AUGUSTA – Next fall, the moratorium imposed by Congress on proposals to tax commerce on the Internet ends, and whether it is extended or new taxes are allowed could have a major impact on state revenues. Maine tax officials estimate not being able to tax so-called e-commerce could cost the state $40 million a year by 2003.

“What happens is very important to Maine and to many other states, and we are working with other states on finding a solution to this problem,” said Gov. Angus King.

For years, Congress has said in effect that e-commerce was changing too rapidly to deal with the complex issues of taxing transactions on the Internet. There are an estimated 7,500 separate sales tax jurisdictions ranging from states to individual cities and towns with differing rates and different definitions of what is taxed.

As a hypothetical but very possible example, consider a person on a flight from New York to Los Angeles who uses a laptop computer connected to a phone in the plane to order a book from a Texas catalog company that processes the order in Wisconsin and ships it to his home in Maine.

“Where is the sale?” asked King. “That is just one of many complex questions that must be answered in this new world of online commerce.”

Maine has joined more than 30 other states in an effort to draft legislation to simplify definitions and create a more uniform method of assessing sales taxes. But past efforts have failed to reach consensus and Tony Neves, executive director of Maine Revenue Services, acknowledges getting all states to agree to a set of changes is unlikely.

“But I think we can come up with a more simplified and streamlined set of tax policies that will go a long way toward meeting a lot of the objections, with most states signing on,” he said.

Sen. Susan Collins said it was the complex and politically charged nature of the issue that led to Congress deciding to postpone action on the matter three years ago. But she said despite the complexity, Congress needs to act on the issue.

“We have to figure out how to balance the needs of consumers, of Main Street retailers that don’t use the Internet for sales, of the mail-order catalog companies, and the needs of state and local governments,” she said.

Collins said Congress may not act this year. She said some lawmakers have suggested another moratorium on dealing with the issue to give states more time to hammer out an agreement among themselves.

Rep. Tom Allen agrees Congress needs to address the issue and shares Collins’ pessimism about action this year. He said a proposal by Rep. Christopher Cox, R-Calif., and Sen. Ron Tyden, D-Ore., to establish a trigger mechanism allowing taxes if enough states adopt a simplified sales tax code may garner enough support to be added to any moratorium measure. He said such an incentive for the states to reach an agreement could make the difference.

“In the long run, if commercial transactions on the Internet are tax-free simply because they are on the Internet while Main Street merchants are having to collect the sales tax, that is not a level playing field,” he said. “That is something we will have to deal with sooner or later and I hope it is sooner.”

Some state lawmakers question whether Congress is serious about addressing the issue. State Sen. Kenneth Gagnon, D-Waterville, co-chairman of the Taxation Committee, rejects the argument many Internet companies have raised about the complexity of collecting taxes on products sold to residents in various states.

“I just don’t buy the argument that these e-commerce companies can’t solve the complexities of handling multiple tax jurisdictions,” he said. “Just look at some of their Web sites. If they can give you dozens of options in size and color and design for a single product, they can figure out a computer program to handle the different taxing authorities. I think this has more to do with a successful lobbying effort by companies that just don’t want to be bothered with this.”

Gagnon said he does support the effort by Maine and other states to develop a simplified sales tax that shares definitions with other states. He said Maine certainly is not in step with other states in some areas.

Neves agreed. For example, he said, Maine treats items purchased in the rental industry differently than most states. Instead of taxing the rental fees, Maine taxes the piece of equipment or other rental item when it is purchased.

“One of the complaints with our tax structure is its volatility,” he said. “When the economy slows down, less equipment is purchased by these rental firms. Taxing the revenue stream from rental fees, like when you rent a movie to watch at home, would take some of the ups and downs out of the sales tax.”

Neves said he expects to have a proposal for streamlining and simplifying Maine’s sales tax ready next January for lawmakers to consider. He will find a receptive audience with bipartisan concern about the issue.

“I think you will see this committee ready to work on this,” said Rep. Eleanor Murphy, R-Berwick, a longtime member of the panel.