

I. Introduction

The U.S. Treasury minted the last penny on November 12, 2025.^[1] Nevertheless, a penny remains legal tender. As a result, vendors may be experiencing a penny shortage^[2], and they have begun rounding to the nickel to make change. This Directive provides guidance to vendors on how to calculate the sales tax on cash transactions where rounding occurs.

II. Issue

How does a vendor calculate sales tax on cash transactions where the total amount collected by the vendor has been rounded to the nickel?

III. Directive

A vendor is required to calculate sales tax based on the sales price to the exact cent, regardless of the payment method used by the customer, and must remit the exact amount of sales tax shown on the receipt or invoice prior to rounding. The subsequent rounding to the nickel in the context of a cash transaction, either up or down, does not affect the calculation of sales tax.

IV. Discussion

Massachusetts imposes a 6.25 percent sales tax on all retail sales of tangible personal property and taxable services in Massachusetts by any vendor, unless otherwise exempt.^[3] Vendors generally calculate their sales tax due for a period by multiplying the tax rate by the gross receipts of the vendor from all sales of taxable tangible personal property and taxable services during that period.^[4] The term “gross receipts” is defined as the total sales price received by a vendor as consideration for retail sales.^[5] “Sales price” is the total amount paid by a purchaser to a vendor as consideration for a retail sale.^[6] 

In each individual transaction, cash or credit, sales tax is calculated on the sales price. In a cash transaction, however, payment is made through the tender of currency and coinage, and the elimination of the penny will frequently make it impossible for the correct amount of pennies to be paid. Where a vendor in a cash transaction rounds either upward or downward to the nickel after the sales tax has been calculated on the sales price, the sales tax to be remitted by the vendor remains unchanged.^[7]

Example 1: A retailer charges $299.99 for a taxable item that is not clothing and the applicable tax rate is 6.25%. The tax due on the item is $18.75 and the total due is $318.74. The customer pays in cash. The retailer has a policy to round all transactions. The retailer accepts $318.75 as payment in full. The retailer should remit $18.75 in tax to DOR on the transaction.

Example 2: A retailer charges $2.99 for a taxable item and the applicable tax rate is 6.25%. The tax due on the item is $0.19 and the total due is $3.18. The customer pays in cash. The retailer has a policy to round all transactions. The retailer accepts $3.20 as payment in full. The retailer should remit $0.19 in tax to DOR on the transaction.

Example 3: Same facts as Example 2, except the retailer has a policy to round all cash transactions down to the nearest nickel. The retailer accepts $3.15 as payment in full. The retailer should remit $0.19 in tax to DOR on the transaction.

                                                                                    /s/Geoffrey E. Snyder
                                                                                    Geoffrey E. Snyder
                                                                                    Commissioner of Revenue

GES:RHF:cs

May 5, 2026

DD 26-1

[1]  United States Mint Hosts Historic Ceremonial Strike for Final Production of the Circulating One-Cent Coin

[2] Penny Production Cessation FAQs

[3] M.G.L. c. 64H, § 2

[4] Id.

[5] M.G.L. c. 64H, § 1

[6] Id.

[7] This Directive also applies to Massachusetts use tax. See M.G.L. c. 64I, §§ 1 and 2.