A step toward a reciprocity agreement

Minnesota is waiting for approximately $60 million from Wisconsin that was due on Dec. 1, 2010. The money is the final payment owed through the income tax reciprocity agreement that former Gov. Tim Pawlenty canceled in 2009.

Since 1968, residents crossing state lines for work were able to file their income tax return in their state of residence. Paul Wilson, research director for the Revenue Department, told the House Taxes Committee March 2 that Pawlenty nixed the agreement because the state lost money and because of the 17-month delay in receiving any payment.

But now, a study proposal to establish income tax reciprocity benchmarks could be a step toward a new agreement. Sponsored by Committee Chairman Greg Davids (R-Preston), HF701 was held over for possible omnibus bill inclusion. The companion, SF122, sponsored by Sen. Roger Reinert (DFL-Duluth), awaits action by the Senate Taxes Committee.

Davids said that Wisconsin is interested in reinstating reciprocity, and that he would soon be sponsoring a bill to do so.

Due to the Legislature by March 1, 2013, the study would be conducted by the Minnesota and Wisconsin revenue departments. It would include:

• the number of residents of each state with earnings in the other state;

• the income earned by the residents; and

• the amount of tax revenue that would be lost or gained by each state if a reciprocity agreement were again implemented.

Wilson said there have been three reciprocity studies over the years, and a new one would be essential if the agreement was to be reinstated. He said that 13,000 Minnesotans will have to pay taxes to Wisconsin this year, something they wouldn’t have to do so if an agreement was in place.