Recently enacted HF1 opens the door to a possible reinstatement of the reciprocal agreement between Minnesota and Wisconsin, which lapsed in 2009.

Effective for tax year 2017, HF1 modifies the credit for income taxes paid by Minnesota residents working in Wisconsin to provide that in years that the states do not have a reciprocal agreement, affected individuals are allowed the same tax treatment as they would receive if there had been a reciprocal agreement between the two states.

Effective in tax year 2018, the Minnesota Commissioner of Revenue is authorized to enter into an income tax reciprocity agreement with the Wisconsin Secretary of Revenue.

The law requires that the state having a net revenue loss must receive the amount of that loss by the other state on a quarterly basis.

For agreements entered into before August 1, 2018, the amount received by Minnesota must equal net revenue loss minus up to $3 million. An agreement with Wisconsin must require that:

— the agreement be suspended in case of late payment;

— the interest rate applied to payment is specified;

— annual reconciliation of payments be submitted;

— each state conduct a benchmark study every five years;

— the two states annually exchange a list of taxpayers who request exemption

— from withholding; and

— the sum of the quarterly payments reasonably estimate the revenue loss.

If Wisconsin agrees to participate, the law requires that both states conduct a study to determine (1) the number of residents from each state who earn income from personal service in the other state, (2) the total amount of income earned by these individuals and (3) the change in tax revenue in each state if a reciprocal agreement were resumed. The study results must be submitted to the state legislature by March 1, 2019.

The original Minnesota-Wisconsin reciprocal agreement ended in 2009.

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