Local governments in North Carolina are beginning to encounter a practical challenge in collecting cash payments as pennies become harder to obtain. The United States Mint has stopped producing new pennies, and many of the pennies already in circulation are not returning through banks. As fewer coins circulate, banks are increasingly unable to meet penny requests in change orders. Citizens/customers who do not already have pennies may also have difficulty locating them. (Although I may be able to personally support the State’s penny needs for quite some time based on the stashes in various bags and couch cushions.)

As a result, both citizens/customers and local governments may find themselves unable to make exact cash transactions for small-cent amounts. This has prompted several questions. Can a local government refuse to accept cash altogether? If it accepts cash, must it continue to accept pennies specifically? If pennies are not available, may the government round the cash amount up or down to the nearest five cents? Or may it alter its taxes, fees, and other charges to only end in $.00 or $.05?

The remainder of this post explains the legal framework that applies to these questions and outlines practical approaches that local governments may use in response to the penny shortage.

Refusing Cash Payments

Because pennies are increasingly difficult to obtain, some local government officials have suggested that the simplest solution is to stop accepting cash payments. It is true that cash handling also raises broader concerns, including internal control challenges and added staff time. But before eliminating (or even limiting) cash payments, a unit needs to understand the legal rules that govern when cash must be accepted.

Federal law, at 31 U.S.C. § 5103, states that United States coins and currency are “legal tender for all debts, public charges, taxes, and dues.” Most payments to a local government fall into one or more of these categories. Utility bills, permit fees, fines, service charges, contractual invoices, special assessments, system development fees, and taxes are typically fixed obligations set by law, ordinance, or contract. This suggests that local governments may be required to accept coins and currency as payment for these obligations. The fact that the Mint has stopped making pennies does not change the legal status of pennies as currency. Only Congress can change that.

However, the federal statute does not specify how a local government must handle payments in every situation. It identifies coins and currency as lawful legal tender, but it does not necessarily require a local unit to accept cash for every type of obligation or at every location where payment might be offered. It also does not address what reasonable administrative procedures a unit may use when receiving cash.

North Carolina law appears to create a more specific requirement for at least one major category of revenue: property taxes. G.S. 105-357(a) provides that “Taxes shall be payable in existing national currency.” My colleague, Chris McLaughlin, has interpreted this to require local governments to accept cash, including pennies, for property tax payments. This requirement applies only to property taxes. For other types of local government payments, there is no equivalent state statute, so the federal legal-tender rule governs. 

There is limited case law interpreting how the federal legal-tender rule applies to government collections, but several decisions suggest that governments have flexibility to define the types of legal tender they will accept and to impose reasonable administrative requirements. In In re Burrell, 482 B.R. 603 (Bankr. D. Idaho 2012), the court upheld a bankruptcy trustee’s policy requiring plan payments by certified funds, wage withholding, or electronic transfer. The debtor argued that the trustee was required to accept physical cash under 31 U.S.C. § 5103. The court disagreed and explained that the statute provides that U.S. currency is legal tender, but it does not require a payee to accept every form of currency in every circumstance so long as the debtor still has a meaningful way to satisfy the obligation in lawful money.

Similar reasoning appears in several earlier cases involving public transit and commercial regulation. In Nemser v. New York City Transit Authority, 530 N.Y.S.2d 493 (N.Y. Sup. Ct. 1988), the court upheld a transit system policy requiring riders to use tokens rather than handing cash directly to drivers. In Genesee Scrap & Tin Baling Co. v. City of Rochester, 558 F. Supp. 2d 432 (W.D.N.Y. 2008), the court upheld a city ordinance requiring that scrap metal transactions be paid by check, reasoning that the ordinance regulated the form of payment rather than denying the legal-tender status of cash.

Two older common-carrier cases apply a similar reasoning using a reasonableness standard. In Barker v. Central Park, North & East River Railroad Co., 151 N.Y. 237, 45 N.E. 550 (1896), a conductor refused to make change for a five-dollar bill on a five-cent fare. The court upheld the refusal, concluding that carriers may decline forms of payment that are impractical to process. In Martin v. Rhode Island Co., 32 R.I. 162, 78 A. 548 (1911), the court upheld a streetcar policy requiring riders to use a single five-cent coin rather than five one-cent coins, emphasizing a carrier’s authority to adopt reasonable rules governing how payment is made.

Although the case law is limited, this precedent could be interpreted to permit local governments to refuse cash for most payments, other than property taxes, so long as reasonable alternative payment options are offered and clearly communicated.

