A $40 million disagreement means people who live in Minnesota or Wisconsin and work in the other state will need to file income tax returns in both.
"A final nail in the issue," is how Minnesota Revenue Commissioner Ward Einess described the situation.
The commissioner and Wisconsin legislators met in a Wednesday teleconference, which ended with Einess rejecting a Wisconsin offer that he said would have made the Minnesota budget deficit $40 million bigger.
Einess said he did not expect another Wisconsin offer "for the foreseeable future," perhaps a couple of years.
Wisconsin legislative leaders have a special session next week and had planned to increase back payments to Minnesota by $90 million.
"The long-standing agreement should not have been scuttled for short-term proprietary gain as it was," Wisconsin Sen. Sheila Harsdorf, R-River Falls, said in a press release. "While I’m greatly disappointed in both governors for failing to reach agreement months ago, I am heartened for the future of reciprocity because our state’s legislative leaders took unprecedented action to try and make this work."
For more than 40 years, the reciprocity agreement allowed residents who live in one state and work in the other to file a single tax return in their home state. Because there are more than twice as many Wisconsin residents who work in Minnesota, Wisconsin then reimburses Minnesota for the tax it collects, but the process takes more than a year. Einess said Wisconsin is $130 million in arrears and Minnesota wants its money quicker in light of its budget deficit.
Harsdorf and Rep. Ann Hraychuck, D-Balsam Lake, met with Einess, armed with the $90 million proposal that would have offered Minnesota accelerated payments and interest in exchange for continuing the tax reciprocity agreement.
The proposal was actually "better than the deal Minnesota last offered to Gov. (Jim) Doyle", according to Harsdorf spokesman Jack Jablonski. The offer was made with "unprecedented" support from Wisconsin Legislative leadership to immediately take up the issue in a special session of the Legislature scheduled to begin Wednesday.
In an interview, Einess said that he had no choice but to reject the offer. With the deal ending, he said, Minnesota will collect $130 million more in taxes. That meant the Wisconsin offer fell $40 million short, which would increase the Minnesota deficit.
"I can’t agree to an offer that exacerbates our budget deficit," Einess said.
Harsdorf and Hraychuck expressed hope that once both states have new governors in 2011 they can "get back to the table and restore a common-sense agreement that benefits taxpayers of our region," the news release stated.
Einess also said there is a chance that reciprocity could return in the future.
Last week, just after he found out the Minnesota budget was coming up another $1.2 billion short, Pawlenty said he would consider a Wisconsin offer. However, he made no promises for an immediate resolution to the standoff.