Minnesotans working in Wisconsin will get both short- and long-term tax relief from work done by the 2017 Legislature.
For tax year 2017, Minnesota residents working in Wisconsin will be eligible for an income tax reciprocity tax credit, furthermore, provisions in the 2017 tax bill direct the commissioner of the Minnesota Department of Revenue to resume negotiations with the Wisconsin Department of Revenue for a new tax reciprocity agreement.
The predicted cost of the tax credit would be about $8 million for the 2017 tax year. It will be paid from the state’s general fund and be distributed by the Department of Revenue much like a tax refund.
Around 80,000 workers travel between the states — about 56,000 are Wisconsin residents working in Minnesota and 24,000 Minnesotans who work in Wisconsin.
Sen. Jeremy Miller, R-Winona, introduced the Senate bill to return to negotiations with Wisconsin.
Miller said that a reciprocity agreement between the states would resolve issues created by filing multiple tax returns, as well as the states’ differing tax rates.
“That’s one of the biggest frustrations I hear,” Miller said.
Miller also said he thinks they have removed the main stumbling block in the negotiations.
The process has been a long and frustrating one, beginning when former Gov. Tim Pawlenty ended reciprocity with Wisconsin in 2009, following years of haggling over payments and timing.
Wisconsin had been late with payments for taxes prior to Pawlenty canceling the arrangement, and since that time they have been unable to come to an agreement to reinstate the reciprocity arrangement.
Wisconsin eased the tension in 2011 when it paid Minnesota $59.7 million.
Wisconsin had made concessions, agreeing to pay Minnesota quarterly estimates instead of a settlement after tax season, and cooperated in studies — released in 2013 — of the numbers of residents crossing state lines for work and the revenue impact on both states.
In 2015, the last year they tried to negotiate a new deal, a Minnesota demand for a $6 million payment to recoup what it projected as lost revenue in a new deal was a deal-breaker.
According to the Wisconsin Department of Revenue study in 2013, that $6 million was created when some Minnesota residents ended up paying higher taxes to the Minnesota. Minnesota has a limitation on the credit for taxes paid to other states, which Wisconsin doesn’t have.
Wisconsin, for its part, said at that time it should only be required to pay the amount of income taxes from Minnesota residents, which they estimated to be $69 million.
Miller said now the Legislature has said it would fund the difference and there wouldn’t be a requirement for it in a reciprocity agreement.
“That’s why I’m more optimistic now than I have been in the past that the states can work out a new agreement,” Miller said.
The negotiations for a new reciprocity agreement haven’t started yet, Miller said, but they will have to move swiftly through the summer to complete it in time.
In order for the proposed start time in for tax year 2018, they would have to come to some agreement by September or October of this year.
Rep. Greg Davids, R-Preston, introduced the original House version of the tax credit in last year’s tax bill — which did not become law.
Davids said wasn’t overly optimistic about the chances for a new arrangement with Wisconsin, and said if the two states aren’t able to come too an agreement Minnesota could make the tax credits permanent law.
“If we can do it, great,” Davids said. “If not (taxpayers) still get the relief they need.”
Wisconsin Department of Revenue deputy secretary Eileen O’Neill said in a statement Thursday that they were encouraged by the Minnesotan Legislature’s recent actions.
O’Neill said they looked forward to talking between the two state’s departments to see if there is a potential for a new agreement.
“Wisconsin supports reinstating reciprocity so people who live in one state and work in the other only need to file a return in their home state,” O’Neill wrote.
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