Last year I wrote about the practical challenges local government entities face as the United States stopped producing pennies. At the time, North Carolina law provided little guidance on how local units should handle cash transactions when exact penny change was unavailable.
The General Assembly has now addressed some of those questions in Section 14 of S.L. 2026-31. The legislation covers three distinct issues. First, new G.S. 66-515 authorizes a specific rounding protocol for cash transactions involving private businesses and state and local government entities engaged in business as retailers. Second, amended G.S. 105-357 establishes a separate rule for certain in-person cash property tax payments. Third, new G.S. 18B-804A establishes rounding rules for local ABC stores.
Most of these provisions became effective July 2, 2026, when S.L. 2026-31 became law. ABC stores initially have discretion to round, but beginning July 1, 2027, they must round cash transactions if pennies remain out of production. This post explains each of these new rules and highlights several implementation issues local governments may need to consider.
Rounding for Retail Transactions
New G.S. 66-515 applies to private businesses and to state and local governmental entities when they are “engaged in business as a retailer” and accept cash. It does not apply to ABC stores, which are governed by a separate statute. The new law states that if pennies are no longer in production, a covered entity may round the total transaction amount to the nearest five-cent interval.
Which Local Government Entities Are Covered?
The law applies to “[a] unit, department, or agency of the State government, or any division or subdivision of the unit, department, or agency, or a unit of local government, when the entity is engaged in business as a retailer and accepts cash as a method of payment.” G.S. 66-515(a)(2)b.
It is not entirely clear which local government entities this covers. The statute does not define “unit of local government” or point to a definition in another statute. Counties and municipalities almost certainly qualify. The term also likely includes at least some special-purpose local governments, often referred to as public authorities. The General Assembly could have limited the provision to counties and municipalities but instead chose the broader phrase “unit of local government.” Still, because that phrase is defined differently in different statutes, we cannot assume that every entity classified as a local government or public authority elsewhere is covered by G.S. 66-515.
Local school administrative units (LEAs) present a similar question. They are governmental entities, but the statute does not specifically mention them. There is a reasonable argument that LEAs are covered, at least when they engage in the types of retail activities addressed by the statute—for example, accepting cash for athletic tickets, concessions, merchandise, or other sales to the public.
Identifying the entity, however, is only the first step. The law applies to a governmental entity only when it is “engaged in business as a retailer.” That raises a second question: Which local government transactions are retail transactions?
Which Transactions Are Retail Transactions?
The statute does not define “retailer.” North Carolina's sales tax law provides a useful place to start because it already identifies many transactions as retail sales and requires sellers to collect sales tax on them. G.S. 66-515 does not incorporate those definitions, so sales tax treatment does not control. But when a local unit is already treated as a retailer for sales tax purposes, there is a strong argument that the same transaction is retail activity under G.S. 66-515.
That includes many sales of merchandise and other tangible personal property, concessions and prepared food, taxable admission charges, rentals of tangible personal property, and sales of electricity and piped natural gas.
The analysis gets harder when a transaction is not subject to sales tax. A sales tax exemption, or the fact that a transaction falls outside the sales tax base, does not necessarily mean that the transaction is not retail activity under G.S. 66-515. Nothing in the new law limits “retailer” to sellers making taxable sales.
Consider recreation programs. Fees for athletic activities, instructional classes, summer camps, swimming, golf, and similar activities generally are not taxable admission charges. Some facility-use charges, such as renting a picnic shelter or community room, also may not be subject to sales tax. But these transactions still have many of the characteristics of a retail transaction: an individual chooses a particular service, activity, or facility and pays the local government for it. There is a good argument that these transactions are covered by G.S. 66-515 even though they are not taxable sales.
Utilities raise a similar issue. Sales of electricity and piped natural gas are subject to sales tax, making them relatively easy examples. Water and wastewater charges receive different sales tax treatment, but they likewise involve a local government providing a particular service directly to individual customers at established rates. There is a good argument that ordinary water, wastewater, and solid waste service charges are retail transactions for purposes of G.S. 66-515.
At the other end of the spectrum are payments that arise primarily from a local government's taxing or regulatory authority rather than from the purchase of a good or service. Property taxes clearly are not retail transactions; the new law addresses them separately. Other taxes, special assessments, civil penalties, permit and inspection fees, zoning fees, and development review fees likewise do not look like ordinary retail transactions.
