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The Hidden SALT Risks of Entity Transition: From UK Seller to US Entity

The Hidden SALT Risks of Entity Transition: From UK Seller to US Entity

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Expanding operations from the UK into the US is an exciting step for many growing companies, but it also introduces unexpected tax complexity. One of the most common, and often overlooked, areas of exposure? Sales and use tax.

When a UK-based business forms a US entity, there’s a natural assumption that the new US company should now handle all American sales and tax filings; but what if the UK company continues to make sales into the US after the US entity is established? Or worse—what if the UK company has been selling into the US for years with no tax filings at all?

These transitional scenarios often raise more questions than answers, and they can create significant risk if not handled correctly.

A Common Scenario: Two Entities, One Confusing Footprint

Consider this typical situation:

  • A UK-based company has been selling software or goods into the US for several years.
  • They’ve recently established a US subsidiary and may even have employees or contractors on the ground.
  • However, US sales are still being made by the UK entity, not the new US entity.

The questions become: Who should have been collecting and remitting US sales tax—and in which states? Is the US entity creating nexus for the UK entity? The answers aren’t always obvious.

Where the Risk Lies

Each US state has its own rules for what creates nexus (the obligation to collect and remit tax), and those rules apply regardless of whether a business is foreign or domestic. If the UK entity is making sales into the US, and it crosses a state’s economic nexus threshold, typically $100,000 in revenue or 200 transactions, it could be required to collect sales tax, even if it has no physical presence.

Once a US entity is established, the company must also ensure that its operations are clearly separated, or that the transition of sales activity is documented and compliant. If the UK entity continues to make US sales, then the UK entity may be obligated to collect sales tax and continue to be exposed to back taxes, penalties and interest.

Key Considerations for UK-Based Companies Entering the US

To reduce risk during an international expansion, businesses should ask:

  • Who is making the sales? Is it the UK company or the US entity?
  • Where are our customers located? Have we triggered economic nexus in any states?
  • Have we reviewed our invoicing and contracts? Do they reflect the correct entity and tax treatment?
  • Are we collecting sales tax where required? Or are we assuming tax doesn’t apply to our services?
  • Do we have the right advisors? Are our UK and US tax teams communicating effectively?

Getting It Right the First Time

Cross-border operations introduce more than just logistical challenges; they carry real tax implications. Sales tax liability often flies under the radar during entity formation and early hiring decisions but catching it too late can be costly.

At Frazier & Deeter, our UK and US offices operate as one unified team, working together to map exposure, align entity structure with tax strategy and avoid costly missteps. Our international clients benefit from true cross-border collaboration, so nothing gets lost in translation.

If you’re expanding across borders, now’s the time to get ahead of your SALT risk. Let’s talk.

Contributors

Brian Strahle, National SALT Practice Leader & Partner, Frazier & Deeter Advisory, LLC

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