Explaining State Internet Sales Taxation: New Economy, Old-Fashioned Interest Group Politics

Abstract

Abstract Retail sales on the Internet are growing at a rapid pace. Some states have tapped into this potential revenue source with Internet sales taxes, while others have not. What are the factors that lead states to make these policy decisions? Using a 50-state comparative research design, we find that interest groups, as much as the partisan and economic factors emphasized in previous research on state tax policy, are correlated with adoptions of these state tax innovations. Furthermore, this interest group influence is not limited to a single industry, but comes from self-interested groups representing both sides of the issue, including newly emerging technology interests.