Some charges fall somewhere in between. Animal taxes, rental taxes, stormwater fees, system development fees, availability charges, ambulance and EMS charges, and other mandatory charges pay for services or facilities, but they do not necessarily involve a customer choosing to purchase a particular good or service. These transactions require a closer look.
The bottom line is that sales tax treatment is a useful starting point, but it is not necessarily determinative. If a transaction is treated as a retail sale for sales tax purposes, there is a strong argument that it is covered by G.S. 66-515. If it is not, the local government should look more closely at the nature of the transaction. The more it looks like a customer purchasing a particular good or service, the stronger the argument that it is a retail transaction. The more it depends on the government's taxing, regulatory, or other governmental authority, the weaker that argument becomes. (More on some of these transactions below.)
How Does the Rounding Work?
For transactions covered by G.S. 66-515, an entity that chooses to round must use traditional rounding:
- amounts ending in 1¢, 2¢, 6¢, or 7¢ round down;
- amounts ending in 3¢, 4¢, 8¢, or 9¢ round up; and
- amounts ending in 0¢ or 5¢ are not adjusted.
(To illustrate: $12.31 rounds down to $12.30; $27.34 rounds up to $27.35; $41.35 stays $41.35; $63.36 rounds down to $63.35; and $108.39 rounds up to $108.40).
The statute permits the adjustment to occur in one of two ways. A local unit may round the total amount paid by the customer or calculate the exact amount and round the change returned to the customer. For example, assume a customer owes $12.34 for a recreation program. The local unit could collect $12.35. Alternatively, if the customer tenders a $20 bill, the local unit could retain the exact $12.34 charge and round the $7.66 in change to $7.65. Either method produces the same net cash result.
The rules apply only to the cash portion of a transaction. Checks, credit and debit cards, ACH transactions, electronic payments, gift cards, money orders, and other noncash payments continue to be processed to the exact penny. In a mixed-tender transaction, only the cash portion is subject to rounding.
And a customer who has exact legal tender may choose to pay the exact amount without rounding.
Impact on Sales Tax
For transactions subject to sales tax, the tax is calculated before the cash adjustment. G.S. 66-515 defines the “total transaction amount” as the final amount due, including applicable taxes and fees, and expressly provides that rounding does not alter the sales price, sales tax, surcharge, assessment, or fee underlying the transaction.
Is the Statutory Rounding Method Mandatory?
A local unit is not required to allow rounding under G.S. 66-515. The decision to allow rounding is optional. But if a covered local government chooses to allow rounding for a covered transaction, it must use the statutory rounding method. It cannot always round up, always round down, or use a different formula.
A separate question is whether the new law prevents local units from using other rounding approaches for transactions that are not covered by G.S. 66-515. The statute does not expressly address that issue, which I discuss below.
Accounting and Internal Controls
Local governments will need procedures for recording and reconciling these transactions. The finance officer has statutory responsibility for maintaining the government's accounting system and internal controls and cash collections remain subject to the statutory deposit requirements.
For departments that accept significant volumes of cash, a cash over/short account or another mechanism for separately identifying rounding adjustments may simplify reconciliation and create a clear audit trail.
Written procedures should identify which transactions are subject to rounding, whether the unit will round the amount collected or change returned, how the adjustment will be recorded, how cash drawers will be reconciled, and who will review unusual or cumulative variances. Units also should make sure their point-of-sale, utility billing, tax collection, and accounting systems implement the legal rule applicable to each transaction rather than applying one universal rounding setting to every cash receipt.
What About Carrying Penny Balances Forward on Continuing Accounts?
G.S. 66-515 does not directly address this practice. The statute governs rounding the amount paid in a cash transaction or the change returned to the customer. It does not say whether a local government may instead record the exact amount owed and carry a small unpaid balance or credit forward to the customer’s next bill.
There is a reasonable argument that carrying a balance forward is not “rounding” at all. For example, if a customer owes $50.02 and pays $50.00 in cash, the local government could continue to record the full $50.02 charge and carry the remaining two cents forward. The amount owed has not been rounded or adjusted; the two cents simply remain on the customer’s account for later settlement. The same reasoning would apply to a small credit balance.
Because the statute does not address this practice, there is some uncertainty. But if the local government otherwise has authority to carry balances forward in its utility ordinance, there is a reasonable argument that it may continue to do so.
