When the federal government stopped making pennies, it left it up to states to decide how retailers deal with the change.

In Washington, lawmakers are trying to come up with a uniform approach for merchants that is easy to understand for consumers.

Legislation making its way through the House and Senate would direct retailers to round cash transactions up or down to the nearest 5 cents when they make change. Payments with credit or debit cards would not be affected.

“This was not something that I wanted to do or write or have to deal with during this short session, but it does matter,” said Rep. April Berg, D-Mill Creek, sponsor of the House bill. “It is going to cost businesses time and money. It’s going to cost customers frustration at the register, unless our state steps in and comes up with clear, consistent rules.”

Retailers want guidance. At a pair of public hearings, they asked for added language to ensure rounding does not affect their tax obligations and protection from consumer lawsuits that might arise from the process.

Grocers and convenience store owners have been waiting months for the state to deal with this issue, said Molly Pfaffenroth, government affairs director for the Washington Food Industry Association.

“Over the holidays, one of the busiest times of year for grocery stores, my members have experienced challenges providing exact change,” she told the House Finance Committee last month.

Many stores have been rounding up or down to the nearest nickel, but have been concerned about this practice without official guidance from the state, she said. “This bill provides the guardrails that we need,” Pfaffenroth added.

Cashing out

The federal government announced in December that it had stopped making pennies because it was too expensive. The tab to manufacture a single penny nearly tripled in the past decade to around 3.69 cents, according to the U.S. Department of the Treasury.

The U.S. Mint projected a savings of $56 million a year by halting penny production. The U.S. Mint in Philadelphia struck the last penny on Nov. 12, but pennies were already scarce at that time.

By mid-November, more than 100 of the government’s 165 coin distribution sites across the country were without pennies, according to the Retail Industry Leaders Association, which represents major chains including CVS, Target and 7-Eleven.

In a November survey of its members, that organization found six national chains had more than 1,000 stores that had no pennies.

“We are urging the federal government to quickly address the problem, to allow for uniform adjustments by retailers that operate in a multitude of states,” Austen Jensen, the organization’s senior executive vice president of public affairs, said in a statement to Stateline.

Other groups, including the American Bankers Association, have also pushed for federal action.

“They’re obviously concerned about it and wanting a federal fix,” said Christopher Phillips, a partner at law firm Holland & Knight. “The government fairly abruptly decided they weren’t going to mint any more pennies and these shortages of pennies spread fairly quickly across the country.”

But they’re not gone. There are still roughly 114 billion pennies in circulation and will be for a while. Customers who have pennies can still use them for payment. Some grocery outlets are offering incentives to get customers to bring pennies to them.

Rounding up solutions

Under House Bill 2334 and Senate Bill 6230, for cash purchases, if the total price, including taxes, ends in 1 cent, 2 cents, 6 cents, or 7 cents, the amount is rounded down to the nearest multiple of five. If it ends in 3, 4, 8 or 9 cents, the bill will be rounded up.

For example, if a purchase is $4.97 and a customer hands over $5, the cashier would round down to $4.95 and provide a nickel in change. If the amount is $4.98, the cashier would round up and no change would be paid out.

Retailers can take an exact amount if they want pennies. Business representatives asked that this be made clear in the proposed legislation.

The state Department of Revenue estimates up to 400,000 taxpayers with retail sales will be affected. If the bill is enacted, the department will need to issue guidance and update relevant information on its website. That work can be covered within its existing budget, according to the most recent fiscal analysis.

On Friday, the House Finance Committee advanced an amended version of House Bill 2334 that contains changes, authored by Berg, to address concerns of grocers and retailers. 

For example, it makes clear sellers are not required to round and it bars rounding if the last digit is 0 or 5. And the latest version spells out that any taxes and fees owed by a business are to be based on the purchase price prior to rounding.

Another change clarifies that if the purchase amount after rounding is different than a displayed or advertised price it does not violate the Consumer Protection Act.

Senate Bill 6230 passed out of the Senate Business, Trade and Economic Development Committee last Wednesday and was sent to the Senate Transportation Committee. That committee must consider it because of a potential financial impact on the state Department of Licensing which is funded through the transportation budget.

Filling the void

Washington state lawmakers aren't the only ones trying to make sense of a now penniless world.

To provide clarity, lawmakers in New York have proposed legislation mirroring Canada’s rounding standard — up or down to the nearest five cents. And officials in Georgia and Utah have issued nonbinding guidance to businesses.

“States do not have the luxury of waiting for the federal government,” said Katherine Tschopp, senior associate at government relations firm MultiState.

In December, South Dakota Republican state Sen. Tim Reed urged state lawmakers to start communicating with agencies, retailers and the public over the issue.

A co-chair of the National Conference of State Legislature's State and Local Taxation Fask Force, he said businesses need guidance and consumers may need reassurance. While he acknowledged concerns about “strategic pricing” — in which retailers set prices to push rounding to their advantage — the group’s report characterized that as a “limited risk.”

“Everybody’s thinking, ‘Oh, I’ll get overcharged, or I’ll get undercharged,’” Reed said at an NCSL virtual event about the penny. He said it would be good for people to know that “really this is all going to kind of wash out in the end.”

Because of the penny shortage, the East Coast convenience store chain Sheetz asked customers to move to cashless payments or round up to support charitable causes. It even offered free beverages for those willing to cash in 100 pennies.

Kwik Trip, which operates convenience stores across the Midwest, in October announced its registers would automatically round down cash transactions to the nearest nickel in favor of customers.

But without a federal standard, the landscape is patchy, Phillips said. Rounding creates a winner and a loser in each cash transaction. Some companies have pushed to standardize their practice across the country, but others will only choose to round down if required.

“Others are like, ‘You know what? This is actual money for us,’” he said. “‘We’re not just going to give it up for the sake of convenience.’”

For retailers, the problem is both practical and legal, said Christopher Phillips, a partner at law firm Holland & Knight, who represents payment system companies and financial technology firms.

In many of the jurisdictions that require merchants to accept cash, the laws explicitly forbid charging cash customers more — and have a per-transaction fine for violations, raising the possibility of big fees. And Phillips said merchants could face class-action lawsuits for rounding policies in which plaintiffs argue they are charged more than advertised or face unfair or deceptive business practices.

Federal regulations also ban retailers from charging more for purchases made with food stamps, through the Supplemental Nutritional Assistance Program, or SNAP. Cash rounding policies complicate that rule, as some customers would be charged less for certain cash purchases than those using SNAP cards.

“The unintended consequences of these administrative actions, and these laws and how they flow together to create real problems that were certainly never envisioned,” Phillips said.

Stateline, a part of the nonprofit news network States Newsroom, contributed to this report.

This story is republished from the Washington State Standard, a nonprofit, nonpartisan news outlet that provides original reporting, analysis and commentary on Washington state government and politics.