There is a Qur’ānic verse (9:29) that states that we should fight the Ahli-Kitāb (the People of the Book) until they pay the Jizyah tax. Does this mean that we should keep fighting them or only when they refuse to pay Jizyah to the Islamic state?
Neither of your inferences are correct. Since this verse and other verses of similar meaning have a specific context and background, I’ll try to explain this context, which, hopefully, will bring out the true purport of this verse:
It is evident from the Qur’ān (2:62) that the basic truths for which man shall be held accountable on the Day of Judgement are:
1. Belief in the One and Only God.
2. Belief that a person shall be held accountable on the day of judgement.
3. Belief that this accountability shall be based on the deeds a person does in this world.
The Almighty selects and sends certain personalities called Prophets (Rusul) to elucidate and explain these basic truths to their respective people. With His special help and assistance, they remove misconceptions which may surround these concepts and vehemently say that if people do not accept these truths they shall be doomed in this world and in the Hereafter too. People who knowingly deny these truths are punished in various degrees so that this whole episode can become an argument for the reward and punishment that is going to take place on similar grounds in the Hereafter.
The Prophet Muhammad (sws) too, like the previous Prophets (sws), explained these truths in their ultimate form through the special help of the Almighty. When it became evident that his addressees were deliberately denying him, they were punished in varying degrees to prove to mankind for the last time that a similar court of justice shall be set up on the Day of Judgement, and that the reward and punishment given by the Almighty through His Prophets (sws) to their addressees in their collective capacity in this world would be given to all the people who deny such basic truths. The idolaters were given the options of accepting faith or death and the People of the Book were given the options of accepting faith or remaining subservient and paying Jizyah, a tax imposed on them. This difference seems to stem from the fact that the idolaters subscribed to polytheism even after being convinced about its baselessness, while the People of the Book were basically monotheistic though were involved in certain polytheistic practices.
It is evident from this thesis that 9:29 specifically relates to the Prophet’ addressees. It is not directly related to us. After the departure of the Prophets of Allah, no Muslim preacher can deliver the truth in its ultimate form and neither has he any means to know if his addressees are knowingly denying him. Therefore, today Muslims cannot wage war on the non-Muslims of the world to forcibly make them accept faith. They must keep on presenting Islam to them in a polite and humble manner. Only the Prophet (sws) and his companions had this authority since it was actually the Almighty who had delivered the truth in its ultimate form through him and his addressees knowingly denied the truth.
Today the Muslims fail to realize this difference and insist on doing something which is the prerogative of only the Prophets of Allah and their companions.