You can sell virtually anything on the streets of downtown Washington without a license and never have to worry about paying sales taxes. Impossible, you say?

Just assemble the trappings of a street vendor, set up a stand on the sidewalk, sell your wares, pocket the receipts and pay no sales taxes. Nobody in the District government will be the wiser.

In fact, you don't have to set up a stand. It's possible to be part of Washington's street vendor industry by selling from your hip pocket, or from the bare pavement. It happens every day right under the noses of D.C. government officials, much to the consternation of retail store operators.

The agencies responsible for regulating and policing vendors are too understaffed, too indifferent or too incompetent to alter the pattern. And all the while, the city is losing millions of dollars in uncollected sales taxes and license fees.

If you want to see a form of economic development encouraged by benign neglect, take a tour of any of the streets in the heart of downtown Washington. There on the sidewalks, which have been transformed into bazaars, is the fastest growing segment of commerce in the city.

Not only is the city being ripped off by licensed street vendors; the competition has been joined by heist artists and gypsy merchants who ply their wares on the sidewalks.

A case in point was visible for all to see this past Tuesday at one of the city's busiest intersections, on the corner of Connecticut Avenue and L Street NW. In the only spot left vacant by 15 vendors along the curb between K and L streets NW, a young woman was seen spreading clear plastic bags on the sidewalk. Closer examination of the display showed that each bag contained several prints and posters.

Between sales of what quickly turned into a brisk business, the young woman confessed, at first reluctantly and in halting English, that she had not received permission to sell the merchandise and that she was not collecting sales taxes.

What's more, she said, there was no need for a stand because "we won't be here very long."

Alas, she and a friend were on their way to Florida, having stopped to sell their merchandise on the streets of New York and Philadelphia, before coming to Washington, the woman continued. And where is the base of operations for this pair of traveling salespersons?

"Israel. We make money for vacation," said the woman, who identified herself only as Schlovit.

Encircling the block in which she worked that afternoon were 26 other street vendors, selling everything from apparel and framed prints to plants and popcorn.

Retailers have made it clear that they don't want the competition and that they believe street vendors should be severely restricted in what they are permitted to sell. So much for competition and the free enterprise system.

Retailers and other business leaders have a valid point, nonetheless, in calling for a better system of licensing and collecting taxes from street vendors who occupy rent-free public space. For whatever reason, city officials are slow to comprehend the real issue in the debate over street-vendor operations.

In the final analysis, the D.C. government and taxpayers--not merchants--are the losers when officials fail to tap a rapidly expanding source of revenue.

D.C. City Councilman H.R. Crawford concedes that agencies responsible for policing the industry aren't doing it. But it will take more than a public rebuke to recoup taxes that many vendors fail to pay.

Despite licensing nearly 7,600 street vendors last year, the District collected only $168,000 in sales taxes from the industry. Fully one-third of that was paid by one company, identified by D.C. Councilmember Charlene Drew Jarvis as an ice cream vendor.

In the meantime, nobody in city government has a clue as to how much a vendor makes, although one vendor admitted to Jarvis that he made $50,000 last year.

Two task forces organized by city officials to study the street vendors issue have failed to come up with recommendations for legislation in more than a year. Annoyed by this inaction, Jarvis promises to introduce her own bill if no recommendations are received by September.

The task force ought to consider the following as a starter: Vendors should be required to pay a flat annual fee of $500 or more, depending on the size of their operations. They should be required to display valid licenses and be subject to loss of those licenses for failure to report sales and income on a regular basis.

Meanwhile, to alleviate congestion, city officials should consider an expansion of the areas in which vendors are permitted to operate.