Making the Internet a tax-free zone seemed the right idea in Congress 14 months ago. The Senate voted 96-2 for a three-year moratorium on any new taxes on electronic commerce, and the House agreed by voice vote. Congress also created a national advisory commission whose members, Congressional Republicans expected, would recommend a permanent ban on taxing Internet sales.

Things are not turning out that way. As the commission begins its final meeting today in Dallas, it will almost certainly fail to reach a consensus about what national policy to recommend.

To the surprise of the antitax forces who thought they had control of the commission, two-thirds of the 19 commissioners have come out in favor of a level playing field, meaning that if an item is subject to sales tax it should be taxed whether the item is sold at a store, on the telephone, by mail order or over the Internet. And these 14 commissioners, six from business and eight from government at various levels, also agree that as a prelude to this, sales taxes should be radically streamlined to make it efficient and easy to administer.

But despite this agreement on principles, there appears to be virtually no prospect that the 14 commissioners will get together to recommend applying sales taxes to the Internet.

In a conference call on Thursday with Gov. James Gilmore 3rd of Virginia, the commission's chairman and a staunch foe of taxes, the six business representatives on the commission were persuaded to agree to a plan whose practical effect would be to delay any sales taxes on Internet transactions until at least 2006. And if that happens, all sides agree, the antitax policy wins by default because so much commerce will have moved to the Internet by then that imposing sales taxes would be a political impossibility.

Maintaining the status quo means that a growing volume of sales on the Internet will be untaxed, creating a competitive advantage for some businesses. According to Gov. Mike Leavitt of Utah, a Republican member of the commission who favors applying sales taxes without regard to how goods are sold, the status quo would also mean a declining tax base to finance police, fire departments, schools and other basic services provided by state and local governments.

If sales tax receipts fall, Governor Leavitt said, those states with income taxes will have to raise rates. And local governments will have to raise property taxes.

Outside of the six business members of the commission, representing America Online, AT&T, Gateway, MCI WorldCom, Charles Schwab, and Time Warner, there is wide support in the business community for a level playing field for sales taxes. Business groups including the United States Chamber of Commerce and the hastily formed E-Fairness Coalition, whose 1.4 million member companies employ one of every five American workers, and individual companies like Wal-Mart Stores and Circuit City, argue emphatically that sales taxes must not be tied to how products are sold.

Many of these businesses now sell over the Internet. But those that operate nationally must collect taxes on Internet sales in every state in which they have a traditional store. By contrast, under current rules an e-commerce company like Amazon.com, which has its operations in the state of Washington, is not required to collect sales taxes in states where it has no physical presence.

Steven M. Case, chief executive of America Online, which has a seat on the commission, favors a level playing field. "It is wrong for the Internet to be a tax haven," Mr. Case said during a meeting with reporters and editors in New York recently."But it's equally wrong for catalog sales to be a tax haven."

Not surprisingly, every major organization of state and local officials also opposes exempting purchases over the Internet from sales taxes, the largest single source of revenue for these governments.

But the commission's business members and eight of its government representatives differ on how the transition to taxing Internet sales should be made. The business members sought ironclad assurances that the sales tax system would be simplified first and only then would goods sold over the Internet, by telephone and by mail order be subject to taxes. The government representatives wanted a 13-month plan to write new rules to simplify the sales tax system, followed by quick Congressional action to authorize taxation of sales that cross state lines.

A proposal to resolve the differences between the two sides was worked out in recent weeks between David Pottruck, president and co-chief executive of Charles Schwab, and Utah's Governor Leavitt.

During a protracted conference call on Thursday, Mr. Pottruck tried to sell this plan to the other five business members of the commission. "I was trying to get a little bit more of a moderate position" on how to make the transition to taxing Internet sales work, Mr. Pottruck said Saturday.

But the commissioners could not agree, so they called Governor Gilmore to advise him of their discussions. According to four people who listened to all or part of the conversation, Governor Gilmore said that while he agreed with the need to simplify sales taxes, he did not believe that position led inevitably to taxation of Internet sales. And Governor Gilmore said he would not support any plan favoring any tax expansion.

The governor then offered his own proposal, which called for streamlined sales taxes, but put off until 2006 any further action on applying sales taxes to Internet sales. Governor Gilmore "did a masterful job" of steering the business members away from joining forces with Governor Leavitt's camp, Mr. Pottruck said.

If Governor Gilmore delivers the five antitax votes tomorrow to join a proposal by the six business members to streamline existing sales taxes and defer their application to the Internet, a new issue will arise. The law that created the advisory commission requires a two-thirds vote to make policy recommendations. That means 13 votes on the 19-member commission, not the 11 votes Governor Gilmore has lined up. But Governor Gilmore plans to ignore that requirement, his aides said. He will release an opinion from the commission's general counsel saying it can sidestep that rule by issuing a report rather than making a formal recommendation.

Letters urging the commission to do just that were issued Friday by Senator Trent Lott of Mississippi, the Senate Republican leader, and Representative Dick Armey of Texas, the House Republican leader, who said that a simple majority was sufficient so long as the majority position would make the Internet tax free,the policy they had favored from the start.

This high-level involvement shows how Internet taxes are becoming an important political issue. Governor George W. Bush of Texas, the presumptive Republican presidential candidate, supports the current three-year moratorium on Internet sales taxes, and Governor Gilmore is considered a potential running mate on the Republican ticket.

Vice President Al Gore, in contrast, says he favors a level playing field for retailers regardless of how they sell their goods. Grover Norquist, an antitax member of the commission who as president of Americans for Tax Reform has been the Republicans' chief strategist on tax issues in the past decade, said he was advising the Bush campaign to refer to Internet sales taxes as "the Al Gore tax."

Governor Leavitt said exempting the Internet and other remote sales from taxation would create a situation that neither governments or business could tolerate. If Internet sales remain untaxed, he said, he expects business executives and business owners will "beseige Capitol Hill with one phrase on their lips-- level playing field."