Taxes are defined based on Global Regions. To create a new tax rate:
Define a Region under Global Settings > Global Regions
Enter the region name
Select the state
Select "Use for Tax Calculations"
Save the settings
Then select it in the Tax Rates editor and specify a percentage:
Global Settings>Tax Rates
Any orders shipped into that Global Region will be taxed at your specified rate.
Troubleshooting Tip: If you have two global regions with the same state your tax may not get charged correctly at all times. The correct way to set this up is to assign a sort order to the region you want it to pick up. Example: If you have two regions setup '48 United States' and 'Texas' - Texas falls under both regions. When you set up Texas tax rates - to correctly charge taxes for Texas add a higher sort order to 'Texas' in the region area than '48 United States'. Setting a higher sort order for the exact region you want taxes applied to will apply the tax to that region.
Any products marked as Non-Taxable in the Product Editor will not be taxed.
Troubleshooting Tip: If after setting up the global regions and tax rates the shopping cart does not calculate the taxes, confirm that the product is not set to non-taxable. You can check this in the Product Editor under the General tab.
Tax on Shipping
Shipping that is charged for taxable items is itself taxable. If some items in the order are non-taxable, tax is only applied to the percentage of the shipping that is equal to the dollar amount percentage of the taxable items in the total order amount.
An order is placed with 2 items, one costing $10 which is taxable, and one costing $5 which is not taxable. The taxable amount of the total order is 66%. Tax will be applied to 66% of the shipping.