Minnesota and Wisconsin Tax Reciprocity Not Likely

Published On: 30th October 2013

From the internet

When filing 2013 taxes, it looks like those who cross the Wisconsin and Minnesota borders to go to work will have to file separate income taxes again.

Negotiators from both states remain at an impasse over the new tax reciprocity agreement. The cutoff date has passed to sign a new deal that will allow interstate commuters the ability to just file one state income tax return. This may not be possible until 2015 for 2014 taxes.

No additional talks have been scheduled in the meantime.

The October 1 deadline was a difficult one to meet and then officials would need an additional three months to change the withholding instructions and tax forms. They would also have to give employers the necessary time to adjust tax withholding that would begin on January 1.

This means that the 80,000 Minnesotans and Wisconsinites that live in one of those states and work in the other will have to deal with the expensive of filing separate state income tax returns for at least one more year.

All of this is because of a difference of $6 million, which is a drop in the bucket compared with the combined budgets of the state that equals $100 billion. This has caused taxpayers to not be very pleased at all.

Some Minnesota legislators agree with the taxpayers in that the need to file two returns creates a headache for tax filers, as well as businesses that must double their accounting efforts.

Minnesota and Wisconsin previously had an income tax reciprocity agreement from 1968 to 2009. The plug was pulled by then-Governor Time Pawlenty because Minnesota was losing money in the agreement and he had a budget shortfall that he needed to erase.

Under the agreement, Wisconsin would compensate Minnesota for revenue that it would have raised by taxing residents who work across the state border. There are currently an estimated 56,000 Wisconsin workers that work in Minnesota and 24,000 Minnesotans that work in Wisconsin.

In March 2013, the revenue departments of both states completed studies that said they resolved the two primary issues that had caused them to end their agreement. The first was Wisconsin’s timing of payments to Minnesota and the second was the number of taxpayers commuting between the states.

But there was an issue in the difference in credits that were offered to interstate commuters by the states.

Minnesota limits credits that are offered to taxpayers for the taxes paid to another state to the amount they would pay if they were Minnesota residents. Wisconsin, on the other hand, offers full credit for paid taxes to other states. Minnesota is requesting that Wisconsin pay them an additional $6 million to compensate for the difference in state tax codes. It comes down to Minnesota subsidizing the higher taxes of Wisconsin, but ending reciprocity raised the taxes on Minnesotans working in Wisconsin.

Both sides are at odds with some seeing no end to the conflict. However, it is believed that Minnesota would start a trend, as fewer border states are entering reciprocity agreements. One reason is because electronic tax filing makes it easier for taxpayers to file multiple returns. Another is because states are skeptical about relying on other states to send them the payments they are owed. They fear lost revenue.

Source: http://www.twincities.com/politics/ci_24176218/minnesota-wisconsin-tax-reciprocity-deal-appears-unlikely-this