Tax reciprocity agreement hung up on revenue

Published 6:04 am Sunday, August 19, 2012

ST. PAUL — Wisconsin and Minnesota have reached an agreement in principle on tax reciprocity, but are far apart on how much the Badger State should reimburse Minnesota for lost tax revenue.

The agreement allows residents who live in one state and work in the other to file one state income tax return. About 60,000 Wisconsin residents work in Minnesota, while 20,000 Minnesotans work in Wisconsin.

Because more of its residents work across the border, Wisconsin made annual payments to Minnesota under a 41-year-old tax reciprocity agreement. That deal ended in 2009 because the two states could not agree on the timing of the payments.

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The states must agree by Oct. 1 on how much money Wisconsin will pay Minnesota for lost tax revenue.

Sixteen Wisconsin legislators have sent a letter to Minnesota Gov. Mark Dayton expressing concern about the $96 million figure from Minnesota revenue officials. Wisconsin has pegged that figure at about $55 million.

“There are only a few weeks left to put this agreement into place for 2013,” reads the letter sent to Dayton. “Failure to do so will hurt thousands of taxpayers on both sides of the border.”

Minnesota Deputy Revenue Commissioner Matt Massman said the $96 million is an estimate of net revenue loss.

“We share the sentiment and sense of urgency that this is an important tax-simplification step for taxpayers,” Massman said, adding that Minnesota also wants to make sure it is appropriately compensated.

Massman is working with Wisconsin Department of Revenue chief economist John Koskinen to meet the October deadline.

“We still want an agreement in place by that time,” Koskinen said. “Whether or not it happens, time will tell.”

If the states cannot reach an agreement by the October, the earliest reciprocity could be restored is January 2014.