Three-person startup not sure which state to incorporate in

There will probably be little difference. You should check with someone who knows (such as an attorney) to see which state (a) has the fewest ongoing restrictions, (b) has cheaper initial and annual fees, and (c) is more likely to be attractive to investors in the future. I doubt if there is much difference overall.

Considering some of the other answers on this page, I'm editing mine to make it more comprehensive.

The conventional wisdom is: "Delaware, because that's what everyone else does" and that statement does seem to hold some water.

Here's the wikipedia article on Delaware Corporate Law http://en.wikipedia.org/wiki/Delaware_General_Corporation_Law

A line from the article:

Delaware is well known as a corporate haven. Over 50% of U.S. publicly-traded corporations and 60% of the Fortune 500 companies are incorporated in that state.

and here is a writeup from the Delaware Department of State - Division of Corporations http://corp.delaware.gov/whycorporations_web.pdf

Excerpt:

Why do corporations choose Delaware? I think the answer is not one thing but a number of things. It includes the Delaware General Corporation Law which is one of the most advanced and flexible corporation statutes in the nation. It includes the Delaware courts and, in particular, Delaware’s highly respected corporations court, the Court of Chancery. It includes the state legislature which takes seriously its role in keeping the corporation statute and other business laws current. It includes the Secretary of State’s Office which thinks and acts more like one of the corporations it administers than a government bureaucracy

One of the other posters brought up a point about California, for example, requiring you to register in CA regardless of where you incorporate if you are doing "repeated and successive transactions" in CA. For you this is particularly relevant with one of your co-founders who you say does most of your transactions living in CA.

So, to summarize, the answer to your question of "Is there a best practice for this sort of thing?" is:

Yes, figure out if there is a reason to not incorporate in Delaware and if you cannot find a good enough reason, then go with Delaware.

There are many different ways to rank states in terms of business-friendliness, and many companies publish such lists. Here's one from CNBC: America's Top States For Business - 2010

You'll have to determine your own criteria based on what you plan to do in both the short term and in the long term.

--Edit

Since this list is actually mostly about locating your business in a state the particular sublist that you might be most interested in, assuming you're not moving to that state but simply incorporating, is this: Business Friendliness - 2010. Which suggests Deleware is the place to be.

You stated that the CA-based founder handles most of the transactions. If those constitute "repeated and successive transactions" within CA, then if you incorporate elsewhere you also will have to register the corporation to do business in CA as a foreign corporation. This would mean double up-front and ongoing fees, so you might as well incorporate in CA to pay only one set of fees. For more information, please see Doing Business in CA? Be Sure to Register.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.