Minnesota and Wisconsin residents who work in one state and live in the other deserve a resolution to the nagging lack of income tax reciprocity. At last, a solution appears on the horizon.
Wisconsin Department of Revenue Secretary Peter Barca told the RiverTown Editorial Board this spring that he is hopeful. Several factors are at work. First, the two states’ respective agencies are actively negotiating. Second, Minnesota and Wisconsin have new governors.
“We’ve always been so close in our states — history and culture,” he noted. There’s no reason the states shouldn’t be able to restore a long-term practice that ended almost 10 years ago.
For approximately 40 years, the two states had an agreement that allowed residents living in one state but working in the other to file a single income tax return in their home state. The states exchanged revenue to stay fiscally even.
Eventually, Minnesota always had money coming because the ratio of Minnesota to Wisconsin commuters exceeded 3 to 1. Wisconsin fell behind in its payments.
Former Minnesota Gov. Tim Pawlenty then ended four decades of tax reciprocity when he occupied the Minnesota governor’s office and Jim Doyle led Wisconsin. No one disputes that Wisconsin fell behind in paying Minnesota, but Doyle rejected Pawlenty’s claim that it was worth $100 million a year. On Jan. 1, 2010, reciprocity ended.
Well, the books have long been balanced. The important thing to remember is that people and businesses continue to bear the brunt of that dispute.
Without reciprocity, some 80,000-plus individuals must file income tax returns in both states. For the estimated 24,000 who cross the Mississippi River to work in the Badger State, the cost is especially painful because taxes are higher for low- and middle-income workers in Wisconsin than they are in Minnesota.
The tax reciprocity system wasn't perfect, but it worked for our border communities. Similar agreements work with other neighboring states.
Our two states have numerous agreements that enhance life for citizens and create economic opportunities. Tax reciprocity needs to be among them again.