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WASHINGTON -- Congress may soon have to choose between online shoppers and Internet businesses, who want to keep sales taxes off the Net, and states and bricks-and-mortar businesses that are pushing a sales tax plan that applies across state boundaries.

The argument may come to Congress in a pitch to approve a cross-state sales tax proposal, which is intended to simplify the way the states collect sales taxes. It is considered by some as paving the way to tax online sales.

The debate over a plan called the Streamlined Sales and Use Tax Agreement, being pushed in state legislatures, spilled into the halls of Congress Thursday with a panel discussion by the Congressional Internet Caucus.

Unfair or Middling?

Proponents of the plan, sometimes called the Streamlined Sales Tax Project, say it's only fair that e-commerce companies pay the same taxes as bricks-and-mortar businesses. They argue that states are losing by not being able to collect sales taxes on e-commerce, catalog, and telephone sales by companies based elsewhere. In a 1992 lawsuit, Quill v. North Dakota, the U.S. Supreme Court ruled that states cannot collect sales tax on businesses operating outside their borders because of the burden those businesses would face when trying to comply with thousands of local taxing jurisdictions.

"This effort is not about a new tax, it's not about punishing anybody or even affecting the Internet," said Steven Rauschenberger, a Republican state senator from Illinois. "It's really about modernizing the sales tax, so that the states get back to a simple ... fair and equitable tax system."

Opponents of the plan say sales taxes could cripple e-commerce, which still makes up only about 1.5 percent of the $750 billion in U.S. retail sales each year. They argue that taxing Internet sales would stifle e-business, and not raise a significant amount of money. Amazon.com estimates revenues would be about $2.4 billion spread across the 45 states with a sales tax.

"There isn't that much e-commerce at this point to maybe justify all this wrangling we've been doing the last couple of years of changing tax policy all around," said James Gilmore, a former Republican governor of Virginia. "This is a tax increase. Be aware of that."

Caution Urged

Stephen Rauschenberger, a Republican state senator from Illinois, introduced a measure in that state to streamline sales tax practices with an eye on extending the tax to online sales. He spoke in favor of the Streamlined Sales Tax Project while downplaying its tax-increase potential.

But Jean Cantrell, manager of government affairs for retailer Circuit City Stores, complained that Internet sales are getting a sales tax break and therefore can sell products cheaper than can their bricks-and-mortar cousins.

"We want an environment where all sellers play by the same rules so that we are not competitively disadvantaged by the retailer who can successfully compete with us on the price of a wide-screen plasma television," told the Congressional caucus. "Bottom line, we think it's the right thing to do."

Paul Misener, Amazon.com's vice president for global public policy, urged congressional staffers to encourage long deliberation of the Streamlined Sales Tax Project. "This is not an easy one," he said of the sales tax debate. Congress can't punt on this--the details matter."

Misener noted that Amazon's estimated $2.4 billion impact on all states is a fraction of the current $35 billion budget deficit in California alone.

"The sky is not falling," he said. "Collection of remote sales tax is not going to balance the state budget shortfalls by any stretch of the imagination." The simplified sales tax is a separate issue from congressional efforts to permanently extend a moratorium on Internet use taxes and other taxes that aren't collected elsewhere.

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