Letter from Sen. Harsdorf: Reinstate the tax reciprocity between Minnesota and Wisconsin

• Sen. Harsdorf

Sen. Harsdorf

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• Joint letter

Senator Bob Jauch (D-Poplar) and Senator Sheila Harsdorf (R- River Falls), along with their colleagues representing districts along the Wisconsin-Minnesota border, sent a letter to Minnesota Governor Mark Dayton and Minnesota Department of Revenue Commissioner Myron Frans urging them to reach an agreement to reinstate the long-standing income tax reciprocity policy between the two states.

The letter expresses their deep concern that an agreement has not yet been reached despite good faith negotiations that have addressed the issues that led to elimination of the highly popular reciprocity program. If a new agreement is not reached by September it would mean the earliest reciprocity could be restored would be 2014.

In February, legislators from both states and both parties met in St. Paul and agreed that the issues causing the termination of the reciprocity agreement could be addressed to the satisfaction of both states. The consensus from that meeting was that reciprocity should be restored by January 2013. An agreement must be reached by early fall in order to be effective for the next tax year.

The lawmakers stressed that a recent proposal put forth by Wisconsin Department of Revenue Secretary Rick Chandler addresses the issues that led Minnesota to terminate the agreement in 2009. Wisconsin has agreed to Minnesota’s requests for more timely payments and a new benchmark study for calculating future payments, ensuring greater accuracy and reliability.

However, due to a limitation in Minnesota income tax law that prohibits Minnesota taxpayers from claiming full credit for income taxes paid to another state, Minnesota is seeking to obtain higher payments from Wisconsin. The income tax reciprocity agreement has never before required such a payment from Wisconsin to account for the higher taxes Minnesota residents pay in the absence of reciprocity. Wisconsin DOR officials estimate based upon a review of tax records, that Wisconsin would be obligated to pay Minnesota approximately $56 million to account for differences in the number of border-crossers between the states. Minnesota is seeking approximately $40 million per year more than has previously been paid or would have been paid using tax year 2010 and 2011 data.

Harsdorf and Jauch have maintained ongoing conversations with Minnesota lawmakers and are convinced that those lawmakers support the changes proposed by Wisconsin that will result in a win-win for residents in both states. For forty-one years Minnesota and Wisconsin participated in a tax reciprocity agreement for the benefit of taxpayers on both sides of the border. The deadline is quickly approaching to have a new agreement in place for the 2013 tax year. Failure to reach an agreement will mean thousands of taxpayers in both states will continue to see greater expense and inconvenience.

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