In 1979 Jason Korman, a George Washington University student, wheeled a fruit-and-nut cart onto a downtown sidewalk and joined the fraternity of vendors who, when weather permits, turn many blocks of the city into bazaars.

Trading as The Corner Gourmet, he soon put more carts on the street, added croissants to his menu, and teamed up with another entrepreneur, Nick Tillman. Their business flourished--they have contracted with Swenson's to sell its ice cream and they now hawk their food on the sidewalks of New York as well--and they expect to reach $1 million in sales this year.

The Corner Gourmet may be more successful than most, but there's no doubt that vendors have become a significant retailing force in Washington. The District has issued 5,700 vendors' licenses for the year that started with April, up from 3,500 the previous year, though not all the vendors are on the street at the same time. Some vendors work part-time, others only for specific events where they expect crowds.

But their growing presence has raised the ire of city merchants, who complain that vendors represent unfair competition, get a free ride on the city's sidewalks, and that the range of products sold on the street has gone far beyond the original concept of vending in Washington.

The controversy has given rise to proposals that would eliminate some street vendors entirely and sharply increase fees and sidewalk space limitations on others. The plan, drafted by a mayoral task force, has the backing of the Greater Washington Board of Trade, which says it represents 1,500 city businesses.

The proposed rules would allow vendors to sell only cut flowers, food that can be eaten on the spot and handmade merchandise. This would eliminate vendors who sell such merchandise as luggage, factory-made clothes, leather goods and books.

Vendors, who now pay a $15 annual fee--$25 if they sell food--would be required to pay a biennial license fee of $250, which includes a sales tax prepayment of $200. (The Board of Trade contends most vendors do not collect and pass on to the city its sales tax; vendors say compliance is no worse than that by regular retailers.)

In addition, vendors would have to start paying--$750 a year--for the sidewalk space they occupy.

The proposal would eliminate all vending in Georgetown, on Capitol Hill and in other spots considered by vendors to be prime locations.

The number of sidewalk vending spaces, which are already specifically defined on city rule books, would be reduced. Each space would be assigned to a vendor by a yearly lottery or by an auction.

Even vendors who would not be banned under the plan are skeptical about whether they could stay in business if it becomes law. Corner Gourmet president Tillman said he would have to make "some very, very close calculations" on a decision to stay or go.

"I rent in the District of Columbia over 4,000 square feet for offices and cart storage," said Tillman. "We provide work for over 30 people. We have a total investment of $38,000 in bringing his operation up to code."

Referring to his business' contribution to the city, he added, "If it hadn't been for that first cart, we wouldn't have the need to rent buildings, license our vehicles, pay sales tax, income tax."

The task force drawing up the proposals includes seven representatives from the D.C. police department; nine from other D.C. government departments; one each from the Metropolitan Washington Board of Trade, and from business associations representing merchants from Adams Morgan and the D.C. Armory; two from Georgetown business and citizens' associations, and seven vendors.

Task force chairman Ellis Mitchell, an assistant director in the D.C. Office of Business and Economic Development, said the proposals--which have not been made public officially--still must go to the City Council and through its various committees before being submitted to the mayor's office for final approval.

With their livelihoods on the line, vendors are beginning to mount opposition to the proposed regulations.

One informal vendors' association has drafted a petition stating that vendors should have the right to sell any merchandise in the "traditionally acknowledged retail areas" of the city. Vending spaces, the petition says, should be assigned on a first-come, first-served basis, and vendors should not have to pay sales taxes in advance.

The petition also says that "vendors shall assert their position as legitimate businesses with the same rights and responsibilities as any business." This clause, one vendor said, refers in part to the need for customers to be able to return faulty merchandise for a refund or exchange.

In an effort to strike a compromise on fees, the group that drew up the petition agreed that the cost of a vending license could be raised to $150 a year.

The vendors who are aware of the task force proposals, and many of them are not, said the fees and space limitations would make it impossible for many to operate.

"The $750 fee would put a lot of people out of business," said Will Connor, a vendor who sells jewelry from a stand near the intersection of Connecticut Avenue and K Street NW. "It would be very difficult for people without capital to start. It will not only hurt the entrepreneurs but the consumers also."

"To charge $750 for Connecticut and L and $750 for some back-street location, or even for a mid-block location, is ridiculous," added vendor Jim Borland. (Vendors say corner locations attract more business.) Borland, who has a law degree, has been selling rare prints and books from a street wagon for more than six years.

"First-come, first-served is a very pure way to do it," maintained Bill Griffiths, who imports cottons and woolens from South America and said he probably would not be able to vend under the proposed regulations.

In testimony before the D.C. User Charge Review Committee, which reviews all fees charged by the city, the Board of Trade contended that "vendors should rent, on an annual basis, the public space they use" and that $750 is a "fair and reasonable" yearly rental fee which translates into $30 per square foot--"if you assume that a vendor will use his sidewalk space for six months out of the year."

"There should be parity in treatment," said Peggy Wall, manager of the Board of Trade's community development bureau. "Thirty dollars translates into approximately what small retailers are paying--for fixed space in the new downtown where our offices are [1129 20th St. NW]."

