1T-TaS$_2$ undergoes successive phase transitions upon cooling and eventually enters an insulating state of mysterious origin. Some consider this state to be a band insulator with interlayer stacking order, yet others attribute it to Mott physics that support a quantum spin liquid state.Here, we determine the electronic and structural properties of 1T-TaS$_2$ using angle-resolved photoemission spectroscopy and X-Ray diffraction. At low temperatures, the 2$pi$/2c-periodic band dispersion, along with half-integer-indexed diffraction peaks along the c axis, unambiguously indicates that the ground state of 1T-TaS$_2$ is a band insulator with interlayer dimerization. Upon heating, however, the system undergoes a transition into a Mott insulating state, which only exists in a narrow temperature window. Our results refute the idea of searching for quantum magnetism in 1T-TaS$_2$ only at low temperatures, and highlight the competition between on-site Coulomb repulsion and interlayer hopping as a crucial aspect for understanding the materials electronic properties.
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