Reinstating the income tax reciprocity agreement continues to be a top issue on the minds of those that live in Wisconsin and work across the river. While there is a border between our two states, those that live in our area know that we operate as a region with economic and social ties to our Minnesota neighbors.
While most taxpayers affected by the agreement know the history of this issue, some background may be useful in outlining the current status of negotiations. In 2009, then Minnesota Governor Tim Pawlenty ended the long-standing income tax reciprocity agreement between Wisconsin and Minnesota. In Governor Pawlenty’s letter to Wisconsin officials he cited a delay in the timing of payments between the states as the reason for ending the agreement. Minnesota also supported conducting a new benchmark study to more accurately account for those that cross the border to work.
The current leadership of the Wisconsin Department of Revenue (DOR) has put in a great deal of effort to try and restore reciprocity. To that end, Wisconsin DOR has made multiple offers to Minnesota that have addressed all the reasons listed in Governor Pawlenty’s letter to Wisconsin when the agreement was ended, including accelerated payments and completing a new benchmark study. Additionally, as stated by the non-partisan Wisconsin Legislative Fiscal Bureau, Wisconsin has offered to “split the difference” between the level of reciprocity payments each state believes is accurate. Wisconsin’s latest offer to Minnesota, made last summer, has gone unanswered to date.
Disappointingly, the Minnesota Department of Revenue is continuing to demand a new provision that has never before been a part of the reciprocity agreement and is not included in any reciprocity agreements Minnesota has with other states. This provision would require Wisconsin to pay Minnesota an additional payment of about $6 million per year, based on Minnesota’s estimates. It is important to note that this payment would be in addition to the approximately $87 million Wisconsin would pay Minnesota based on the difference in income tax withholdings. It is frustrating that Minnesota has made this unprecedented demand for additional money that has killed any reciprocity agreement when proposed by any state. Their demands are preventing a new agreement from being put in place and resulting in tens of thousands of taxpayers in both states continuing to experience higher costs and inconvenience in filing their tax returns.
Along with other Wisconsin legislators along the border, I have continued to reach out to Minnesota state legislators to see what could be done to get things moving on reestablishing the reciprocity agreement. While it is the responsibility of the governors of our two states to reach an agreement, I will continue to work with interested parties on both sides of the river to see what opportunities are available to encourage a new agreement.