In arguing its case before the task force, the Board of Trade has stressed its view that vendors provide unfair competition to conventional merchants. It urged that "vendors should not be permitted to sell their merchandise within 100 feet of any fixed-location business selling similar merchandise." City merchants say they shouldn't be forced to compete with vendors' low prices because a store's overhead costs--mortgage or rent, property taxes, workers' compensation and sales taxes--must be reflected in the price of its merchandise.

The Board of Trade maintains that "the original thrust of vending in the District of Columbia was to provide a business opportunity for District residents to offer unique goods and services to the consumer. The full range of merchandise offered by street vendors. . . far exceeds this original concept of vending."

Vendors say they, too, have overhead, even though it may not be recognizable to a store manager. Griffiths said the overhead for his wholesale importing business consists of air freight, international cables, the cost of vans and downtown parking, accounting charges, business cards and rain and cold weather gear.

"We don't have as much overhead but we don't have the same advantages" as a fixed-location business, said Connecticut Avenue vendor Ulla Duncan, whose jewelry, which she makes from semi-precious stones, is also sold in a shop in Bethesda. "It's a lot easier to sell a $200 item in a store than on the street."

Vendors say weather is their major overhead expense. Some weeks, vending is possible only for two or three days, which becomes a crucial factor during the Christmas season.

"We've got snow, sleet, rain and birds--'over head,' " said Connor.

A central issue in the debate is the question of whether vendors pay their fair share of sales taxes. The Board of Trade says most vendors don't collect the sales tax and the vendors say they do. City officials say they don't know, according to task force chairman Mitchell.

The city relies on an honor system in collecting sales taxes from vendors, who are required to declare their total sales and then pay tax on that amount.

"That's one of the weaknesses of the system. There is no system that can adequately record what's happening in the streets," Mitchell said.

The D.C. Department of Finance and Revenue has an 11-person "investigation and delinquent collection" unit charged with overseeing vendors' compliance with tax laws. Dan Jackson, chief of the division, said vendors' tax records are checked each year during license renewal.

"It's not an automatic renewal," Jackson said. "We do an annual follow-up and compliance investigation checks."

Jackson said the government doesn't have the resources to go out on the streets and collect sales tax from vendors, even though the unit's staff conducts periodic spot-checks of vendors' licenses, a function also regularly performed by D.C. policemen assigned to enforce vending laws.

Vendors say they are no different from other businessmen, that most of them are law-abiding citizens who pay their taxes and some aren't. Several said they would welcome an audit by the D.C. government, if only to refute the idea that all street vendors are tax evaders.

Several of the large-scale vendors, who own fleets of vending carts and are subject to closer scrutiny from the city tax collectors, also said they resent the implications by the Board of Trade and the task force that they are tax evaders.

Joe Wozney, who, as president of Chipwich a la Carte of Washington, maintains all of the company's records on local sales tax, said he has heard "nothing at all yet about sales tax record review" from the D.C. government.

Wozney added that if the proposed fees are enacted "we'd about have to leave Washington. This year we had 20 days of rain within 30 days, starting about on Memorial Day. There's no way a guy with perishable goods could make it. If he had to pay a $250 fee and then pay for his spot on top of that, it's prohibitive. And then he might not even get a good spot. . . . Financially, it would be disastrous to most of us."

Some vendors view the task force and its purpose with suspicion and resentment, and complain the panel is keeping them in the dark about its program.

"It's very unfortunate in the formulations of legislation that the parties involved cannot get any information," said the Corner Gourmet's Tillman. "How can you base an argument on hearsay? We have a lawyer, but it's a very frustrating thing when you cannot get the information necessary."

Many vendors also say they are mystified about the identify of the vendors sitting on the task force, and how they were appointed to it.

Task force chairman Mitchell said the police assigned to "the vending beat" picked the vendors named to the task force. But he said those vendors told the task force that they have been unable to organize their colleagues "because a lot of the vendors really don't want to pay taxes, they don't want any regulation."

One vendor who objected to the method of selecting vendors for the task force complained that "those vendors on the panel with inside information will get a break" under the new regulations.

But James W. Taylor, one of the vendors appointed to the task force, complains of a lack of cooperation by his colleagues on the panel. "A whole lot of vendors haven't been attending from day one, or they dropped out of the picture in the last half of the meetings," he said. "I asked that someone be nominated in their place. Nothing happened."

Taylor says nonattendance puts the vendors in the minority on key issues. "When it came down to voting on fees , we were outnumbered."

"Most vendors have no idea what's transpiring," said Will Connor. "A group of people have gotten together and are deciding the fate of a much larger group of people. The task force is trying to destroy us."

"Street vending is basic free enterprise, where a person uses his own labor, his own capital," said Borland, whose books-and-rare print business would be banned under the proposals.

"I started on a winter afternoon on Connecticut Avenue with a folding picnic table and 10 boxes of prints," he said. "This is probably the last way a person can start his own business unless he's inherits some money."