The abrupt reversal enraged some supporters of the "head" tax, who argued that wealthy corporations in the city can afford to pay more to address homelessness. The measure, passed unanimously by the city council last month, levied a US$275-per-employee tax on companies with at least US$20m in gross annual revenue.
Seattle's council voted 7 to 2 to repeal the tax. 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.
"The people who are being disruptive are being disruptive because they are angry," said Tae Phoenix, one of the activists.
"The system is not working for them, and disrupting it is the only thing they can do. They are desperate, and they are angry, and they have a right to be."
Tax experts say the reversal underscores the limited leverage that cities across the country have over corporations such as Amazon, which helped wage an intense public relations campaign to turn the public against the tax. (Amazon chief executive Jeff Bezos owns The Washington Post.)
"There's a bargaining power problem here, and cities are on the wrong side of it," said Matthew Gardner, a tax policy analyst at the Institute on Taxation and Economic Policy, a left-leaning think tank.
"When Amazon decides to be bullies and make this kind of threat, it's really hard for officials to know how seriously to take it. Nobody on Seattle's city council wants to be the one who chased Amazon out of town."
A spokesman for Amazon declined to comment.
The tax was scheduled to go into effect in 2019 and hit almost 600 businesses, said Louise Chernin of the Greater Seattle Business Association, a business group that helped fight the tax along with the Seattle Metropolitan Chamber of Commerce.
Critics accused Seattle officials of bending to pressure from Amazon, but Chernin stressed broad opposition to the proposal from across the city's business community.
Republicans in the Washington legislature also said they were preparing legislation to strike down Seattle's head tax.
Washington's state government is narrowly controlled by Democrats, but at least one moderate Democrat in the legislature also opposed the head tax, calling it bad for the party's brand.
About two-thirds of the new revenue from the tax would be directed toward housing in the city. Most of the rest would help fund homeless services, including emergency shelters.
The city council approved the tax despite months of public feuding between local officials and businesses. Seattle officials initially pitched a US$500-per-employee tax on large businesses. In a show of opposition, Amazon stopped construction on a new tower in the city.
The online retail giant also criticized the final tax package when it was passed, saying in a statement that the company was "very apprehensive about the future created by the council's hostile approach and rhetoric."
Seattle's business community launched a campaign to repeal the tax by putting it to the voters through a ballot referendum. Starbucks and Amazon each kicked in US$25,000 for the effort, and supermarket groups put in US$80,000, according to the Seattle Times.
"Repeal makes sense," John Kelly, a spokesman for Starbucks, said in an email. "Together we must work to bring families inside, once and for all."
In a statement, Mayor Durkan and seven council members vowed to continue searching for a solution for the homelessness problem. But to the mayor's progressive critics, Durkan gave up the fight too soon.
"I have a news flash for council members who capitulated to this in lightning speed: This was never going to be easy in the face of mass corporate misinformation," Kshama Sawant, a council member and a member of Socialist Alternative, a socialist political party, said in an interview. "It's a complete betrayal of working people."
Seattle tried raising money last year by passing an income tax on its wealthiest residents. But that measure was struck down by the courts as illegal under state law, according to Richard Auxier, an analyst at the nonpartisan Tax Policy Center.
"There's nothing but political tough decisions for cities trying to raise money," Auxier said. "A lot of localities are in a tough spot because states have limited their options."
The number of homeless people in the county surrounding Seattle has jumped by 4 per cent, to 12,112, according to a Seattle Times report from May, while housing prices in the city have continued to soar. The city declared a state of emergency over its homeless population in 2015.
O'Brien, the council member, said that he did not have an immediate plan for how to address the city housing shortage but that the risks of losing the ballot fight were too great.
He noted that opponents of the head tax had "unlimited resources" to spend on advertising and voter mobilisation, and he feared moderate Democrats in the state legislature would join Republicans to outlaw the tax hike even if it survived a ballot challenge.
"I was thinking there's a decent likelihood we spend millions of dollars beating each other up, and months from now have no new revenue and a homeless problem we haven't even begun to work on," O'Brien said in an interview Monday night.
"It's a very uncomfortable position to be in. But when I sit down and close my eyes, I think we're better off stepping back."
