To clarify, it's not illegal in the US because businesses have the right to refuse service to anyone as long as it's not against their civil liberties. E.g. you can't say no sale to a lesbian, but you can say no sale to a lesbian's sweaty boob money. It has nothing to do with legal tender.
I've refused bills before, that customer actually complained to my manager and got told that in my place she would've said the same thing to said customer. The few times I have had to accept bills like that I will blatantly wash my hands before that customer leaves, (we have a sink behind the counter)
All USD legal tender, even bills, can be legally turned away for payment. Simplified; if you accept one form of legal U.S. tender, you have to accept all, UNLESS it's a business policy issue where they can refuse service (like you can't demand that a newsstand has to change your $100 on the grounds it's legal tender or that you're allowed to pay in just pennies). Pretty big loophole you say? The legal tender part is really referring to the US government, if they issue a dollar, it must be worth a dollar, (so you can't say you'll only sell 83 pennies worth of something if I give you a dollar because you don't believe the dollar is worth 100 pennies. If you take a penny, you must take a note worth the whole 100 pennies as well). In conclusion, you can't force someone to take your money, but if they do, they must take it for the value given by the government. Sorry for the long post, but so many people believe legal tender means it can never be turned down, but that's not true at all.
It's also why if you have an agreement for a trade, you can't demand you're allowed to pay in cash instead. Bartering would be almost illegal if you had to accept cash no matter what.
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