No, they are not required to. She does not have to pay Indiana income taxes on her wages earned in Indiana (they have a reciprocal agreement) but she will still owe taxes to Michigan. Their failure to cooperate means she will probably have to file multiple state returns (if they withheld IN tax). If so, have her file the nonresident Indiana return first. She will receive a credit on her Michigan resident return for any taxes paid to Indiana.
Which states have reciprocal agreements?
This link has directions for filing a nonresident tax return.