Setting Administrative Procedures for Accepting Cash

Even if a local government may decline to accept cash for some payments, it likely must continue to accept cash, including pennies, for property taxes. And many units will also choose to continue to allow cash for other payments, recognizing that it remains an important payment method for many citizens/customers. As McLaughlin has noted, when a local government accepts cash it may adopt reasonable administrative procedures for how those payments are handled. These procedures support accuracy, security, and consistency across departments.

For example, a unit may require that coins be rolled, or that loose coins be counted and verified by staff at the time of payment. In State v. Carroll, No. 96CA39, 1997 WL 158313 (Ohio Ct. App. Mar. 13, 1997), the court upheld a clerk’s refusal to accept large quantities of unrolled pennies and concluded that requiring coins to be placed in wrappers was a reasonable procedural rule. A unit may also require that large quantities of coins be weighed or machine-counted before the payment is credited. Similarly, a unit may limit cash payments to designated locations or hours of the day to maintain appropriate internal controls.

When Exact Cash Is Not Offered and Pennies Are Not Available

The penny shortage creates a practical challenge that these traditional administrative procedures do not fully address. Even when both parties are willing to engage in a cash transaction, neither the payer nor the unit may have pennies available to make exact payment or exact change. In this situation, a local government likely may adopt a rounding procedure as a reasonable administrative response.

While no North Carolina statute expressly authorizes rounding, a court would likely analyze it the same way the Ohio court analyzed the procedures in Carroll—as a method for managing how cash is handled, not as a violation of the legal tender law. The key is that rounding adjusts only the physical cash exchanged. It does not change the amount owed or the amount credited to the payer’s account. The full billed amount, including cents, must always be recorded in the receipting system. In other words: rounding is an administrative tool to complete the transaction, not a change in the underlying debt.

There are several ways to structure a rounding rule. One option is to use standard rounding to the nearest five cents. For example, if the amount due is $20.41 or $20.42, the cash amount would be rounded to $20.40. If the amount is $20.43 or $20.44, it would be rounded to $20.45. Another option is to always round down in the payer’s favor when pennies are not used. Under that method, any amount from $20.41 to $20.44 would be accepted as $20.40 in cash, while the payer’s account would still be credited at the full billed amount. A unit could also choose to always round up. Any of these approaches can work if the policy is written clearly and applied consistently across all similar transactions.

As noted above, property tax payments are subject to stricter rules under the Machinery Act. A local government may release or refund property taxes only if the tax was illegal or if a clerical error caused an incorrect bill. G.S. 105-381. A penny shortage does not fall within either category. G.S. 105-357(c) allows a governing board to adopt a resolution permitting the tax collector to treat very small differences between the amount billed and the amount paid as fully settled, but only under certain circumstances. A “small underpayment” is a payment made not in person that is no more than one dollar less than the taxes due. A “small overpayment” is a payment made not in person that is no more than one dollar more than the taxes due. If the governing board adopts such a resolution, the tax collector may credit the account as paid in full in the case of a small underpayment, and may retain a small overpayment unless the taxpayer requests a refund before the end of the fiscal year. This authority applies only to payments not made in person. It does not authorize adjusting the amount collected during an in-person cash transaction.

Thus, the small underpayment/overpayment rule does not resolve issues created by the lack of pennies for in person cash transactions. While a rounding procedure does not change the amount legally owed, rounding down could be viewed as collecting less than the tax due. To avoid that risk, a unit may choose to always round up when accepting cash payments for property taxes if exact change is not provided. This approach ensures that the full tax obligation is collected, although it will result in a slight overpayment in some situations. There is no perfect solution. Taxpayers who wish to avoid rounding can do so by paying the exact amount owed in cash or by using another accepted payment method such as check, card, or online payment.

Another important consideration is whether a rounding rule might disadvantage electronic payers. If a local government rounds only when a customer pays with cash, and that results in electronic payers typically paying slightly more, the practice could raise concerns under the federal Internet Tax Freedom Act. The Act prohibits “discriminatory taxes on electronic commerce.” 47 U.S.C. § 151 note. A “discriminatory tax” is one that is not imposed and legally collectible “on transactions involving similar property, goods, services, or information accomplished through other means.” Id. In practical terms, if rounding operates as a small discount available only to cash payers, it may be viewed as treating electronic transactions less favorably. Arguably, this concern can be reduced if the rounding rule is framed and applied solely as a physical cash handling procedure when pennies are not available, rather than as a different charge based on payment method. Under this approach, all customers are billed and credited for the exact same amount, and any rounding difference is recorded only in the cash over or short account, not as a change in what is owed.

Given the legal and practical nuances involved in adopting a rounding policy, a local government should consult with its attorney before adopting a specific rounding procedure.

