By Christopher Swope

October 21 is a much-talked-about date on Capitol Hill these days, and suddenly it is little more than two months away. That is the date when the infamous moratorium on taxing Internet access expires. And while the moratorium never had much to do with sales taxes, October 21 is widely seen as a deadline for resolving the sticky tax issues surrounding e-commerce.

By now, the arguments are familiar. State and local governments say they’ll lose billions if Congress doesn’t give them the power to collect sales and use taxes on e-commerce. They are allied with Main Street retailers who want a “level playing field” with their dot-com competitors. E-tailers like Amazon counter that sales taxes would crush their nascent industry. And both sides agree that the current system, with some 7,600 jurisdictions setting their own sales tax rules, is unworkable.

The e-commerce tax debate, however, is about much more than all this. Fundamentally, it is a question of whether American federalism works in the Internet age. Can long-cherished concepts of state sovereignty and local control be made to work in a borderless global economy? Or should the federal government set standards to prevent 50 states and thousands of localities from strangling business with a messy patchwork of taxes and regulations? Today the issue is sales taxes. But as Jonathan Walters wrote recently in Governing, the Internet economy threatens the state and local role in all sorts of industries, from banking to insurance to telecommunications.

On a gut level, it is easy to say that the Internet requires uniformity and that, for better or worse, only the feds can provide it. By that logic, Congress should either establish a national sales tax or rule out sales taxes on e-commerce altogether.

State and local officials, however, aren’t going to get rolled over so fast. The “Big Seven” associations have done an exceptional job of educating their members on this complex subject. I attended one conference where thousands of foot-stomping mayors and council members hooted through a session on Internet taxes. They understand that it’s not only revenue at stake, but their very relevance to the American system of government.

Even more encouraging is the remarkable effort underway to streamline the sales tax system. Revenue officials from 38 states are pounding out simplified sales tax rules. The goal is to create uniformity across state and local boundaries, thus making sales taxes more compatible with e-commerce. Given the difficulty of the task, they are moving at astounding speed. Twenty-one state legislatures have already passed laws aimed at simplification. They hope to prove to Congress that state and local governments are not only still relevant but adaptable to the fast-moving Internet age.

The Streamlined Sales Tax Project, as it is known, has a way to go. And there are many reasons to doubt that dozens of states and thousands of local governments could ever agree on anything — let alone something so touchy as taxes. The anti-tax dogma of several governors, including Jim Gilmore of Virginia and George Pataki of New York, has kept those states out of the dialogue.

But if the sales tax project is successful, it could serve as a model for cooperation in other areas where the Internet threatens state sovereignty and local control. That would only make our system of federalism stronger. Congress should keep this in mind over the next two months as it considers the e-commerce tax issue. State and local governments deserve a chance to try to save themselves from the Internet. If they fail, they will have only themselves to blame.

Christopher Swope is a staff writer for Governing.

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