What is the primary characteristic of use tax?

The primary characteristic of use tax is that it is charged on goods purchased out of state and used within the state. This tax serves to complement sales tax and is typically imposed on items for which the buyer did not pay sales tax at the time of purchase. The use tax ensures that local businesses are not disadvantaged compared to out-of-state vendors since it helps to level the playing field by taxing goods used within the jurisdiction where they are consumed.

When a consumer buys an item in a different state, they might not pay that state's sales tax, leading to a potential revenue loss for their home state. The use tax is assessed to capture that revenue, ensuring that individuals and businesses contribute fairly to the funding of local services and infrastructure, just as they would if they had purchased the item locally.

In contrast, other options do not accurately represent the nature of use tax. For instance, use tax is not primarily concerned with income levels or collected only by local governments. It also does not apply exclusively to online purchases, as it covers a broader range of out-of-state goods and services. Understanding the application and purpose of use tax helps clarify its role in state and local tax systems.