State view: Minnesota offers sensible tax reciprocity deal to WisconsinOn March 4, Minnesota proposed a new income tax reciprocity agreement with Wisconsin. The agreement would take effect for tax year 2014. A new agreement would simplify tax filings for people who live in one state and work in the other. They could once again file just one state tax return (in their home state) instead of filing in both states.
By: Myron Frans, for the News Tribune
On March 4, Minnesota proposed a new income tax reciprocity agreement with Wisconsin. The agreement would take effect for tax year 2014. A new agreement would simplify tax filings for people who live in one state and work in the other. They could once again file just one state tax return (in their home state) instead of filing in both states.
Our proposal is based on the findings of a March 1 study by the Minnesota Department of Revenue that determined how much revenue our state would lose with a new reciprocity agreement. Our tax revenue would drop under reciprocity because there are more than twice as many Wisconsin residents working in Minnesota than the reverse. That is why any agreement must require Wisconsin to reimburse Minnesota, as both states have agreed over the years.
Minnesota took the lead in proposing a new agreement to help border-crossing workers. But if we are to cooperate on a new agreement, our conversation must be centered on facts.
First, our study determined that Minnesota would have lost $73.7 million in revenue if reciprocity had been in place for tax year 2011. By calendar year 2014, that amount would grow to an estimated $85.3 million. Our proposal requires Minnesota be reimbursed for that $85.3 million revenue loss in 2014. That is a fair proposal, and full payment from Wisconsin is required by Minnesota law.
Second, Minnesota has calculated its credit for taxes paid to other states in the same way for many years. We did not change that calculation for a reciprocity agreement, as some officials have claimed. Minnesota limits the credit to the amount residents would owe to their home state. In fact, 39 states — of 43 that offer this credit — have the same limit as Minnesota. Wisconsin is one of the few exceptions. The distinction matters: Wisconsin’s income taxes are higher than Minnesota’s for most middle-income workers. By going against the majority rule for this kind of tax credit, Wisconsin effectively is asking Minnesota taxpayers to subsidize its higher taxes.
Third, Minnesota’s calculation of this tax credit is not a new issue in our reciprocity discussions with Wisconsin. Back in 1996 Minnesota proposed changes to the reimbursement formula to compensate for the difference in the two states’ tax rules.
Minnesota Gov. Mark Dayton wants to restore income tax reciprocity between Minnesota and Wisconsin, and he supports our recent proposal for tax year 2014. We encourage Wisconsin to agree to this fair, sensible approach.
Myron Frans is commissioner of the Minnesota Department of Revenue after working 27 years as a tax attorney. He also served as president of a manufacturing and distributing company.