Wisconsin Legislators Urge Minnesota to Agree to Tax Reciprocity Plan

State Rep. Dean Knudson (R-Hudson) and State Sen. Sheila Harsdorf (R-River Falls, along with their counterparts from other western border districts in Wisconsin, sent a letter (attached) Tuesday to Minnesota legislators in hopes of coming to a tax reciprocity agreement by Oct. 1.

The Wisconsin lawmakers hope their Minnesotan counterparts will urge the Minnesota Department of Revenue to come to an agreement by Oct. 1 so reciprocity can be in place for the 2013 tax year.

Without a reciprocity agreement, which ended in 2009, Wisconsin residents who work in Minnesota are required to file income tax returns for both states. It works the same way for Minnesota residents who work in Wisconsin. The lack of an agreement further complicates tax issue for employers near the border.

The letter sent by Wisconsin legislators this week spelled out these two issues that led to the cancellation of 40-year-old agreement and that required a resolution before a new agreement could be reached:

• "The lag time in payments, as Minnesota was waiting a full year for payment on taxes forgone."
• "Concerns that reciprocity payments were based on an outdated benchmark study."

After working with Minnesota legislators over the past several months, Wisconsin lawmakers have proposed the following, according to the letter:

• "Make estimated quarterly payments, including an end-of-the-year reconciliation payment."
• "Coordinate with Minnesota to conduct a new benchmark study that would be updated every five years to better identify the number of border crossers and the amount of taxes involved."

Back in July 2011, Wisconsin Gov. Scott Walker held a press conference in Hudsonto delare that the state had paid Minnesota the $59.7 million in overdue tax reciprocity payments that led to the cancellation of the agreement. 

But now, according to the letter, the Minnesota Department of Revenue is requiring Wisconsin to pay more to compensate for increased taxes collected from Minnesotans who work in Wisconsin in the absence of a reciprocity agreement.

"Instead of reinstating the long-standing reciprocity agreement that served both states so well for years, Minnesota DOR is demanding that Wisconsin taxpayers foot the bill for a tax increase on Minnesota residents,” Harsdorf said. “This issue has never before been part of the reciprocity agreement between Wisconsin and Minnesota, and Minnesota does not require similar payments from other states with which they have reciprocity agreements."

Knudson sent the following statement to Patch on Wednesday evening:

"Restoring income tax reciprocity between Minnesota and Wisconsin remains one of my top priorities. Last week it became apparent that negotiations had reached an impasse. Wisconsin had agreed to Minnesota's original conditions, however Minnesota Revenue Commissioner Myron Frans now insists on a new payment from Wisconsin, one that is incompatible with Wisconsin state law and inconsistent with Wisconsin's reciprocity agreements with other states. Along with taxpayers on both sides of the border, I will be bitterly disappointed if another year goes by without a new agreement. My commitment to reaching a new agreement remains strong, even if we must continue working toward reciprocity again for 2014."