It is what is known as a hub break. The hub that is used to create the dies has part of the letter chip off, Once that happens every die made from that hub will be lacking the depression in that area and the coins struck from that die will all show the same missing portion of the letter,
The top of the S in STATES is a common location for a hub break. Other common places are the top of the D in UNITED, and the thin side of the upper A in STATES. On
Two Cent Pieces the upper serif of the D in UNITED is often missing. The real fun one is the 1868
Shield nickel with the rev of 68, It comes perfect and with 1, 2, 3, 4, 5, and 6 chipped letters. And the fact that the letters chip in a specific sequence lets us know that all of the rev of 68 dies came from the same hub.
Another intersting thing is that proof
Shield nickel dies the broken top of the S is often hand corrected in the die.