More online retailers have joined Amazon.com’s boycott of Rhode Island as the companies try to stamp out efforts to tax Internet sales.

Online diamond and jewelry retailer Blue Nile Inc. and discounter Overstock.com both said they have terminated contracts with Rhode Island advertising affiliates over legislation enacted to tax online sales.

What has been dubbed the “Amazon tax” –– became law Wednesday as part of Rhode Island’s state budget –– and also has been proposed by a handful of cash-strapped states. The law will force Rhode Islanders to pay a 7-percent sales tax for Internet purchases from out-of-state companies, such as Amazon.com, that have formal business relationships in the Ocean State.

The states are following in the footsteps of New York, which in 2008 enacted legislation intended to get around a federal prohibition on taxing Internet sales.

Under federal law, states cannot require a seller to collect sales tax on sales made to buyers in that state unless that seller has a physical presence in the state.

Online retailers have used that law to their advantage for years –– to the dismay of traditional retailers.

“Their business model is based on tax avoidance,” said Oren Teicher, chief executive officer of the American Booksellers Association. “Nobody should be given a 6-, 7-, 8-, 9-percent advantage. It’s a question of fairness.”

The moves by Blue Nile (NILE:NASDAQ) and Overstock.com (OSTK:NASDAQ) come after similar actions by Amazon (AMZN:NASDAQ) here and in North Carolina. The companies are seeking to avoid efforts by states to force them to collect sales tax by classifying them as a retailer with a physical presence in a state through their work with locally based affiliates.

Similar tax plans have been voted down in Maryland, Minnesota and Tennessee. Both sides are fighting hardest in California, “the 1,000-pound gorilla in this,” said Teicher.

But Rhode Island’s decision “will begin to influence the national debate,” he said.

In an e-mail Wednesday to The Journal, Blue Nile said it notified companies “that we are terminating our relationship with all Rhode Island affiliates, effective immediately. This is a result of the tax collection legislation passed by the Rhode Island state legislature, and expected to become law.”

Overstock said Wednesday it sent notices to affiliate advertisers in Rhode Island and three other states as it battles what it considers an “end-run” around U.S. Supreme Court decisions that a company must have a physical presence in a state before the government can enforce sales tax collections.

Amazon notified its affiliates earlier this week about its decision to sever formal ties with them.

Overstock.com similarly canceled contracts in May 2008 with more than 3,400 New York affiliates and sued that state when it enacted the first Internet advertising law. The suit is still pending.

The effect of the laws will be to force the closure of Internet ad businesses located in the states that pass such sales-tax laws, according to an Overstock executive.

“In the end, the only thing to be accomplished by these laws will be to put more local citizens out of work — exactly the wrong choice in a down economy,” said Jonathan Johnson, Overstock’s president in a statement released Wednesday.

The National Retail Federation is among the supporters of a long-running sales-tax simplification effort at the federal level. Backers of the effort are concerned that the New York law’s emphasis on the physical presence of a business could undermine efforts to make physical presence a moot point.

“While NRF sees this as an interesting approach, New York’s expansion of their physical presence definition of nexus to include ‘affiliates’ ... is a short-cut attempt to generate revenue that provides no protections for sales-tax collectors,” the NRF said in a position paper.

pgrimald@projo.com