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Tax deal rolls away down the river

When we last saw them, they were two buds, cruising the St. Croix, smiling in the warm sun while publicly chanting the mantra of cooperation between the two states.

Oh, but that was so yesterday.

Governor chums Tim Pawlenty of Minnesota, a Republican, and Jim Doyle of Wisconsin, a Democrat, couldn't bring their friendly charms to devise a practical solution for constituents.

Thousands of Wisconsin resident commuters to Minnesota will pay the price. Minnesotans will also be affected, though in smaller numbers.

Last week Minnesota dumped an income-tax reciprocity deal dating back to the 1960s.

Wisconsin state Rep. Kitty Rhoades (R-Hudson) said the deal breaker was all about Minnesota.

"They hold the cards. Their revenue commissioner can terminate the agreement without legislative oversight," she said. "It's all about cash-flow management and they want their money faster. Pawlenty needs the $135 million to balance his two-year budget."

Rhoades ripped both governors and called the Minnesota's decision "bewildering."

"Here, back in July, you saw both of them in Hudson floating down the river together talking about working for the betterment of both sides, and then, a few months later, this is what happens," she said. "They couldn't even succeed in coming to some understanding on an agreement like this.

"We've had economic downturns before in the last 40-plus years, but every administration in both states has kept the tax reciprocity agreement. These governors have let us down, and it's going to be a major inconvenience."

This means 46,000 Minnesota and Wisconsin residents who work in the other state will have to file two state income tax returns next year.

Thousands of those are residents in western Wisconsin who commute daily to jobs in the Twin Cities.

Wisconsin state Sen. Sheila Harsdorf (R-River Falls) was just as frustrated as Rhoades.

"It's very disappointing," she said, adding that Minnesota's decision is not only one-sided but short-sighted. "Their gain will be a one-time effect, and they will be losing out on interest payments in the future."

Harsdorf pointed out that while Minnesota will get an early infusion of tax revenue, it will lose out on yearly interest payments of $7-8 million that Wisconsin makes to Minnesota as part of the agreement.

Wisconsin combines the owed interest with state income taxes collected from its citizens working in Minnesota. Both are paid to Minnesota within a specified time.

"The real benefactor with this agreement was not the states, but the taxpayers," Harsdorf said. "It was a convenience of simplifying tax returns."

Harsdorf said Wisconsinites working in Minnesota should try to get their employers to contact Pawlenty's office to complain.

"It impacts a lot of people in our part of the state," she said.

Harsdorf also worries that this could signal the unraveling of other regional reciprocity deals.

Rhoades said she's checking with big Minnesota firms like 3M, Andersen Corporation and the airlines to see how much "retooling they'll have to do to their payrolls" because of what's happened.

She also urged Wisconsin workers to talk to their Minnesota bosses to see if political pressure can be applied to bring back the tax reciprocity deal.

"And here's another number for people to call: (608) 266-1212," Rhoades said. "That's Gov. Doyle's phone. Tell him to get back to the table on this one."