With all votes tallied, Proposition K was struck down by nearly 55 percent of voters. The measure was part of a package supported by Newsom to close the city’s budget gap.

“I’m in a state of shock,” says Gwen Kaplan, owner of Ace Mailing and part of the coalition of local proprietors who vocally opposed the bill. “Big business and government [usually] win against small business. I don’t know when we’ve ever won like this.”

Proposition K would have established a 0.1 percent tax on gross-receipts for city businesses taking in $500,000 or more annually. The mayor submitted the measure, in conjunction with Proposition J, a 0.25 percent hike in sales tax, to help assuage the city’s $352 million budget deficit. Proposition J was similarly defeated. The two measures would have generated as much as $20 million annually, the controller estimates, and substituted losses from a portion of the city’s tax structure overturned in court in 2001.

After a lawsuit by 52 large corporations, businesses went from paying either a payroll or gross-receipts tax, whichever was higher, to only paying payroll tax. If Proposition K passed, they would have paid both.

“Paying that off has nothing to do with us,” says Kaplan, past president of the San Francisco Small Business Commission.

Sharon Gadberry, president of San Francisco’s chapter of the National Association of Women Business Owners, says the tax’s $500,000 cutoff point was “arbitrary. It’s not necessarily a breaking point in the curve,” but rather cuts through a wide-ranging cluster of businesses around that level.

Two weeks ago, in response to the proposition’s unfavorable polling, Supervisor Sean Elsbernd carried legislation that would give rebates to businesses grossing up to $2 million. But the Board had not voted on the amendment by Election Day, and its potential alone did little to placate opponents.

“No one wants to raise taxes,” says Eric Jaye, a consultant to the committee supporting the measures. Proponents stressed that City Hall has already cut pay to top officials, eliminated more than 1,000 jobs and free parking for city employees. The new tax revenue, Jaye says, would have worked in concert with these other efforts. “It’s hardly an overwhelming burden on one side,” he says.

An aide to District 9 Supervisor Tom Ammiano, who like all 11 of his colleagues supported Proposition K, calls the measure “the only other alternative to cutting services.” (A third ballot measure, Proposition O, would earmark the new revenue for services like fire prevention and homeless outreach. It is non-binding.)

If Proposition K passed, the cost of doing business in San Francisco would have risen even higher above those in surrounding municipalities. A study commissioned by the Board of Supervisors illustrates that a mid-sized retailer in San Francisco would have paid 10 times the taxes paid by a similar San Mateo business.

“It’s better to set up your business outside of San Francisco and send sales people in on BART,” says Clifford Waldeck, owner of Waldeck Office Supplies. “It’s hard enough that some of the businesses coming in are nationwide chains with nationwide contracts and nationwide services behind them.”

“If you’re competing with people in other cities,” says Gadberry, “you’re basically dead.”