When I start work on a multi-state S Corp. return I first consider where all the shareholders have abode. This is important because if their state imposes income taxes they will be taxed on their worldwide income. For example, If all the shareholders of an S Corp. live in a high tax state such as CA scheming to apportion income out of CA will provide no income tax benefit since they will be taxed on worldwide income in CA (however, it would lower the franchise taxes paid at the entity level). Many states allow credits for taxes paid to other states to prevent double taxation. In effect, use of these credits will simply allocate the total tax bill not lower it. Therefore, filing in states can eliminate income tax contingencies without increasing over all taxes. Many owners believe filing in another state will caused double taxation and fail to consider credits and income apportionment formulas.