Pepsi Tax Case Shows Why 80/20 Exclusion Is a Bad Idea for States
In this article, Senior Counsel Bruce Fort explains how the use of the “80/20” company exclusion from several states’ water’s edge combined filing group enables taxpayers to shift domestic income to a non-combined entity. In PepsiCo v. Illinois, Ill. Cir. Ct., No. 2022TX000155, the state is challenging the “80/20” status of PepsiCo’s subsidiary on economic substance grounds. Fort hopes the litigation will shed light on an unnecessary and unwarranted carve-out from the scope of domestic unitary filing requirements. Minnesota, Vermont and New Mexico, have eliminated their 80/20 company exceptions; another 14 states retain the provision.