Minnesota Sends Proposed Agreement on Income Tax Reciprocity

Published On: 7th September 2014

From the internet

Income tax reciprocity has been the topic of conversation since Minnesota and Wisconsinites had to start filing a tax return for each state if they live in one and work in the other.

Legislation was authored in 2011 and it was passed, signed into law, and the commissioner of the Minnesota Department of Revenue was given the authority to negotiate a new reciprocity agreement between Minnesota and Wisconsin. For the past four years, efforts have been made to reach an agreement, but a compromise has not been reached that could be finalized by both states.

During the last legislative session, work continued on the issue by introducing new legislation that allowed the commissioner of revenue to propose a new agreement where both states would assume equal shares of any discrepancy that resulted from a recent dataset study. While the legislation did not fully pass this new piece of legislation, a scaled down version was created and it did pass. The Omnibus Tax Bill #2 included $1 million in funding annually to help cover the discrepancy.

It was on June 19, 2014 that the commissioner of the Minnesota Department of Revenue officially sent the proposal to the Wisconsin secretary of the Department of Revenue. If a new agreement is reached by September 30, state income tax reciprocity would be reinstated for tax year 2015. This would keep residents of the states working in the neighboring state from having to file two state income tax returns and prevent them from having to pay state taxes to two states. In other words, money could be saved for these individuals.

There are many border communities that are affected by the absence of an agreement. There are more Wisconsin residents working in Minnesota than Minnesota residents working in Wisconsin. Wisconsin also has a higher tax rate on their middle income earners than Minnesota. This is what accounts for the approximate $4 million annual discrepancy and the increased cost to Minnesota under a reciprocity agreement.

The agreement that the State of Minnesota sent to Wisconsin allows 56,000 Wisconsin residents and 24,000 residents of Minnesota the convenience of filing state income tax returns just in their states. The $1 million to cover the discrepancy will reduce Wisconsin’s cost to Minnesota. Payments would be equal to ¼ of the estimated annual amount at the middle of each quarter without any interest due and a new benchmark study would be conducted every five years to determine how the agreement is working for both states.

Minnesota is highly committed to reinstating reciprocity for the residents of both states. Many are hopeful that a reciprocity agreement will be restored in the future so that the matter is another one that can be resolved for residents.