Top executives like having their headquarters in Los Angeles. They say they enjoy the fine weather and the celebrity glam. But expansions? New plants? They say put ’em in Nevada or someplace else where taxes are lower and regulations are lighter.

That’s why the single-sales factor of taxation that the state Legislature recently passed is important. It kills a lot of the incentive for businesses to site their expansions and new plants in other states.

As reported in the Business Journal last week, the current formula makes each company pay state taxes based not only on the amount of sales the company makes in California, but also on the payroll and the value of the property in the state. The new formula eventually eliminates the tax on the payroll and the property, relying instead on in-state sales. That means a company could add a string of plants and double its employee count in California and theoretically pay no additional state tax.

In short, the Legislature told businesses to come on in, the water’s fine.

Aside from the unreasonable business haters who apparently want to hector the private sector out of California, some people argue reasonably that the single-sales system is unfair because new plants and employees will cause more demand for government services and assets without new taxes to pay for the increased needs. The counterargument is, basically, chill out; if there really are new plants and employees, governments will get plenty of new revenue from all the other ways they tax income, property, transactions and movement.

Regardless, there’s a different reason California passed this tax break for businesses in a year when the state is desperate to get new tax income: competition. In 2005, only seven states had the single-sales factor. By last year, that had grown to 14 and reportedly 22 states soon will have it. In a couple of years, probably most states will have it because it’s quickly getting to the point where any state that doesn’t will be at a severe competitive disadvantage in economic development.

In a country where most states offer the new system, any state that adopts it isn’t likely to see an influx of business. But any state that doesn’t is likely to see a good deal of its business base drain away.

So the only apparent upside for California in adopting the single-sales formula is that it soon will be at no great competitive disadvantage.

But in this state, that’s a victory. And that makes it important.