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Minnesota, Wisconsin governors seek tax solution

ST. PAUL -- Minnesota and Wisconsin governors are trying to fix a tax controversy they inherited upon taking office last week.

Minnesota Gov. Mark Dayton on Friday sent Wisconsin Gov. Scott Walker a letter demanding that the Badger state send its western neighbor a $59 million check for money due after a tax deal between the two states ended.

Walker, meanwhile, announced via the Wisconsin Revenue Department Web site that he wants to renegotiate the Minnesota deal.

The controversy centers on what is called a tax reciprocity agreement in which a resident of one state who works in the other only needed to pay income taxes in his home state. Because more Wisconsinites work in Minnesota than vice versa, Wisconsin always owes Minnesota money.

Then-Minnesota Gov. Tim Pawlenty dissolved the agreement in September of 2009 because Wisconsin was late on its payments.

In his Friday letter to Walker, Dayton said he agreed with the Pawlenty decision.

"Wisconsin's failure to fulfill its responsibility for reimbursement compelled my predecessor, Gov. Pawlenty, to terminate the agreement, which forces several thousand citizens in both of our states to have to file dual state income tax returns," Dayton wrote. "While I regret this outcome, I concur with Gov. Pawlenty's decision, as the state of Wisconsin at that time owed the State of Minnesota over $58 million."

Dec. 1 was the deadline for Wisconsin to pay, and $4,583.99 in interest per day is building as long as Wisconsin does not send Minnesota a check. Wisconsin officials say they will not pay until the new fiscal year starts on July 1.

Dayton said the reciprocity deal "went seriously awry before either of us became the governors of our respective states."

Before Dayton's letter was sent, the Wisconsin Revenue Department announced that Walker wants to negotiate a new agreement "so that approximately 22,000 Minnesota and more than 57,000 Wisconsin residents who work across the border will only have to file one income tax return each year."

Many of those 77,000 people will be forced to file two state income tax returns for the first time this year.

The Wisconsin office blames Minnesota for "unilaterally" ending the tax agreement.

His revenue agency said Walker's goal is to "fix income tax reciprocity" and Revenue Commissioner Richard G. Chandler requested that his department meet with his Minnesota counterparts.

"Both Gov. Walker and Secretary Chandler believe the agreement makes it easy and simple for taxpayers in both states to file their income tax returns, which is a key goal of our department," the Wisconsin agency reported.

While Pawlenty and former Wisconsin Gov. Jim Doyle said they were good friends, despite being of opposite political parties, they failed to work out a new reciprocity deal. Dayton spokeswoman Katharine Tinucci said she does not think Democrat Dayton and Republican Walker ever have met, but they do plan to talk via telephone next week.

Legislators on both sides of the border say they would like to see reciprocity revived.

Don Davis reports for Forum Communications Co.

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.