Product Based Taxation means that you will be able to set a different tax rate for each item in your store. All regions will be taxed at the same rate using this method. If you did not specify product based taxation in the setup wizard, you can access the tax wizard by selecting Tax Options from the Options menu and clicking the Edit button. Follow these instructions to set up Product Based Taxation.
You can navigate forward and back through the wizard using the Next and Back buttons at the bottom of the wizard. You can start the interactive help option at any time by pressing the Help button on each page of the wizard.
Select Product Based Taxation. Click Next to continue.
Select the regions that are taxable by highlighting the name of the region you want to tax and ticking the "Taxable" checkbox.Click Next to continue.
Enter the tax rate that will applied to your shipping charges. This can be used to set the tax rate on the shipping component of the customer's order. Click Next to continue.
You have finished setting up Product Based Taxation. The tax rate for each product can be entered in the tax field on the Inventory tab.