The proposal would have exempted Amazon from collecting sales taxes in South Carolina for five years, if it provided at least 1,249 full-time jobs and health care benefits for employees. Amazon has threatened to stop building a distribution center in Lexington County, and abandon its plans, if it's forced to collect taxes from South Carolina shoppers.
Supporters said South Carolina needed to honor a deal struck last summer with the Commerce Department under former Gov. Mark Sanford.
It would extend a five-year-old break initially put on the books to help win a QVC distribution center, which has expired.
Opponents argued state commerce leaders promised to make their best efforts to extend the break, but did not promise it would happen.
But the head of South Carolina's budget-writing committee said the state gave its word. If South Carolina doesn't deliver on this, future attempts to lure jobs to the state will be put in jeopardy, said House Ways and Means Committee Chairman Dan Cooper, R-Piedmont.
He said South Carolinians don't pay sales taxes now when they shop on Amazon, so there's no loss to the state.
If the company pulls out, state residents still won't pay sales taxes when they order online, Cooper said.
House Majority Leader Kenny Bingham said Haley's comments to voters during her 100-days-in-office tour around the state were too difficult to overcome.
Unless Haley changes her public stance, the proposal is dead, along with the jobs and $60 million annual payroll it brings, said Bingham, a Lexington County Republican.
Haley spokesman Rob Godfrey said Haley's been clear about her stance.
"The people of the state have made it clear they don't want government picking winners and losers or playing favorites among businesses, and today, the House listened to them," he said.
Haley, who represented Lexington County in the House, has said for weeks she did not support the tax break but would let it become law if legislators approved it.
Tea party activists have decried the deal as welfare for corporations. A coalition of small businesses that Wal-Mart helped organize also opposed the break as unfair to them.
On Tuesday, Haley told voters in Aiken she's letting legislators know it's not a good way to do business.
"It would be a slap in the face to businesses like Wal-Mart and to every small business we have," Haley said, according to The Aiken Standard . "If you give in to one business, you're not being smart about it."
Bingham said Haley's own commerce secretary asked legislators to back the proposal, and suggested Haley work with her economic development chief.
"Because of her lack of leadership at the top, there's chaos at the bottom. If she had said she wanted this, this body would've passed it overwhelmingly," said Rep. Todd Rutherford, D-Columbia. "She left her home county out swinging in the wind and didn't even have the temerity to stand up and say this doesn't cost us anything. She let Wal-Mart, the small business killer, drive the debate and say it would hurt small business."
Brian Flynn, the spokesman of the South Carolina Alliance for Main Street Fairness, called the rejection a major victory for small businesses.
"If this amendment had passed it would have resulted in an unfair advantage for Amazon over local, brick-and-mortar businesses that are required to collect the tax at the point of purchase," he said. "Local retailers would become endangered species as they are punished for following the law and collecting sales taxes, while their competitors are given a pass."