In your store's Admin area, go to the System > Localization > Tax Class > Edit class
Tax Rates can be added only within some Tax Class.
When specifying the tax rate, you will see the following screen
|Location||select specific Location (New Location can be added in the System > Localization > Locations)|
|Location's zone||If this rate will only apply to a specific state (or other Location's Zone designation) uncheck 'all location zones' and then locate the state (or Location Zone).|
(New Zones can be added in the System > Localization > Zones)
|Description||Description of the Tax Rate. You can define this as anything you like.|
|Tax Rate||Tax rate can be set to either PERCENTAGE or ABSOLUTE AMOUNT in store's default currency. You can designate this under the drop-down menu.|
|Tax Apply Condition||Apply this tax only if, taxed amount (product, shipping, subtotal, etc.) is corresponds to condition.|
|Exempt Groups||Select Customer's Groups to exempt this rate.|
|Priority||Set the priority of the tax rate. This will determine which tax rate will be used if tax rate location overlap other.|
Be sure to make test purchases with a fake customer account from each Locations to be sure tax is set up correctly! Put a product in cart, and try to change the delivery address to a different state or country.