Under Proposition 39, businesses would calculate their taxes on in-state sales alone.

California law allows out-of-state businesses to choose between basing their taxes on in-state sales, or on in-state sales, employment and property combined. Businesses that hire people and build factories outside of California have mostly chosen the latter to cut down on their tax expenditures.  California-based biotech firm Genentech opened an office in Oregon to prove a point that multistate businesses that focus their operations outside of California end up reducing their tax burden.

Proponents of Proposition 39 argue that the current system discourages local investment and churns less revenue for the state. They want businesses to calculate their taxes on in-state sales alone. The state would then direct the increased revenue towards schools and making public buildings more energy efficient.

The Los Angeles Times endorsed the measure back in September:

Opponents complain that Proposition 39 increases taxes on "job creators," but the reality is just the opposite. The measure eliminates an indefensible tax break that encourages multistate companies to create jobs elsewhere. The Times urges a yes vote. 

Some detractors of the initiative say the measure will kill jobs by placing a $1 billion strain on some corporations. Others applaud the move but disagree with how the money will be used. From the San Francisco Chronicle:

The last thing voters in a state with such dire fiscal problems should be doing is locking in more than $500 million a year in spending for a program that is undeniably worthy - but not necessarily the highest priority. Californians should consider whether that revenue would be better spent on education, public safety, parks, foster care or myriad other priorities that have been cut severely - and may be facing even deeper cuts if the two tax measures (Props. 30, 38) fail in November.

Venture-capitalist Thomas Steyer has spent $22 million on promoting the initiative.

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