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According to Wikipedia article, "Sales tax is usually the responsibility of the merchant to collect and remand to the state". In California, the merchant with a seller's permit typically files a Sales Tax Return and Use Tax Return
Use Tax
In addition to "sales tax", some states have an "use tax" -- the rate are typically the same. If you are a customer in California and buys from a merchant in California, you are charged a "sales tax". If you are a customer in California and buys online from a merchant in another state, California is entitled to collect an "use tax" on your purchase -- according to this article.
Exemptions
Depending on the state, certain products are exempt from sales tax. In California, see "What is Taxable".
In general of California, tangible items are taxed and services are not taxed. But it gets a bit more complicated than that.
Certain "life necessities" such as certain food and prescription drugs are not tax. Wikipedia says "Groceries are not taxed. Ready-to-eat hot foods, whether sold by supermarkets or other vendors, are taxed. Restaurant bills are taxed. As an exception, hot beverages and bakery items are tax-exempt if and only if they are for take-out and are not sold with any other hot food. If consumed on the seller's premises, such items are taxed like restaurant meals. All other food is exempt from sales tax."
Sometime labor can be taxed, see publication 108 When Is Labor Taxable.
For an official detailed list of what is taxed or not in California, see publication 61.
What Tax rate to Use?
You can find the tax rate of various states at Wikipedia or SalesAndUseTax.com.
Note that a state can have different tax rates in different counties of the state. For example, the tax rates within California can be found from the Board of Equalization site. According to publication 73 for California, "If your sales or leases are not subject to a special district tax, you should report tax at the state-wide base rate, which is currently 7.25 percent." (publication dated September 2007). In same publication, it writes "As a seller, you must report and pay the district sales tax (called a transactions tax) or use tax on your taxable sales and leases if you have a business location or are engaged in business within the district."
See publication 71 for specific rates and more detail.
Depending your state's rule, if merchant is in a sales tax district that is a different rate than the state's base rate, then they may have to charge the district sales tax for customers in that district. (For example, California's district sales tax rules are found in Pub105) In that case, you may want to use the ZenCart Local Tax mod to configure this for ZenCart. And in order for ZenCart to determine if a shipping address is within a certain county, it has to know all the zip code of that county (which you input). A good place to find zip codes by county is Melissadata.com or BrainyZip.com
The state of Florida was nice enough to put together this matrix to determine how merchant should collect tax.
Even though each county within a state has different tax rates, it is generally the case that the merchant sends the collected tax to the state who then distributes it to the individual counties.
Setting up Tax in PayPal
In general, the way you would set up tax in PayPal is ...
This will mean that PayPal will charge that tax on the purchase if the shipping address of the purchase is that state entered. Otherwise, no tax is collected.
Information About setting up Taxes in ZenCart
ZenCart Tax Setup Tutorial
Local Tax Mod
http://www.zen-cart.com/forum/showthread.php?t=37081
http://www.zen-cart.com/forum/showthread.php?t=46091
http://www.zen-cart.com/forum/showthread.php?t=88236
References
For more information about California's Sales and Use Tax:
sale and use tax
Tax rate for California counties
Online tutorial
List of Publications by California's Board of Equalization
California Board of Equalization Information Center: (800) 400-7115
