Lydell Corporation currently operates in two states, P and Q. State P has a 5 percent tax rate and uses an equally weighted three-factor apportionment formula. State Q has a 9 percent tax rate and uses an apportionment formula that double-weights the sales factor. For the current year, Lydells state taxable income before apportionment was $1,500,000. Following is information regarding Lydells current activity within each state:

		State P		State Q		Total
Sales		$3,000,000		$2,000,000		$5,000,000
Payroll		1,000,000		500,000		1,500,000
Average property		1,200,000		800,000		2,000,000

Lydell is considering expanding its operations by constructing a new production facility. The facility would increase Lydells total property and payroll by $1 million and $400,000, respectively. The company projects that, as a result of the new facility, total sales would increase by $800,000, of which half of these new sales would be to customers in State P and half would be to customers in State Q. Total net income would increase by $300,000. Solely on the basis of state income tax considerations, in which state would you recommend Lydell locate the new facility?

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