Wednesday, September 11, 2013

Rounding Rules

Did you know that there are rounding rules in place now for all transactions in the US?  In fact, I'm sure every country has its rounding rules, but I'm not going to check them all.  The rounding rules are governed by the state in which you live, because there is no federal sales tax, only state and local sales tax. The basic rule is that for all taxable sales, multiply the total sales amount (rounded to the nearest cent) by the sales tax rate and carry it out to 3 decimal places.  If the digit in the thousandths place is 5 or higher, round up to the nearest cent. If it is 4 or lower, round down to the nearest cent.
In fact, your listed prices don't even have to be in whole cents. You could sell items for $3.46309 if you wanted.  But then you must subtotal the entire bill, rounding to whole cents and apply your sales tax to that amount and then round the grand total to the nearest cent.  The final price always has to be in whole cents, because that is the lowest denomination with which someone can pay.  Go look at your local gas station and see the price per gallon at $3.699 or some other amount with 9/10th of a penny on the end.  Or check your natural gas or electric bill.  Your price for natural gas most likely includes some fractions of a cent per CCF (100 cubic feet), and your electric bill includes fractions of cents per kWh (kilowatt hour).  But of course, your bill is always rounded off to the nearest cent.
Since we are rounding already, why not round to a denomination that is more convenient for consumers and retailers?  Like the nearest 5 cent increment, or even better the nearest 25 cent increment. We need to lay the penny to rest, and relegate it to a nice bit of nostalgia.

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