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Lawmakers want to reinstate tax pact

Lawmakers from both sides of the Minnesota-Wisconsin border will discuss ways to reinstate a decades-old income tax reciprocity agreement severed by Minnesota Gov. Tim Pawlenty.

Legislators say they hear from constituents concerned about how Pawlenty's decision earlier this month will affect them. The Minnesota governor ended the interstate pact, in place since 1968, that allowed Minnesota and Wisconsin residents working in the other state to pay income taxes only in their home state. Without the deal, those workers will have to file in both states beginning in 2011. Some, but not all, Minnesotans working in Wisconsin could end up paying higher taxes.

State lawmakers said the first step toward reinstating the agreement is an Oct. 12 meeting in Woodbury to discuss the issue.

An estimated 13,000 Minnesotans and 33,500 Wisconsin residents who work across the border are affected.

Since more Wisconsin residents work in Minnesota, Wisconsin has reimbursed Minnesota for the income tax it collects from Minnesotans. But that payment traditionally was delayed 17 months.

Looking to balance his state budget, Pawlenty, a Republican, wrote to Wisconsin Gov. Jim Doyle, a Democrat, asking that his state begin reimbursing Minnesota on time. No agreement was reached.

Ending the agreement will net Minnesota about $131 million for the current two-year budget period.

State Sens. Kathy Saltzman of Woodbury, a Democrat, and Sheila Harsdorf of River Falls, Wis., a Republican, organized the Oct. 12 forum. All lawmakers representing areas along the Minnesota-Wisconsin border are invited. Nonpartisan legislative staff specializing in tax issues will attend, as will Minnesota Revenue Commissioner Ward Einess.

"It's really going to be: 'How can we look at other options so that we can resolve the problem?'" Saltzman said.

Harsdorf said the goal is to reinstate the tax pact.

"While I am deeply disappointed that Minnesota has decided to end this agreement, I am hopeful that a bipartisan effort will yield an effective plan to restore income tax reciprocity," she wrote.

Saltzman said some Minnesota lawmakers may try to pass legislation to revive income tax reciprocity. However, even if legislators pass such a bill, Pawlenty still could veto it.