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Minnesota offers deal to restore tax reciprocity with Wisconsin

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The tax situation can get complicated for the approximate 56,000 Wisconsonites who commute to work in Minnesota, and for the smaller number of Minnesotans – about 24,000 of them – who cross the river/border to draw a paycheck in Wisconsin.

The Star Tribune reports that the adjacent states are negotiating a deal to simplify income taxes for workers who live in one state and work in the other.

The two states had an income tax reciprocity agreement from 1968 to 2009 when then-Gov. Tim Pawlenty scrapped it because Wisconsin was late making payments, and the two states were using outdated figures on the number of workers covered by the 40-year-old agreement. Ending the pact meant the 80,000 border-crossing workers have had to file two state tax returns.

The Pioneer Press reports that Minnesota officials are initiating talks with their Wisconsin counterparts to restore tax reciprocity. The newspaper said Revenue Commissioner Myron Frans is dangling a $1 million carrot to get the effort on track. In a letter to Wisconsin's revenue secretary, he proposed that the states resume reciprocity in 2015 and offered to reduce Wisconsin's payment by $1 million per year. To get the reduction, Wisconsin would have to take the deal by Sept. 30. Except for the $1 million reduction, the proposal is similar to offers from 2012 and 2013.

Minnesota says Wisconsin owes the state about $92 million a year, because more Wisconsinites work in Minnesota than the other way around. That's $4 million to $6 million more than Wisconsin officials think the state should pay, so Wisconsin revenue officials have declined the offer.

"Unfortunately, Minnesota is insisting on millions more that no other states with agreements require, including Minnesota in its other agreements," said Jennifer Western, assistant deputy secretary of Wisconsin's revenue department. “We are glad Minnesota’s ransom has come down $1 million from its original $6 million, but it’s not right for Wisconsin to pay to undo a tax increase Minnesota imposed on its citizens when it ended reciprocity.”

Minnesota has tax reciprocity agreements in place with Michigan and North Dakota.

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