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Minnesota ups ante on tax reciprocity

Deal unlikely for 2013 tax year

It appears that 2014 is now the earliest that a tax reciprocity agreement between Wisconsin and Minnesota can be reinstated.

Last week, 17 western Wisconsin legislators sent a letter to their counterparts in eastern Minnesota asking them to urge the Minnesota Department of Revenue to drop a new demand.

The Wisconsin legislators said the states needed to reach an agreement by Oct. 1 for reciprocity to be in place for the 2013 tax year. The date came and went without an agreement.

The hang-up is Minnesota's new requirement that Wisconsin make up for tax revenue that Minnesota has gained since the previous reciprocity agreement was ended by former Minnesota Gov. Tim Pawlenty in 2009.

Minnesota residents who work in Wisconsin are paying more in income taxes to their state than when they were taxed at Wisconsin's rate.

"Because Minnesota law limits the credit taxpayers can take for taxes paid to another state, some Minnesota residents have been paying higher income taxes, resulting in higher state tax revenues for Minnesota since the termination of reciprocity," the letter from the Wisconsin legislators explains.

State Rep. Dean Knudson, R-Hudson, and State Sen. Sheila Harsdorf, R-River Falls, were among the letter signers, who included both Republican and Democratic legislators.

Harsdorf issued a news release with State Sen. Bob Jauch, D-Poplar, saying legislators and Department of Revenue officials from both states had agreed in a February 2012 summit that tax reciprocity should be restored for the 2013 tax year.

Wisconsin subsequently agreed to speed up its payments to Minnesota and move forward with a study to update the amounts paid, the news release said.

"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 is quoted as saying in the Sept. 26 news release.

"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," Harsdorf added.

The Wisconsin senators said the lack of an agreement means continued inconvenience for taxpayers who live in one state and work in the other. Those taxpayers are now force to file returns in both states.

Rep. Knudson issued a statement saying: "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."

Randy Hanson

Randy Hanson has reported for the Star-Observer since 1997. He came to Hudson after 11 years with the Inter-County Leader at Frederic, and eight years of teaching social studies. He’s a graduate of UW-Eau Claire.

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