What does a use tax apply to?

A use tax is designed to complement sales tax and is generally levied on goods that are purchased out-of-state and brought into a state for use, storage, or consumption. This tax is imposed by states to prevent residents from avoiding sales tax by purchasing items in a location where the tax rate is lower or where no sales tax applies. The primary purpose of the use tax is to ensure that in-state businesses are not disadvantaged by out-of-state competitors who might sell goods without the added burden of sales tax.

When an individual or business acquires goods in another state and then uses those goods in their own state, they are usually required to pay the use tax equivalent to the sales tax they would have paid had the goods been purchased locally. This ensures a level playing field for in-state retailers and helps maintain state revenue.

Other choices do not accurately describe the scenario where a use tax applies. Goods purchased within the state typically include sales tax in the purchase price, so they would not be subjected to use tax. Tax deductions and income from foreign sources concern different aspects of taxation that do not relate directly to the concept of use taxes.