Property Tax Payments
Property taxes require separate treatment from the retail transactions discussed above. A taxing unit generally cannot simply adjust a property tax bill to account for a shortage of pennies. G.S. 105-380 generally prohibits a taxing unit from releasing, refunding, or compromising property taxes except as specifically authorized by the Machinery Act.
The Machinery Act already had a rule for dealing with small underpayments and overpayments when taxes are paid other than in person. The new legislation leaves that rule in place and adds a new rule for in-person cash payments when pennies are unavailable. The two rules apply in different circumstances and work differently.
Existing Rule: Payments Made Other Than in Person
G.S. 105-357(c) already allowed a governing board, by resolution, to authorize the tax collector to deal with small differences in payments made other than in person, such as payments received by mail.
If the governing board has adopted the required resolution, the tax collector may treat an underpayment of $1.00 or less as paid in full. The tax collector also may decline to refund an overpayment of $1.00 or less unless the taxpayer requests the refund before the end of the fiscal year.
This rule is optional and requires governing board authorization. It is not really a rounding rule. Instead, it allows the tax collector to close out small underpayments and overpayments.
New Rule: In-Person Cash Payments
The existing rule did not address a taxpayer who comes to the tax office and pays in person with cash but cannot make exact payment because pennies are unavailable. New G.S. 105-357(a1) addresses that situation.
As long as pennies are no longer in production and are not available for the transaction, the tax collector must round the amount owed down to the nearest five cents. If the amount owed is less than five cents, it is rounded down to zero. (To illustrate: $1,250.01 rounds down to $1,250.00; $1,250.04 rounds down to $1,250.00; $1,250.06 rounds down to $1,250.05; $1,250.09 rounds down to $1,250.05.)
Once the taxpayer pays the rounded amount, the taxes are considered paid in full. The pennies that were rounded off do not remain on the account or accrue interest.
Unlike the existing rule for payments made other than in person, this rule is mandatory when its requirements are met. And unlike the retail rounding rules discussed above, property taxes are always rounded down, never up.
When Are Pennies “Not Available”?
One condition for the new rule has clearly been met: pennies are no longer in production. The United States Mint produced its final circulating penny on November 12, 2025. It is less clear when pennies are “not available.” Pennies remain legal tender and remain in circulation, and the statute does not define when they should be considered unavailable.
If the taxpayer has exact change, there is no need to round. Likewise, if the tax office has pennies available to make exact change, the new rule likely does not apply.
The harder question is how much effort a tax office must make to keep pennies on hand. Must it continue obtaining pennies as long as they are reasonably available? At what point may it determine that pennies are unavailable? The statute does not say. For now, taxing units should adopt and consistently apply a reasonable approach for determining when pennies are unavailable. The end of penny production alone does not necessarily mean that every in-person cash tax payment should be rounded.
Some Property Tax Implementation Questions Remain
The legislation does not address several accounting and collection questions tax offices are likely to encounter.
Tax bills and collection systems may include amounts attributable to multiple taxing units or other charges. Counties routinely collect municipal taxes and both counties and municipalities may collect special taxing district taxes, and tax bills may include assessments or other charges. If the final cash payment must be rounded down, the statute does not specify how the lost pennies should be allocated among the taxing units or among different components of a combined bill.
Similar questions arise when a taxpayer makes less than a full payment. The Machinery Act contains rules governing prepayments and other tax collections, but G.S. 105-357(a1) does not expressly say whether the rounding adjustment applies to each individual cash tender or only to the final amount necessary to satisfy the tax obligation.
Finally, the tax collector ultimately must settle with the governing body under G.S. 105-373. That statute charges the collector with the taxes placed in the collector's hands and specifies allowable credits. New G.S. 105-357(a1) directs the collector to treat a properly rounded tax as fully paid, but the legislation does not separately prescribe how the rounding difference should appear in the collector's settlement or how it should be allocated when the collector is collecting for multiple taxing units.
These are primarily implementation and accounting questions rather than reasons to disregard the statutory rounding rule. Taxing units should make sure their tax collection and accounting systems can identify the adjustments separately and should watch for additional guidance from the Department of Revenue or the Local Government Commission.
ABC Store Transactions
Local ABC stores are expressly excluded from G.S. 66-515. Instead, new G.S. 18B-804A establishes a separate rounding regime. Initially, an ABC store may round cash transactions as long as pennies are no longer in production. If it does, it must use the same traditional rounding methodology used in G.S. 66-515 (described above). Beginning July 1, 2027, however, the statute changes “may” to “shall.” If pennies remain out of production, ABC stores will be required to round qualifying cash transactions.
