CA taxed multinational entities on their world wide income based on a three factor formula of payroll, property, and sales. Based on that formula, that percentage was applied to world wide income and tax computed on that percentage. The entire world wide income was not taxed by CA. When water's edge was put in place, then all taxation stopped "at the edge of the water". So, multinationals simply raised the cost of good sold sky high so that their CA entities never showed a dime of profit and *bingo* no CA taxes.
Thats for that concise explanation of the california multinational taxing scheme.