Create Tax Groups which define which tax rates are applicable to customers in given group. The Tax Shipping flag signifies which tax group should be applied to shipping for billing purposes. Only one group may be designated for shipping at a time.
For example, lets say we have two taxes. We have a Good’s and Services Tax (GST) and a State/Provincial Sales Tax (PST/SRB). Local customers are charged both taxes. Out of state/province customers, or those with special PST exemption, are only charged GST. International/out of country customers pay no taxes. Freight, on the other hand, can only be charged GST as it is exempt from our state/provincial tax.