The ABC statute also preserves North Carolina’s uniform state pricing system. The exact price of the product, taxes, and applicable fees are calculated first. Rounding occurs only to determine the amount of cash actually collected or returned as change. It does not change the established price of the product or the taxes and fees due.
When a cash transaction is rounded up, the additional pennies collected are treated as gross receipts of the local ABC board. But those small rounding amounts are not included when calculating the statutory distributions that the board must make from its revenues under G.S. 18B-805(b) and (c). In other words, the rounding adjustment is recorded as revenue of the ABC board, but it does not increase the amounts the board must distribute under those provisions.
Remaining Questions
What About Transactions That Do Not Fit Any of These Categories?
The new law does not clearly tell us what happens with every cash payment a local government receives. Regulatory fees, assessments, fines, other taxes, and similar charges may or may not fall within G.S. 66-515. There are several potential ways to interpret the new law.
First, perhaps all of a local unit's cash transactions are covered. G.S. 66-515 applies when a governmental entity is “engaged in business as a retailer.” It is possible to read that phrase broadly. When a local government accepts a payment from a person at a counter or other point of payment, perhaps it is acting as a retailer for purposes of the rounding law, even if the underlying charge is not a traditional retail sale. If so, many of these transactions could simply be rounded under G.S. 66-515.
Second, perhaps the new law limits when rounding is allowed. The General Assembly adopted a specific rounding rule for retail transactions and separate rules for property taxes and ABC stores. That structure could suggest that the legislature intended to identify the transactions that may be rounded. If a payment does not fall within one of those categories, a local unit may need some other legal authority before rounding it.
Third, perhaps local units retain some general authority to manage cash collections. G.S. 66-515 does not say that its rounding rules are exclusive. There is therefore an argument that, for transactions outside the statute, a local government entity may still use reasonable cash-handling practices to deal with unavailable pennies. Under this approach, the local unit would continue to calculate and record the exact amount owed. Rounding would affect only the amount of cash exchanged at the time of payment, not the underlying obligation. Customers also would need a way to pay the exact amount through another available payment method.
There is no clear answer yet as to which of these interpretations is correct. Local governments should therefore be cautious about developing a broad rounding practice for transactions that do not clearly fall within the new law.
There is also a practical option that avoids the rounding question for some charges. Where the governing board has authority to set the amount of a fee or charge, it can set the amount so that it already ends in zero or five cents. The local government then collects the exact amount owed, and no rounding is necessary. That approach will not work for taxes, assessments, or other amounts that must be calculated under a statute or required formula.
May a Local Government Refuse to Accept Cash?
The new law does not answer this question either. It tells local units how to handle certain transactions when they accept cash. It does not generally require them to accept cash, nor does it expressly authorize them to refuse it. As discussed in my earlier post, federal law provides that U.S. coins and currency are legal tender for “all debts, public charges, taxes, and dues.” That does not necessarily mean that every local government must accept physical cash for every payment. The law in this area is not entirely settled, however, particularly for governmental charges.
The new legislation also makes a small change to the property tax statute. G.S. 105-357(a) previously stated that property taxes “shall be payable” in existing national currency. The new law changes that language to “are payable.” That removes the statutory language supporting an affirmative requirement to accept cash, but it is not clear that the General Assembly intended the change to authorize taxing units to refuse cash. For that reason, taxing units should consult their own attorneys for guidance on this issue.
For other local government transactions, the analysis from my earlier post remains largely the same. The new law addresses how to handle cash when it is accepted; it does not settle when a local government must accept cash in the first place.
What Should Local Governments Do Now?
Local units that accept cash should develop a clear plan for handling transactions when pennies are not available. At a minimum, they should:
- Identify the cash transactions they accept and determine which rules apply—retail transactions, property taxes, ABC store transactions, or transactions not clearly addressed by the new law.
- Adopt a policy and procedures that explain when rounding will occur, how it will work, and how transactions outside the new law will be handled.
- Update billing, point-of-sale, and accounting systems as needed to properly record rounded transactions.
- Establish cash-handling and reconciliation procedures so that rounding differences are properly accounted for.
- Train employees who collect cash so they know when and how to apply the rules.
- Communicate with customers about the change, particularly at locations where cash payments are common.
The key is to decide how these transactions will be handled before pennies become unavailable at the point of payment, and to make sure employees, systems, and customers are prepared.
