This paper examines how corporate taxation of multijurisdictional firms using formula apportionment affects the incentives faced by individual firms and individual states. Under formula apportionment, a firm's tax payments to a given state depend on its total profits nationally (or internationally) times an average of the fractions of the firm's total property, payroll, and sales located in that state. This apportionment of a firm's total profits among states, based on three separate factors, in effect creates three separate taxes, each with complicated incentive effects. A large part of our analysis is concerned with the component of the tax tied to the allocation of property. Under this tax, price distortions differ in general among firms within the same state, creating incentives for firms producing in different states to merge their operations. State tax policies are also affected by this apportionment formula: states choose inefficiently low tax rates and are encouraged to shift to direct taxation of property. The component of the tax based on payroll creates many similar incentives. With this tax, however, the marger of firms producing different goods is discouraged.When a sales component to the tax is added, there are incentives for the cross-hauling of output, with production in low tax rates states sold in high tax rate states, and conversely. None of the above distortions are created when the corporate tax uses separate accounting to divide a firm's profits among states. The final section presents an alternative apportionment formula which retains the administrative advantages of existing law, yet creates the same incentives as separate accounting as long as there are no economic profits.