Affiliates earn money by using their Web sites to link customers to online sellers like Amazon.
Amazon told affiliates in an e-mail on Monday it would no longer pay them advertising fees because of the new law.
"I got that e-mail and I couldn't believe it," Heidi Murphy, an Amazon associate, said.
The law says online retailers have to start collecting state sales tax themselves or send annual notices to customers telling them to pay the tax.
The Colorado Retail Council reiterated support for the bill on Monday, stressing the new law is not a new tax.
"Every Coloradan who buys an item from an online merchant like Amazon.com already, under current law, owes the tax on that item," Colorado Retail Council President Christopher Howes stated in a release. "Our Colorado Retail Council members collect the sales tax for the government and firmly believe that Internet retailers should too. The General Assembly set these tax laws long ago - we are just playing by the rules. It's a matter of fairness."
Amazon says the law is cumbersome and no other state has similar rules.
"Amazon came here and they met with the very people that passed this bill, and they said, 'if you want to do something constitutional, we're here with you, but you're not, so we're going to be forced, unfortunately to have to end our relationship,'" Rep. Amy Stephens (R-Monument) said.
Affiliates feared the tax would hurt them and lawmakers changed the bill to try to prevent them from being harmed.
"When you pursue tax policy that punishes, this is an outcome of it," Stephens said.
Gov. Bill Ritter (D-Colo.) issued the following statement after Amazon's decision:
"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.
"My office worked closely with Amazon's affiliates and associates to modify House Bill 1193 to specifically protect small businesses, avoid job losses and provide a fair, level playing field for on-line retailers and Main Street, brick-and-mortar retail shops alike.
"Amazon's position is unfortunate, and Coloradans certainly deserve better."
ProgressNow Colorado, an online progressive advocacy organization, also issued a statement Monday, saying Amazon appeared determined to protect its "unfair advantage" over local brick-and-mortar retailers.
"Local companies like the Tattered Cover Bookstore and Ultimate Electronics, who employ thousands of Colorado residents and pay their sales taxes back into the community, have suffered greatly while Amazon profited from an unfair advantage," Bobby Clark, the executive director of ProgressNow Colorado, stated in the release. "With millions of dollars in badly-needed revenue set to make its way into the budgets for Colorado's schools, roads and health care, standing behind Main Street over online behemoths like Amazon is an easy choice."
Clark says Amazon tried to "make an example" of Colorado for political gain.
(KUSA-TV © 2010 Multimedia Holdings Corporation with The Associated Press)