Amazon, Starbucks and others sharply criticized the tax as misguided, and the online retailer even temporarily halted construction planning on a new high-rise building near its Seattle headquarters in protest.
"Hopefully it's not the end of anything", said Seattle City Council President Bruce Harrell.
City leaders wanted the revenue to address the city's growing homelessness and housing problems, but the city's largest businesses spoke up against the tax.
For city leaders, the vote amounts to an embarrassing about-face. First, there was a private poll published last week which revealed that while 88% of Seattle respondents believed homelessness was a very serious problem, 83% were unhappy with how the city council was handling it.
"They've made clear they have the resources to bankroll many more months of nastiness", pro-tax group Working Washington said in a statement. The city had initiated the tax just weeks ago, which imposed a $275 per employee cost on 585 businesses in the city. When the City Council approved the tax on May 14, Amazon issued a sharp rebuke.
"It is a defining moment in the city of Seattle", Gonzalez said, "and it is not a good one".More news: Anti-US consumer boycott? Canadians may find it hard to pull off
Councilmember Lisa Herbold, who voted with the majority, said she felt like crying but was voting to repeal because Seattle Metropolitan Chamber of Commerce has somehow persuaded the "vast majority" of Seattleites to oppose the tax.
Councilwoman Teresa Mosqueda voted against the repeal, saying the lack of a replacement strategy would mean more months of inaction.
But Amazon is one of hundreds of companies that would have been affected by the tax. Many anxious that Amazon and others would leave the city, with construction workers in hard hats and safety packing City Hall to object to the tax.
Ad Lightning CEO Scott Moore.
Angry constituents also shouted down city council members at a public forum, a shocking departure for a city known for its cordial politics.
"The tech industry is highly adaptable", he went on. The vote capped more contentious debate at Seattle City Hall, in which several speakers accused the local government of bending to the whims of Amazon.
"I can't tell you how hard it is for me to say that publicly", he said.More news: Lucas Torreira; Arsenal in talks to sign Uruguay midfielder from Sampdoria
"Every day, we turn clients away because we don't have enough beds and we don't have enough staff to provide long-term case management to clients in the system", Andrew Coak, a member of the task force and case manager at the Downtown Emergency Services Center, said in a statement.
The money would have gone to help Seattle's homeless.
"Quite frankly, it's atrocious what's happening around the city", said Erika Nagy, who is part of the "No Tax On Jobs" campaign. As the city continues to face population increases without a corresponding increase to housing supply, more and more people will be forced out of their homes. An EHT would only have aggravated the situation, but solutions are needed. "However, given available solutions, nobody sees an economically scalable and sustainable solution and that leads to confusion and disagreements".
A divided crowd chanted, jeered and booed at the council meeting, drowning out the leaders as they cast a 7-2 vote.
The repeal came days after a head tax opposition group announced it had collected 45,833 signatures to put a referendum to repeal the measure on the November ballot. Amazon donated $25,000 to that campaign.
It marks the latest Amazon effort against taxes at all levels of government.
It comes as a group formed by funding from numerous city's largest employers and business groups including the downtown chamber opposing the employee hour tax announced over the weekend it had collected more than the needed signatures required to put a repeal initiative on the ballot. "This week, the City Council is moving forward with the consideration of legislation to repeal the current tax on large businesses to address the homelessness crisis".More news: Raccoon scales office tower, captivating public