Supplies, Inc. does business in Georgia (6% tax rate) and Alabama (5% tax rate). All other factors being equal, the company will reduce state taxes if it increases the compensation paid to its employees in Alabama. Assume apportionment formula modeled after the Uniform Division of Income for Tax Purposes Act (UDITPA).

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Under UDITPA, a company's state taxable income is apportioned based on a formula that considers its sales, property, and payroll in each state. Therefore, if Supplies, Inc. increases the compensation paid to its employees in Alabama, this will increase its payroll in Alabama and result in a lower apportionment of income to Georgia, where the tax rate is higher. This will effectively reduce state taxes for the company.