Hopes rekindled for tax reciprocity issue
A border battle over income tax filing could be over if a bill moving through the Minnesota Legislature continues to gather steam.
Wisconsin lawmakers signaled cautious enthusiasm for reinstatement of a tax reciprocity agreement that has been dead since former Minnesota Gov. Tim Pawlenty did away with it in 2009.
Sen. Sheila Harsdorf (R-River Falls) said her support hinges on passage of a bill in Minnesota that drops a controversial $6 million payment that previous legislation sought for Wisconsin to pay the Gopher State.
That provision in the bill, set for a possible floor vote this week in the Minnesota House, could be the key to unlocking the stalemate between the two states, Harsdorf and Rep. Dean Knudson (R-Hudson) say.
“It really is asking us to subsidize their tax policy,” Harsdorf said.
The proposal would reinstate the agreement that allowed Wisconsinites working in Minnesota, and vice versa, the ability to file one income tax return. Estimates show more than 56,000 Wisconsinites work in Minnesota, with some 24,000 Minnesotans working in the Badger State.
The disparity in taxes collected under the arrangement would require the state that pays less to make up the difference through revenue payments to the other. The bill also stipulates that the Wisconsin revenue commissioner must agree on the issue.
The bill, authored by Minnesota Rep. Greg Davids (R-Preston), removes a previous requirement calling for Wisconsin to pay out what would have cost the Badger State an additional $6 million on top of the approximately $85 million Harsdorf said would already be paid to Minnesota.
Knudson called that provision “a way forward.”
“If that passes, there’s no reason you won’t have reciprocity,” he said. “That’s the bottom line.”
He and Harsdorf said the previous $6 million payment provision presented a major roadblock toward reinstating tax reciprocity between the states.
“It’s been an agreement-killer no matter where it’s been proposed,” Harsdorf said, citing other examples of states seeking to impose additional fees on neighboring states in reciprocity agreements.
Davids, who serves as chairman of the powerful Minnesota House Tax Committee, said he’s adamant about getting the issue pushed through. He represents a district in southeastern Minnesota where many residents go across the Mississippi River to work in the La Crosse area. That creates a “negative impact” on tax revenue for Minnesota’s Houston County, a scenario, Davids said, that represents the opposite situation in St. Croix and Pierce counties, where state tax revenue is diverted to Minnesota from Wisconsinites working in the Twin Cities.
“It’s been very, very frustrating,” Davids said of ongoing efforts to resolve the issue. “We’re making every effort to make this work.”
Though the Wisconsin tax reciprocity provision is part of his larger tax bill, a measure Davids said has the votes to pass the Minnesota House, it will still need to survive a conference committee comprised of House and Senate members. From there, it would need to be presented to both Minnesota chambers in a compromise bill.
Not out of the question, Davids said.
“We’ve got some senators that want it,” he said.
Yet for all the district-level politicking on tax reciprocity, the issue will likely come down to whether the cabinets of Gov. Scott Walker and Minnesota Gov. Mark Dayton can reach an agreement.
“I honestly don’t know” if an accord could be reached between the respective cabinets, Davids said. “We’ve made every good-faith effort.”
Harsdorf said she hopes the framework is in place to restore the agreement.
As it stands, Minnesotans and Wisconsinites working across their respective borders must file in both states. Harsdorf said hardly a week passes in her district when she’s not reminded of the issue by a constituent.
If legislation that relieves Wisconsin of the $6 million is signed by Dayton, it “will open the door to serious negotiating and agreement,” she said.
“If it’s removed, I think we’ll have reciprocity again very quickly,” he said.