There is various news stories that persisted about how the virus spreads on cash, so small business owners are probably reacting to that. It's legal tender, and that sounds correct, but I also somewhat doubt especially a moderate to left-leaning judge is going to rule against a business doing it cause 'covid somehow changes the rules. Yet, it's not like the government is sending MIB to tell businesses "We're tracking the cartel in this town, only accept debit". I do find it amusing how "studies" show it survives for almost no time on paper, but somehow a long time on cash it would be mighty inconvenient for the gov if it couldn't use paper all the sudden.

That said, a main reason a lot of governments are heavily interested in cryptocurrencies is their ability to ledger, e.g. paper trial going back to the origination of each "coin" or other unit. That's a whole, different, and unique issue from the OP though.