80/20 Companies: Dispelling Common Misconceptions

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80/20 Companies: Dispelling Common Misconceptions

September 22, 2026

United States
United States
United States
Tax Notes State

Building on our prior Tax Notes State article that examined the history, purpose and policy rationale behind 80/20 company rules, Partners Jeff Friedman and Ted Friedman, and Associate Stephanie Terinoni, revisit the topic in this installment of “A Pinch of SALT,” taking a closer look at 80/20 companies and challenging several common misconceptions about their role in state water’s-edge combined reporting.

The authors explore how these rules operate in practice and examine recurring criticisms involving combined group membership, profit shifting and the mechanics of the underlying tests.

Ultimately, the authors conclude that 80/20 company rules remain an important feature of state tax systems, helping ensure combined reporting reflects business substance rather than form while balancing states’ taxing authority with constitutional constraints.

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jefffriedman@eversheds-sutherland.com

Jeffrey A. Friedman

Partner

Washington, DC, United States

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Ted W. Friedman

Partner

New York, United States

StephanieTerinoni@eversheds-sutherland.com

Stephanie N. Terinoni

Associate

Washington, DC, United States

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