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Legislation would pay Minnesotans for Wisconsin tax losses

Minnesota state Reps. Paul Anderson of Starbuck, left, and Clark Johnson of North Mankato talk Tuesday, Jan. 17, 2017, in the state House. State lawmakers will be asked to approve a bill paying Minnesotans who lose money working in Wisconsin, which charges many income levels higher taxes. (Forum News Service photo by Don Davis)

ST. PAUL—The Minnesota House Taxes Committee chairman is tired of dealing with Wisconsin about income taxes.

So Chairman Greg Davids, R-Preston, drew up a provision he plans to insert into his tax bill this year that would reimburse Minnesotans who pay higher taxes working in Wisconsin than if they worked in Minnesota.

For decades, the states had an agreement that made tax time simpler—and in many cases cheaper—for people living in one state and working in the other, but efforts to reinstate that have failed.

"Working with Wisconsin, you might as well be talking to a stump," Tax Chairman Greg Davids, R-Preston, said Tuesday, Jan. 17, before his committee briefly discussed the issue.

The legislation would resolve a decade-long dispute between the states with Minnesota taking unilateral action.

For years, the states had a deal that allowed people in one state working in the other to pay the lower of the two income tax rates, and to just file one tax return. Under the so-called reciprocity agreement, Wisconsin made annual payments to Minnesota.

Wisconsin fell behind in its payments, but the two states could not agree on how much and then-Minnesota Gov. Tim Pawlenty ended the agreement in 2009. Minnesota officials say Wisconsin owed Minnesota up to $100 million a year.

Without reciprocity, those living in one state and working in the other must file tax returns in both states.

About 56,000 Wisconsin residents work in Minnesota, with 24,000 Minnesotans going the other way. Davids' legislation would pay no Wisconsin resident.

Paul Cummings of the Minnesota Revenue Department called the Davids bill "a creative solution," but said "there still are issues," such as how the concept would work with electronically filed returns.

Cummings said he will work with Davids on the plan.

Low- and middle-income Minnesotans are especially affected with Wisconsin taxes that are higher than in the Gopher state. Minnesota taxes are higher for those with bigger incomes.

The state continues existing tax reciprocity agreements with Michigan and North Dakota, neither of which involve much money being transferred from state to state.

Gov. Mark Dayton and his administration have tried to work out a new reciprocity deal with Wisconsin, Davids said, but Badger state officials have not been cooperative. "This is one (issue) where I do not fault Gov. Dayton at all."

Almost annually since 2009, Davids has offered legislation to update the Pawlenty-canceled reciprocity agreement, supported by legislators in the Twin Cities and Duluth areas.

This year's proposal is quite different.

"We'll cut the check to them, so they can be made whole," Davids said. "They still have to file two returns, but they are not going to get stung by reciprocity." The bill is not a lever to get Wisconsin back into reciprocity talks, Davids said. "At this point, Wisconsin can do whatever they want. I have had it trying to work with them."

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.
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