Are You Prepared for “Change”? | Zaino Hall & Farrin

By John R. Trippier, CPA

As we all adapt to the elimination of the penny, retailers need to monitor the impact on state sales tax for vendors as they round the payment when customers pay in cash.

Ohio’s legislature has introduced H.B. 737, which appears to require vendors that round up or down on taxable transactions paid in cash to treat the rounding adjustment amounts as sales tax and remit the additional rounding adjustment amount on the vendor’s sales tax return. As introduced, H.B. 737 would appear to also require the vendor to allocate the additional rounding adjustment amounts proportionally between the state and localities based on the respective tax rates.

This approach would raise issues for vendors and consumers trying to comply, such as:

• Is the additional rounding adjustment amount actually sales tax? Remember that Ohio sales tax law requires sales tax to be separately stated on an invoice.
• How do I change my sales software to allocate the rounding adjustment amounts between state, permissive, additional permissive and regional transit authority (if any) tax rates?
• Who pays for the changes necessary to adjust the sales software?
• What happens if the retailer does not report the rounding adjustment amounts on its sales tax return?
• If tax is not collected and the transaction is taxable, does the rounding adjustment amount impact the amount of consumer use tax do on the transaction?
• Is the rounding adjustment amount refundable if the transaction is determined to be non-taxable?
• If a transaction involves both taxable and nontaxable goods and services, how would those transactions be impacted (i.e. does the rounding adjustment amount get allocated between taxable and nontaxable portions of the transaction).

Below, is a chart indicating the treatment of the penny rounding issue for various states.

Other States’ Treatment¹

State	Treatment
Florida	Sales tax remains due on the actual sales price prior to the dealer applying rounding due to the lack of pennies.
Georgia	If the sales price plus sales tax results in a total that cannot be collected without pennies, dealers may round the total amount due to the next lowest, next highest, or nearest nickel. The sales tax to be collected and remitted should not be recalculated. Rather, tax is due on the initial sales price prior to any rounding by the dealer. This rounding adjustment will not be interpreted as impacting the sales price of the purchase under O.C.G.A. §48-8-2.
Kentucky	Any rounding must not impact the calculation of the 6% Kentucky sales and use tax because, regardless of the form of payment, the tax must be calculated to the nearest penny as required under KRS 139.230.   If rounding is needed, the department recommends using standard rounding rules. Please note that rounding occurs only after the calculation of the sales tax.
Michigan	To the extent that sellers engage in rounding to address the penny shortage issue (e.g., by rounding to the nearest $0.05) for their cash transactions, this rounding will not affect the calculation of the sales and use tax due because the GSTA and UTA’s rounding requirements apply before the seller utilizes its own rounding convention to address the penny shortage.
New Jersey	The rounding of a transaction only should be applied to the final transaction total after all taxes and/or fees have been added and payment is made in cash.   Sellers must collect Sales Tax based on the purchase price, regardless of whether the consumer or seller provided exact change. If the sales price of a taxable item is $39.99, the seller must remit the Sales Tax on $39.99. When rounding the final total up or down, the full amount of Sales Tax on the purchase price must be remitted to the State.
North Carolina	After-Tax Rounding of cash transactions does not affect the amount of sales and use tax due on the transaction.   Retailers must calculate sales and use tax on the sales price of, or gross receipts derived from, taxable sales. If a retailer engages in After-Tax Rounding, the rounding will not impact the calculation of the sales and use tax due. The retailer calculates the sales price or gross receipts from the transaction before rounding cash transactions.
South Carolina	If a retailer implements a system of rounding, the sales tax due should not be recalculated based on the rounded amount. Rather, the sales tax due and payable to the Department remains the amount calculated based on the original sale before rounding.
Tennessee	Regardless of the procedure chosen, sales tax remains due on the sales price prior to the retailer applying rounding due to the lack of pennies. As such, the amount of sales tax due will remain the same for cash transactions as it is for other methods of payment, such as credit card transactions.
Texas	If this rounding rounds by $0.04 or less, Texas will not assess any additional tax due from the change in sales price.   If a retailer rounds by more than $0.04, Texas will assess any additional tax due from the change in sales price.

¹ The list of states above is not meant to be all-inclusive but is just provided to give an idea of the different treatment amongst the states. The treatment listed above is taken from guidance issued by the Department of Revenue (or similar governmental agency) and is subject to change.

ZHF Analysis

Our analysis of the Ohio legislation is not to determine if the methodology is right or wrong, but is meant to highlight the issues raised by the legislation. The Ohio legislation would be the opposite of the treatment provided by all the states listed above.

If you would like to further discuss the contents of this post, please reach out to John Trippier or any of our ZHF professionals.