Yesterday, state legislators from Minnesota and Wisconsin met to discuss the reinstatement of income tax reciprocity between the two states. Minnesota Department of Revenue Commissioner Myron Frans and Wisconsin Department of Revenue Secretary Rick Chandler were also in attendance. Legislators discussed the 2009 decision by Governor Tim Pawlenty, which had ended the agreement, and the subsequent progress since that time to reinstate reciprocity.
“Ending the original agreement has caused a huge inconvenience for cross-border workers and has created a large burden on employers,” said Senator Roger Reinert. “This has been especially difficult for small businesses, which are now faced with greater complexity in accounting and withholding of taxes.”
Income tax reciprocity between Minnesota and Wisconsin ended in 2009 primarily due to two significant issues. The first issue being an outdated study upon which the reciprocity agreement was based. The last study was conducted in 1995, and with major shifts in demographics along with Minnesota-Wisconsin border that study was no longer accurate. The second issue is that Wisconsin was not paying Minnesota owed reciprocity revenue in the same calendar year in which taxes were collected. This caused a significant cash flow issue for Minnesota.
Since 2009, several concrete steps have been taken to resolve these issues. First, in a letter to Commissioner Frans, Secretary Chandler formally submitted Wisconsin’s commitment to participate in a new reciprocity study. Second, Wisconsin has agreed to pay Minnesota owed reciprocity revenue in the same calendar year as well as making these payments quarterly. In addition, Wisconsin has committed to settling any payment discrepancies by the end of each calendar year.
Yesterday’s meeting also set target dates which have been agreed upon by both states. The two states have a goal to come to a reciprocity agreement by October 1, 2012. Additionally, both Minnesota and Wisconsin have agreed upon a goal to implement tax reciprocity agreement for tax year 2013.