California BMX and MTB company Haro was one of the companies to sign up for the anti-tax campaign started by Sacramento-based lobbying firm Capitol Advocates.
This firm wanted to amend Assembly Bill 1103 and remove the wording that would have levied the tax and created a Bicycle Recycling and Disposal Department.
The bill was widely viewed by consumers, retailers and manufacturers as a back door tax on bicycles that would have created unnecessary bureaucracy and hurt bicycle sales and participation in cycling.
Democrat Karnette has now backed down, despite lobbying for her idea in newspapers and industry publications.
Pete Skoda said: "We are delighted that Assemblywoman Karnette has recognized that government should encourage, not curtail healthy lifestyles.
Karnette said she was pro-bike but wanted to find ways of stopping 250 000 bikes a year ending up on landfills.
"I really am interested in reusing and recycling bikes, and everything else for that matter. The next generation will have to be more concerned with this than mine. Landfills are filling up. The air is getting worse. Recycling is the way to do it," she told Bicycle Retailer in March.
"I really want to push getting people out of their cars, or if they don't have cars, I want to give them a bike," Karnette said.
"I want people to sell bikes. The more people that ride bikes, whether they're new or used or whatever, the better for all of us," she said.