It’s Time to Fix Tax Dispute Between the States

“Please provide me with an update on the reciprocity issue between Minnesota and Wisconsin,” the woman from Prescott wrote to me. She worked in Minnesota for years and now must file two state tax forms.

The inconvenience and, in some cases, increased taxes paid, resulted from a break down in a long-standing agreement between the two states.

In 1968, Minnesota and Wisconsin entered into an agreement that allowed Wisconsin residents who worked in Minnesota to only file Wisconsin taxes. The same was true for Minnesota residents who worked in Wisconsin. The states would ‘settle up’ the difference later through a payment to the state owed tax money.

In 2009 then Governor Pawlenty stopped the agreement after Wisconsin failed to settle up with a timely payment of taxes owed the Gopher State. For the past few years those who work in one state and live in the other must file two tax forms. Sometimes they find themselves paying more in taxes.

The agreement not only affects employees. Wisconsin businesses who hire Minnesota residents are now required to withhold taxes due and make payments to Minnesota. The same is true for a Minnesota company hiring someone from Wisconsin.

Governor Walker and Governor Dayton inherited this problem. Former Governors Pawlenty and Doyle had been in negotiations since at least June of 2009 to resolve the breakdown between the states.

The problem began when Wisconsin’s revenue dipped precariously because of the recession. The state did not make payments on time. Minnesota wanted the cash. Governor Doyle attempted to renegotiate the payments due; even offering to pay up to $40 million in a sort of ‘penalty’ interest payments. But Minnesota wanted more.

According to the nonpartisan Legislative Fiscal Bureau it appeared, with Minnesota’s own budget crisis, the state was using the negotiations to create a ‘one-time’ revenue increase to improve cash flow. Put another way, Minnesota was taking advantage of Wisconsin’s slow payment to better its own bottom line.

Either way, the governors could not reach agreement and the 40 year old agreement fell by the wayside.

I received a number of letters from constituents begging me to reinstate the agreement. One man asked why he had to pay for the ‘bickering between the states”. Another woman from rural Fountain City told me about farm losses due to a flood. Because Minnesota didn’t recognize her losses in Wisconsin, her family had to pay more than $3,000 in additional taxes. Many families similarly suffered.

It is not possible for a single legislator to reinstate the agreement. So every lawmaker representing the state border between Wisconsin and Minnesota has pressured the two governors to find a resolution.

Recently I joined Wisconsin lawmakers representing border districts in sending a new letter to Minnesota Governor Dayton asking him to honor a promise made last winter to resolve outstanding issues between the two states.

Both new governors initially seemed warm to resolving old differences. Wisconsin paid off the old bill owed to Minnesota. Talks were reopened and Governor Walker made several visits to western Wisconsin touting the new cooperation between the states.

Now a deadline looms for the deal to be completed. My legislative colleagues and I are concerned the goodwill between the states will not be translated to a new agreement soon enough to affect taxpayers in this coming year.

Wisconsin agreed to address the problems raised by Minnesota including to submit more frequent and more accurate payments. The state also agreed to pay an additional $55.6 million. Minnesota wants $40 million more. But Gopher State officials appear unwilling to provide any factual data to support the request for more money.

The time to resolve the differences between the states is now. Without an agreement in place by October, it’s impossible to repair the agreement for the coming 2013 tax year.

I urge citizens who work across the border to contact Governor Dayton and ask him to resolve this dispute in the next few weeks. Governor Dayton can be reached at toll free at 800-657-3717; by mail at 130 State Capitol St Paul, MN 55155; or by email athttp://mn.gov/governor/contact-us/