Rounding Policy

A rounding procedure works best when paired with a simple and consistent approach for handling cash payments. For example, a local unit might adopt the following policy for cash payments:

• If the payer presents the exact amount owed in cash, including pennies, the unit will accept the payment.
• If the payer does not have the exact amount in cash, the unit will offer alternative payment methods such as check, debit or credit card, or ACH draft. (A local government can but is not obligated to accept electronic payments.)
• If the payer still prefers to pay in cash after being offered these alternatives, the unit will apply the unit’s rounding procedure to determine the amount of cash to be collected. [The policy should set out the specific rounding procedure that will be used (e.g. traditional rounding, always round down, always round up).]
• The payer’s account will always be credited with the exact amount owed, regardless of any rounding that occurs in the cash exchange.

Although this type of policy addresses only an administrative procedure, a unit should at least inform the governing board. It may be helpful for the board to formally approve the policy at a meeting, if only to make the change clear to the public. For utility payments, the cash payment policy should be adopted by the board as part of the utility ordinance.

Any rounding procedure should be applied uniformly across all similar payments. Staff should not negotiate, vary, or apply different rounding rules based on the payer or the circumstances. Consistent application helps avoid claims that the practice is arbitrary or discriminatory and supports the unit’s internal controls.

Communicating the Rounding Rules

Clear and consistent communication with citizens/customers is also essential. The unit should explain its rounding policy in advance and repeat the explanation in several places so that customers are not surprised at the point of payment. The unit can post the policy at payment counters, on its website, in utility bill inserts, and through social media or newsletters, and provide periodic reminders. Staff should be trained to give the same brief explanation each time. The receipt should show that the account has been credited at the full billed amount. Like consistent application, consistent messaging helps prevent confusion and support trust in the unit’s billing practices.

Internal Controls and Budgeting for Rounding

Rounding also requires an adjustment to the unit’s internal cash controls. Because rounding affects only the physical exchange of currency, the total amount of cash in the drawer will not always match the total amount of revenue recorded in the financial system. Cashiers should continue to receipt and credit accounts at the exact billed amount, including cents. The full billed amount is recorded to the appropriate revenue or accounts receivable account. Any difference between that receipted amount and the cash physically collected is recorded in a designated cash over/short account in the general ledger. The rounding difference is captured only when balancing the drawer.

The cash over/short account should be reconciled regularly, typically daily at the point of collection and at least monthly by finance staff. The unit should monitor the account to ensure that differences remain small and consistent with the rounding method being used.

If the unit adopts a rounding approach that always rounds down in the payer’s favor, it will create a small and predictable difference between the amount billed and the cash collected. When adopting the annual budget ordinance, the unit may need to adjust projected revenues for the affected revenue sources to reflect this expected difference, although in most cases the difference will be negligible.

Setting Prices to Avoid Pennies 

A local government may also choose to avoid the need for rounding by setting the underlying price of certain fees, charges, and taxes so that the final billed amount naturally ends in $.00 or $.05. This option is available only for payment amounts that the local government has full control over. When the unit sets the amount owed, it can simply choose a number that does not require pennies to make exact cash payment. If a charge is subject to State and local sales and use tax, the unit can calculate the tax-inclusive total in advance and work backward to identify a base price that results in a clean final amount. Once adopted, the charge itself avoids the penny problem without requiring any rounding procedure at the point of payment. (Note, though that sales and use tax rates vary by county, so this will only work if sales subject to sales and use tax are occurring in a single county.)

This approach does not work for all types of obligations. Property taxes cannot be adjusted to avoid pennies because the amount owed is determined by applying the tax rate to each property’s assessed value under the Machinery Act. Special assessments and other charges based on statutory formulas or individualized cost allocations are also not subject to discretionary pricing. The key distinction is whether the local government controls the amount owed. Where the unit sets the price, it may choose penny-free figures. Where the obligation is determined by statute or formula, the amount cannot be altered and the unit must manage the payment process instead.

More to Come

The penny shortage is unlikely to resolve quickly, and it is difficult to know how things will develop. The Mint is not producing new pennies, but only Congress can change whether pennies remain legal currency. It is also not yet clear how the shortage will affect other areas where exact cents matter, such as sales and use tax calculations and local billing practices that rely on precise per-unit charges. Those topics will need separate attention.

For now, a clear and consistent rounding procedure can help a unit continue to accept cash while still recording the full amount owed. The key steps are to write the procedure down, train staff, explain the process to the public, and monitor the cash over or short account. Units should also review how rounding affects reconciliation, revenue estimates, and customer interactions, and be ready to adjust if needed.