on income tax reciprocity
Tuesday, June 24, 2014 3:33 AM
In 2011, I authored legislation to address the issue of income tax reciprocity between Minnesota and Wisconsin. This legislation was passed, signed into law and gave the commissioner of the Minnesota Department of Revenue the authority to negotiate a new reciprocity agreement with the State of Wisconsin. Since then, efforts have been made each year to reach a new agreement; however, a compromise has not been finalized between the two states.
During the 2014 legislative session, I continued work on this issue by introducing legislation allowing the commissioner of revenue in Minnesota to propose a new agreement wherein Minnesota and Wisconsin would have assumed equal shares of any discrepancy resulting from a recent dataset study. While this legislation did not fully pass the Legislature, a scaled down version did. Included in the Omnibus Tax Bill #2 was $1 million in funding per year to help cover this discrepancy.
On June 19, Myron Frans, the commissioner of the Minnesota Department of Revenue, officially sent a proposed agreement to the Wisconsin secretary of the Department of Revenue. If a new agreement is reached by Sept. 30, income tax reciprocity would be restored starting in tax year 2015.
It is important to note that while our area and other border communities in Minnesota are greatly affected by the lack of an agreement, there are actually more citizens that live in Wisconsin and commute to Minnesota for work. Wisconsin also imposes a higher effective tax rate on middle income earners than Minnesota. This combination accounts for an estimated $4 million per year discrepancy and cost to Minnesota under income tax reciprocity.
The agreement sent by the State of Minnesota would allow 56,000 Wisconsin residents and 24,000 Minnesota residents the convenience of filing income tax forms only in their state of residence. If this agreement is reached before Sept. 30, there will be an annual $1 million reduction in Wisconsin's payment for Minnesota's net revenue loss. Payments equal to one-quarter of the estimated annual amount would be made at the midpoint of each quarter, without interest and a new benchmark study would be completed every five years.
Minnesota remains committed to returning the benefits of reciprocity to residents of both our states. I appreciate the work the commissioner has done to send a proposed agreement and I am hopeful reciprocity will be restored in the near future.
District 28 State Sen. Jeremy Miller, R-Winona, can be reached at firstname.lastname@example.org or (651) 296-5649.