California, like several other states, applies the unitary method of taxation to firms doing business within the state. Under the unitary method, a state determines the tax on a company's worldwide profit through a formula based on the share of the company's sales, assets, and payroll falling within the state. In California's case, the share of worldwide profit taxed is calculated as the average of these three factors.
a. What are the predictable corporate responses to the unitary tax?
b. What economic motives might help explain why Oregon, Florida, and several other states have eliminated their unitary tax schemes?