Preheat oven to 325°F. Spread coconut on a sheet pan and toast until golden, stirring a few times, about 5 minutes. Put in blender or food processor and chop until coarsely ground.
In an electric mixer fitted with a paddle attachment, cream butter and sugar. Mix in salt and vanilla. Add the flour in two additions and mix until smooth. Gather dough and flatten into a disk, wrap in plastic wrap and chill in the refrigerator for at least one hour.
Roll dough out on lightly floured surface until thin, about ¼ inch. Cut with a 2 inch circle cutter and place 1 inch apart on a sheet pan lined with parchment paper. Sprinkle with sugar. Bake at 325°F for 17-20 minutes until golden brown. Cool on sheet pan for a few minutes and transfer to a wire rack and cool completely.