Minnesota and Wisconsin are Talking Tax Reciprocity Again

Published On: 5th July 2014

The topic is on the table again: tax reciprocity between Minnesota and Wisconsin. The last time it was on the table in 2009, the matter ended in disagreements. Now those that live in one state and work in the other might hear some good news soon.

Minnesota revenue officials said on June 19th that they had offered to lower the annual payment that Wisconsin makes to Minnesota by $1 million if Wisconsin approves a reciprocity agreement by September 30.

That million dollars is the result of a strong desire by Minnesota to reinstate income tax reciprocity between the two states. One lawmaker said this is the state’s way of extending a hand to their neighbor and asking them to work with Minnesota.

Minnesota and Wisconsin have not been able to reach an agreement since the 40-year agreement came to an end in 2009. When that happened, 80,000 people who lived in one state and worked in another had to file income tax returns in both states.

Now it has come to the money.

Around 56,000 Wisconsin residents hold jobs in Minnesota. That is twice the number of Minnesotans that work in Wisconsin.

A study that was conducted in Minnesota found that Wisconsin needs to pay Minnesota around $92.5 million annually because of this difference. That is a number that is up to $6 million more than Wisconsin thinks it should be paying. They blame a tax credit in Minnesota that disadvantages Wisconsin residents.

Wisconsin officials are still not sure what they will do because they feel that it is not fair for Wisconsin to pay to undo a Minnesota income tax increase that was imposed on its citizens by Minnesota when reciprocity ended. If that payment is eliminated, Wisconsin says that they will get reciprocity back as soon as possible.

The Minnesota Department of Revenue Commissioner said that a new deal would cost Minnesota and that Minnesota taxpayers should not subsidize the higher effective tax rate in Wisconsin.

Minnesota had made offers similar to this one in 2012 and 2013, but there was still a multimillion dollar gap, which resulted in rejection by Wisconsin officials.

Border residents have complained to their representatives that they are tired of having to file two tax returns. The issue was a major problem in 2009 when the economy went downhill and the budget officials for both states were desperate for funds. Tim Pawlenty was the governor at that time and he let the program expire, stating that Wisconsin had a 17-month delay that was too much.

The proposed agreement allows Wisconsin to divide the total of money owed to Minnesota into four payments annually. For state leaders, the issue has become a balance between taxpayer convenience and protecting state money. Governor Dayton has approved the new $1 million offer, but the deal will be refused unless it is fair for all taxpayers in Minnesota.

Minnesota currently has reciprocity agreements with North Dakota and Michigan.