Congress continues to tackle the question of whether to keep the Internet a largely tax-free shopping zone or pave the way for states to collect sales taxes on most online purchases.

There is little doubt lawmakers will extend a moratorium expiring this October that bars taxes on Internet access and prohibits taxes that single out the Internet. The bigger question: What to do about sales taxes? While laws in 45 states say those taxes are owed, they rarely are collected. At stake are billions of dollars in revenue for state and local governments as well as tax fairness between traditional brick-and-mortar retailers and their Internet and catalog competitors. Congress' General Accounting Office has estimated that uncollected sales taxes on Internet purchases could cost the states $12.5 billion in 2003. Remote sellers, meanwhile, say complying with thousands of different taxing jurisdictions would create a costly new burden - and could lead to imposition of more taxes in the future. The taxes are not collected now mainly because of the Supreme Court, which has ruled that a business must have a physical presence - such as a warehouse, a retail store or an executive office - before a state can require sales tax collections on out-of-state purchases. Few states have tried to force their citizens to pay the tax from remote sales on their own. In the Senate, negotiators have tentatively agreed on an extension of the moratorium through 2006. The measure would also expand states' sales tax collection authority, but only if at least 25 states simplify their own multiple tax rates. Congress would still have to give final approval to the new system.