Income reciprocity study sought

Beginning in 1967, Minnesotans and Wisconsinites crossing the border for work had the convenience of filing their tax return in only one state. That changed in September 2009 when Minnesota failed to reach an agreement with Wisconsin to accelerate the timelines of compensatory payments.

Sponsored by Rep. Roger Reinert (DFL-Duluth), HF3370 calls for a study by the Minnesota and Wisconsin revenue departments to determine how many residents of each state earn income in the other state.

“This would be the first step at restoring reciprocity between the states,” Reinert told the House Taxes Committee, which held the bill over April 19 for possible omnibus bill inclusion. He said it’s a “big issue” for border communities with nearly 80,000 people crossing the borders for work.

Among the issues creating the ill will between the states are:

• a nearly 23 month lag-time between Wisconsin reimbursing Minnesota for the state’s tax loss;

• the interest rate Minnesota was charging Wisconsin for the delay; and

• the need for a benchmark study to determine the number of workers crossing the borders and who owed money to whom.

“You can imagine that Wisconsin was the net gainer in the reciprocity agreement because we have all the population centers on the Minnesota side of the border, and Wisconsinites come over,” Reinert said.

The study would also determine the amount of tax revenue that would be foregone by each state if a reciprocity arrangement were resumed and taxpayers were required to pay taxes on the income only in their state of residence.

Information would mostly be garnered from each state’s income tax returns for tax year 2010. A report would be due to the governor and Legislature by March 1, 2011.

Similar legislation regarding reinstituting reciprocity is moving through the Wisconsin legislature.

Besides Wisconsin, Minnesota has reciprocity agreements with Michigan and North Dakota. However, Revenue Commissioner Ward Einess said the issue is greater with Wisconsin because of the number of people involved.

A companion, SF3017, sponsored by Sen. Kathy Saltzman (DFL-Woodbury), was laid over March 11 by the Senate Taxes Committee for possible omnibus bill inclusion.