States urged to keep reciprocity
Area residents who work in Minnesota could face a more taxing tax season next year.
Minnesota Gov. Tim Pawlenty is threatening to end his state's tax reciprocity agreement with Wisconsin.
As part of Pawlenty's recent "unallotment plan" to balance Minnesota's budget, $106 million of the fix comes from speeding up Wisconsin's payments to Minnesota.
Under the reciprocity agreement, residents who live in one state and work in the other can pay taxes in their home state, with the state where the employee works being reimbursed by the person's home state.
The trouble is, Pawlenty said, Wisconsin's payments to Minnesota are unnecessarily delayed 17 months. His administration estimates that Minnesota would gain $106 million in the next two years if Wisconsin paid quicker.
Pawlenty's proposal calls for Wisconsin to pay half of its annual tax liability a year earlier than scheduled, according to Gov. Jim Doyle's office.
Doyle has received Pawlenty's letter and is currently reviewing it, according to Carla Vigue, the governor's deputy press secretary. No decision has been announced as of yet.
Western Wisconsin legislators are a little worried about the reciprocity battle. Many of their constituents work across the river but have been spared the headache of having to file separate tax forms in two different states.
A June 24 letter, signed by 18 area legislators, was sent to Wisconsin Gov. Jim Doyle urging him to cooperate with Minnesota in resolving the dispute.
Among those signing the letter were State Sen. Sheila Harsdorf (R-River Falls), State Rep. Ann Hraychuck (D-Balsam Lake), State Rep. John Murtha (R-Baldwin) and State Rep. Kitty Rhoades (R-Hudson).
"It's not good to unravel reciprocity agreements," Harsdorf said. "I strongly support maintaining the income tax reciprocity agreement and have written letters to both governors urging them to cooperate on this matter to protect the interests of nearly 80,000 affected residents in both states."
A total of about 57,000 Wisconsin residents work in Minnesota, with about 18,968 St. Croix County residents included in that figure. About 22,500 Minnesota residents work across the border in Wisconsin.
Without the continued agreement, Harsdorf said many of her constituents will face additional tax filing each spring, and the cost for reporting taxes will increase.
The end of reciprocity would not mean higher taxes for residents, however.
Rhoades said the reciprocity agreement has worked well for years and now is not the time to end it.
"Since 1968, the Minnesota-Wisconsin Income Tax Reciprocity has streamlined the tax filing process for individuals who live in one state but work in another state," Rhoades said. "Through the years, this agreement has been the topic of budget discussions in both states but, through negotiations, the program has been successfully maintained."
Rhoades said Pawlenty and Doyle met earlier this year and pledged to work together on such issues.
"So it is my hope that we can work together to find an agreement that resolves the cash flow issue and upholds this vital program," she said.
Wisconsin currently has tax reciprocity agreements with Illinois, Indiana, Kentucky and Michigan as well. None of those agreements is being scrutinized at the current time.