Five Border Town Tax Issues You Should Know About

Did you know you have an extra three days to file your federal and state income taxes this year? That’s because of a federal holiday, Emancipation Day, is celebrated on April 15 this year instead of April 16.

Love, like, hate or indifferent, we’re doing our duty. I’m just going to make my peace with it: Taxes make America great. There's nothing like our roads, snow removal, fire/EMS/police protection, the justice system, clean drinking water, sewer service, city/county/state/national parks, libraries, free K-12 education, affordable higher ed, health care, sports stadiums, cultural museums and other good stuff—too much to list.

I asked a few taxing questions of my brother, Brent Kramer, who is a tax preparer in Eau Claire. He’s swamped with new work from doing two state income tax returns for Wisconsinites who work in Minnesota, but he the took time to set me straight.

What’s up with the end of Wisconsin-Minnesota income tax reciprocity?

Essentially it's like the days before reciprocity, he says. Back then, if you lived in Wisconsin and worked in Minnesota you filed two state returns: one to the non-resident state where you worked, and the other to your state of residence. You can’t be taxed in two states on the same income. So your resident state will generally give you a credit for the tax you paid to the state where you worked but didn’t live, up to the net tax you owe in the resident state.

During reciprocity, if you worked in Minnesota your employer typically withheld Wisconsin tax and paid it to your home state. You then filed only one return, to Wisconsin. Both Wisconsin and Minnesota websites have more info, but he notes that it has been extremely difficult if not impossible getting through both state's tax phone lines in recent weeks.

If I shop in Minnesota for clothes where clothing is tax-exempt, do I have to pay the sales tax to Wisconsin?

That’s right, he says. At time of purchase you don’t pay sales tax, but you are supposed to report any tax-free clothing purchases on Line 36 of the Wisconsin Form 1 and pay your home state's sales tax at 5.5 percent. Very few other states have such a line on their tax return. Wisconsin also is unique in that it has the only line on its return to donate to the Green Bay Packer stadium for maintenance, because it is publicly owned. You can also donate to your favorite cause on the Wisconsin income tax return, including endangered resources, cancer research, firefighters memorial, military family relief, veterans trust fund, multiple sclerosis and Second Harvest food shelf.

What about other differences in sales tax between Minnesota and Wisconsin?

It makes sense to buy your taxable items in Wisconsin when you live on the border, he says. Why pay 7.125 percent tax on toilet paper at the Woodbury Target when Hudson’s Target taxes you at 5.5 percent? Though border prices are probably adjusted to be somewhat equitable because of the sales tax difference, he says.

If you live in Minnesota and buy your TP in Wisconsin, you save on the lower sales tax but you’re actually required to report those interstate purchases after a $770 total and make up the tax difference. The difference is that there's no line on Minnesota income tax form on which to do so, he says. There’s a separate form you can send for.

Since we’re talking Minnesotan, why is sales tax higher in some of its cities or suburbs?

For example on a purchase of lotion at the Rack in Maple Grove, MN, I was taxed at 7.275 percent rather than the state rate of 7.125 percent.

In Minnesota, extra sales tax is often specifically earmarked for things like mass transit or sports stadiums, he says. Depending on the muncipality, extra lodging/room or food/beverage tax can be added too. In Michigan, for example, some items like dietary supplements and magazines are non-taxable, unlike Wisconsin, he says. In Illinois, the sales tax on liquor is the nation’s highest, 9.375 percent, and in Wisconsin it’s 5.5 percent, so there may be some border-crossing going on with liquor store customers on the border.

Do the wildly fluctuating fuel prices have anything to do with tax?

I stumped my brother on this one. For as long as I can remember, a gallon of unleaded was up to 10 cents cheaper in Minnesota. But on Saturday, we filled the truck at one of Hudson’s Freedom Valu Center gas stations for $3.79 a gallon. On Sunday, we filled up the car for $3.89 a gallon at a Holiday station in South St. Paul.

So I asked Mike Vanderwagen, controller for Freedom’s parent company, Erickson Oil Products, which has stations in four states and corporate headquarters in Hudson.

Federal excise tax is 18.4 cents per gallon, Vanderwagen said.

“In Minnesota excise tax is 27.4 cents per gallon and in Wisconsin it’s 32.51 cents per gallon," he said. "Normally we should be about on average 5 cents higher in Wisconsin. What you’re seeing is the market conditions fluctuating quite a bit over the weekend, and we were late or they [stations in Minnesota] were early in adjusting prices. Plus it’s very tough to compete here on the border, but as you go further in Wisconsin, prices will be 5 cents higher and reflect the tax difference.”