Wisconsin lawmakers hope a new study could be the first step toward reviving a deal that would simplify income tax filings for the tens of thousands of people who cross the Minnesota-Wisconsin border for work.
For more than 40 years, a reciprocity agreement allowed Wisconsinites who work in Minnesota and Minnesotans who work in Wisconsin to file one state income tax return instead of two.
But Minnesota ended that agreement in 2010 because of delayed payments from Wisconsin.
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Now, more than a decade later, Wisconsin lawmakers are continuing their push to restart a deal by advancing legislation that would commission a study into the effects of income tax reciprocity with Minnesota.
Rep. Shannon Zimmerman, R-River Falls, is an author of the Assembly bill, which advanced to a public hearing this month.
“Without having tax reciprocity … Wisconsin residents have to file taxes twice,” said Zimmerman, who represents a northwest Wisconsin district near the Twin Cities. “Now, if you’re a professional accounting firm or maybe a CPA, you know, that might be good for you. But it’s certainly not good for our residents.”
When the agreement was in place, cross-state commuters filed a single income tax return in their state of residence. Since more than twice as many Wisconsinites worked in Minnesota than the other way around, Wisconsin would settle up later by reimbursing Minnesota.
Minnesota canceled the deal in 2010, however, citing complaints about the timeliness of those payments from Wisconsin.
In the decade since, attempts to restart a deal have been derailed by disagreements, including about how much Wisconsin should owe Minnesota.
In 2017, Minnesota shelved a proposed reciprocity deal with Wisconsin and instead began offering tax credits to Minnesotans who work in Wisconsin.
Even so, Zimmerman argued both Minnesotans and Wisconsinites would save time by filing one return instead of two.
“Minnesota’s urgency may not be the same as ours, but it still needs to get done,” Zimmerman said of reaching a deal.
Bills passing wouldn’t automatically reinstate reciprocity
If the bills become law, they would not re-establish income tax reciprocity between Wisconsin and Minnesota. Any deal would still need to be negotiated between the Departments of Revenue of each state. On Wisconsin’s side, the agreement would need to be approved by the governor and the Legislature’s Joint Committee on Finance, according to a bill analysis.
Instead, the legislation would order Wisconsin’s Department of Revenue to study factors including the number of residents of each state who work in the other, the total amount of income earned in each state by those taxpayers, and the amount of tax revenue that would be forgone by each state if reciprocity takes effect. That study would look at the 2020 and 2021 tax years and be provided to Wisconsin’s Legislature by the end of 2024, according to the bills.
Wisconsin’s Department of Revenue Secretary, Peter Barca, told state lawmakers he hopes Wisconsin will one day strike another reciprocity deal with Minnesota.
But he warned that a study ordered by the Legislature would be a “counterproductive” way to handle an issue that must be negotiated between the executive branches of each state.
“Where it’s a top 10 priority for me, it might be a top 50 priority for Minnesota,” Barca told Wisconsin’s Senate Committee on Universities and Revenue. “So if we try to dictate the terms of the study they may walk away completely.”
In response to questions about whether the agency supports resuming tax reciprocity with Wisconsin or cooperating with another study into the issue, a spokesperson said Minnesota’s Department of Revenue is open to discussion.
“We have good working relationships with our revenue agency partners all across the country and would look forward to discussing this issue further with the Wisconsin Department of Revenue if legislation is signed into law,” Ryan Brown of the Minnesota DOR wrote in an email.
As of 2021, there were more than 67,000 jobs held by Wisconsinites who work in Minnesota and over 28,000 jobs held by Minnesotans who work in Wisconsin, according to U.S. Census Bureau data provided by Wisconsin’s Department of Revenue.
Currently, Wisconsin has income tax reciprocity agreements in place with four states — Illinois, Indiana, Kentucky and Michigan.
Meanwhile, Minnesota has agreements with Michigan and North Dakota.
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