Standards for seismic assessment and retrofitting of buildings provide deformation limit states for structural members and connections. However, in order to perform fully consistent performance-based seismic analyses of soil-structure systems; deformation limit states must also be available for foundations that are vulnerable to nonlinear actions. Because such limit states have never been established in the past, a laboratory testing program was conducted to study the rotational capacity of small-scale foundation models under combined axial load and moment. Fourteen displacement-controlled monotonic and cyclic tests were performed using a cohesionless soil contained in a <TEX>$2.0{\times}2.0{\times}1.2m$</TEX> container box. It was found that the foundation models exhibited a stable hysteretic behavior for imposed rotations exceeding 0.06 rad and that the measured foundation moment capacity complied well with Meyerhof's equivalent width concept. Simplified code-based soil-structure analyses of an 8-story building under an array of strong ground motions were also conducted to preliminary evaluate the implication of finite rotational capacity of vulnerable foundations. It was found that for the same soil as that of the experimental program foundations would have a deformation capacity that far exceeds the imposed rotational demands under the lateral load resisting members so yielding of the soil may constitute a reliable source of energy dissipation for the system.