By GEOFFREY A. FOWLER
Amazon.com Inc. pulled the plug on its marketing affiliates in Colorado after the state enacted a law that imposes new sales-tax regulations on online retailers.

Over the weekend, Amazon sent an email to members of its associates program, which earn a fee for providing links to the online retailer on their own Web sites. In the email, Amazon informed them that it was ending its business with them as of March.

It wasn’t immediately clear why Amazon chose to retaliate by dropping affiliates because affiliates aren’t named as a part of the Colorado law. Affiliates have been part of similar sales-tax collection laws imposed by other states.

In its email to affiliates, Amazon said, “as a result of the new law, we have decided to stop advertising through associates based in Colorado.” The Seattle retailer said it would continue to sell to Colorado residents and advertise through other channels.

Collecting sales tax for online purchases is a hot-button issue for many cash-strapped states. Federal law prevents states from requiring out-of-state retailers to collect sales tax on purchases if they don’t have a physical presence in the state.

Last month, Colorado’s governor signed into law a regulation that requires online retailers to either collect sales tax or share information with the state about all of the purchases made by residents, ostensibly so that it can require those citizens to pay so-called use tax on the purchases.

In its email to affiliates, Amazon said the regulations were “burdensome, and no other state has similar rules.” It added “they are clearly intended to increase the compliance burden to a point where online retailers will be induced to ‘voluntarily’ collect Colorado sales tax—a course we won’t take.”

In a statement, Colorado Gov. Bill Ritter said, “Amazon has taken a disappointing – and completely unjustified – step of ending its relationship with associates. While Amazon is blaming a new state law for its action, the fact is that Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process.”

Several other states, including North Carolina and Rhode Island, last year passed laws that declared that the presence of in-state affiliate marketers gave online retailers like Amazon a physical nexus and thus compelled them to collect sales tax. Amazon has called affiliate links “advertisement” and responded to those laws by pulling its affiliate business in the states. Amazon is also fighting a court battle over such a law in New York.

Colorado’s law makes no mention of affiliates or nexus, confusing some in the industry.

“I have no idea why Amazon did this,” said Rebecca Madigan, the founder of the Performance Marketing Alliance, which represents affiliates. “A lot of people are devastated because overnight their affiliate revenue from Amazon has dried up,” she said. As of 2008, the latest data available, she said there were 4,200 affiliates in Colorado, who earned about $37.5 million.

“Is it a political statement? The business community and Amazon are trying to say that there is way too much complexity out there, and the states need to focus on ways to simplify the tax laws,” said Fred Nicely, a tax counsel with the Washington-based Council on State Taxation.

Asked why it made the move against affiliates, an Amazon spokeswoman said, “We advertise through a variety of means, but regrettably, as a result of the new law, we have decided to stop advertising through associates based in Colorado.”

Write to Geoffrey A. Fowler at geoffrey.fowler@wsj.com

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