ST. PAUL, Minn. (AP) -- Minnesota is giving up efforts to reach a tax reciprocity agreement with Wisconsin, a move that will give Minnesota residents who work in Wisconsin a tax break.
The tax credit, which is meant to make up for the higher Wisconsin taxes, will go into effect for 2017. It is estimated that it will cost the state more than $8 million.
Minnesota lawmakers passed legislation this year allowing the tax credits to kick in if a tax reciprocity agreement couldn't be reached.
"This is a great day for Minnesotans that work in Wisconsin," said House Taxes Committee Chairman Greg Davids, of Preston, who wrote the bill. "They just got a pay raise, and that's a good thing."
Minnesota Department of Revenue Commissioner Cynthia Bauerly sent a letter to Wisconsin Department of Revenue Secretary Richard Chandler this week announcing the decision. Bauerly said a reciprocity deal would force Minnesota to collect more than $105 million annually from Wisconsin since more Wisconsin residents work in Minnesota than Minnesota residents work in Wisconsin -- which could put Minnesota at risk of not getting paid by Wisconsin.
"Given the new refundable credit, Minnesotans will not pay more in taxes without an agreement," Bauerly said. "And because an agreement would cause additional financial exposure for Minnesota's budget, an income tax reciprocity agreement with Wisconsin is not in Minnesota's best interest."
An estimated 24,000 Minnesota residents work in Wisconsin. Many of them have had to pay hundreds of dollars more in income taxes each year than they did when reciprocity was in place. Houston County has the most Minnesota residents working in Wisconsin, estimated are more than 3,600 residents.
The Wisconsin Department of Revenue did not respond to requests for comment on Minnesota's decision.
La Crescent Mayor Mike Poellinger said tax reciprocity is a big issue in his community, where upward of 80 percent of residents work in Wisconsin. He welcomed news about the tax credit.
"It's great that it's happening, and I applaud Minnesota for recognizing the situation and trying to remedy it," Poellinger said.