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Martiga Lohn, Associated Press, Published September 27 2012

Minn. official says no Wis. tax deal

ST. PAUL, Minn. — Minnesota's top revenue official said Thursday that a tax deal with Wisconsin is probably off for next year over the state's demand to be reimbursed for lost revenue.

Minnesota Revenue Commissioner Myron Frans told The Associated Press that he doesn't expect further negotiations before Monday, the deadline for an agreement to revive tax reciprocity between the neighboring states for 2013 taxes. Wisconsin Revenue Secretary Richard Chandler agreed that a deal is unlikely this year.

The impasse means that about 60,000 Wisconsin residents and 20,000 Minnesotans who cross the border to work will still have to file income tax returns in both states next year.

The dispute between the neighboring states centers on whether Minnesota gets paid back for $5 million to $15 million a year it estimates it would lose under the tax swap. Both states are afraid of subsidizing the other. The previous reciprocity deal was in effect for more than four decades before then-Gov. Tim Pawlenty of Minnesota scrapped it in 2009, saying Wisconsin was taking too long to pay.

Frans said Minnesota would need about $10 million a year to make the deal work because a larger number of Wisconsinites work in Minnesota and Wisconsin has higher effective income tax rates for most middle-income taxpayers.

“We're just prohibited by law from subsidizing another state for revenue loss at our expense,” Frans said.

Chandler blamed the gap on Minnesota's tax code. Minnesota residents who pay higher taxes to another state get credit only for the amount they would have paid in Minnesota. Chandler said the solution is for Minnesota lawmakers to change the law to give residents full credit for taxes to another state, even if they're higher.

“We just believe it's very unreasonable to ask us to reimburse Minnesota taxpayers for that,” he said.

Both states are now waiting for the results of their own separate studies of tax reciprocity, due in March.

Minnesota state Sen. Roger Reinert, DFL-Duluth, said he hopes the studies will provide new details to help resolve the differences.

“It's been a real pain, not just for the individuals but for the businesses that have to collect double withholding,” said Reinert, whose district sits across the bay from Superior, Wis.

Chandler and Frans said both states have agreed to quarterly payments if a deal goes forward.

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