Tax revenue officials from Minnesota and Wisconsin said they do not expect a new income tax reciprocity agreement between the two states anytime soon.
Minnesota revenue officials said the latest offer from Wisconsin would leave Minnesota short about $6 million a year, due in part to the border state’s higher incomes tax rates for middle-class taxpayers.
“Why would Minnesota want to subsidize the higher tax rates in Wisconsin?” Minnesota Revenue Commissioner Myron Frans asked at a forum Monday with his Wisconsin counterpart.
The two states failed to reach an income tax reciprocity agreement by the Oct. 1 deadline, which means that about 80,000 taxpayers who live in Minnesota or Wisconsin and work in the other state will have to file income taxes in both states for at least the 2014 tax year.
Under the previous agreement, residents would simply file income taxes in their home state and revenue officials would sort out which state is owed what. Since so many more Wisconsinites worked across the border, Wisconsin usually owed Minnesota tens of millions of dollars every year.
Former Gov. Tim Pawlenty ended the income tax reciprocity agreement with Wisconsin in 2009, frustrated that the border state withheld its payment to Minnesota for almost a year. When the economy sunk, Wisconsin withheld the payment even longer and made it harder for Minnesota budget officials to manage the state’s cash flow.
Richard Chandler, secretary of the Wisconsin Department of Revenue, said the two states finished separate studies that resolved the issues of the payment timing and gave a more accurate portrait of how many residents cross the border to work.
But those solutions didn’t tackle the $6 million problem for Minnesota.
Like most states, Minnesota offers a special tax program for employees of other states that gives those residents a tax credit of the amount of income taxes that the worker would pay in their home state.
Since Minnesota’s income tax rates are generally lower, Minnesota taxpayers would have to ante up to pay the higher tax rate for those who work in Wisconsin.
“We have no intention of changing it,” Frans said of the tax program, which has been around since 1961. “It’s a good rule.”
Frans said that is not fair for Minnesota taxpayers, and that it is up to Wisconsin to make it right.
Chandler said lawmakers back home call the $6 million payment a form of ransom, one they are not willing to pay.
Asked if they thought there was a way to broker a deal anytime soon, Frans and Chandler shrugged.
Chandler then joked that the relentless drive to lower taxes by his boss, Republican Gov. Scott Walker, might actually erase the $6 million deficit on its own.