There are actually three separate tax issues that get bounced around as one. The first is whether states should be allowed to pass discriminatory taxes against Internet transactions. That's an easy question: No. Except for taxes designed to chill a given activity (say, smoking), taxes should not discriminate. There's enough chill in cyberspace just now without the government piling on.

The second issue is whether Internet access itself should be taxed. This is a bit harder, as other telecommunication access is already taxed. But as Internet access takes place over these other systems (telephone lines and cable), that's probably tax enough. For now, Congress is right to continue the moratorium.

It is the third tax issue that is the most difficult. This is whether to allow states to force online retailers to collect and remit sales tax for online sales. The Supreme Court has held that states can force only businesses with a physical presence in the state to collect taxes for that state. This doesn't mean (as most of us like to tell ourselves) that the state can't tax its residents for purchases made on the Internet elsewhere. States can and many do tax their residents for out-of-state Internet purchases just as they tax them for out-of-state mail-order purchases. The problem is that most people don't report or pay that tax. Thus most of that revenue is lost - Napsterized - and increasingly so as more taxable activities move to the Web.

The states could get around this Supreme Court opinion with help from Congress. And that's the hard issue Congress is struggling with now. In the long run, online and offline transactions should be treated the same. So why not move to the long run today? What reason is there for Congress to go slow in enabling states to tax online sales?

Most in Congress think the reason is complexity - that state taxes are too complex to administer nationally. But this is a confusion. State taxes are complex, but computers can deal with complexity. It's vagueness or imprecision that makes state taxes hard. If state tax codes were clearer, computer code could enforce them quite effectively.

The harder issue - so far forgotten in this debate - is privacy. In real space, stores collect sales tax without necessarily collecting personal information. That's because there's "cash" in real space, and cash is a privacy-enhancing technology. However, in cyberspace there's no good equivalent yet to cash - early experiments with cybercash have run dry, and the infrastructure for privacy-enhancing trust is not yet well-developed.

If Congress enables states to push online retailers to collect taxes now, then Congress is permitting states to push online retailers to gather identities, too - for without identities, as things are now, you can't tell who owes what state what. Identification technologies are relatively few and, in important respects, crude. So far the technologies are essentially all or nothing - if I must certify that I am from California, I must also certify my name and address and yada yada yada.

Many don't see the problem in a perfectly matched universe - where there's a record with an identity attached to every particular transaction. Maybe there isn't. But the technology of authentication could do better from privacy's perspective. Certification technologies could enable me to certify to an online distributor of music that I am a resident of California without certifying everything else about me. These technologies, however, have not been widely deployed. If states push retailers at the current stage of development, then the government is most likely to simply stifle further progress. Retailers alone have little interest in gathering less data (data for them is money); intervening now might therefore lock in an inferior technology.

Conceivably state governments could help push technologies of authentication that don't invade privacy. They could create incentives, for example, for systems that collect taxes without necessarily collecting personal data. But I wouldn't bet your privacy on it. It is better to go as Congress is going - slowly and carefully. A tax-enabled cyberspace just now would be the death knell for privacy for a long time to come.