In your store's Admin area, go to the System > Localization > Locations
Custom-defined groups or portions of a country. For example, create a custom Location to charge local, province, and federal tax, OR charge less for shipping to your province + the provinces that surround you.
Locations are not in geo meaning. You must create juristic Locations to set up the tax rates in the countries and regions to which you will be selling and shipping your products
