Illinois radically reconfigured the legal basis and constraints for municipal telecommunications taxes in 2003. The state assigned initial tax rates to many municipalities based on a formula without the direct input of municipal officials and effectively dictated initial (2003) tax rates. After 2003, local officials determined their own tax rate between zero and six percent. We use data on municipalities’ initial (assigned) tax rate, fiscal condition, population and neighboring municipalities’ initial (assigned) tax rates to explain changes in telecommunications tax rates between 2003 and 2008. We find clear evidence of an important and statistically significant inertia effect—municipalities initially assigned low rates continued to have low rates—and an important and statistically significant neighbor effect—municipalities whose neighbors were assigned relatively high initial rates increased their own rates faster, as well as a number of other statistical regularities that are inconsistent with a simple decisive voter model.