Magento analyzes the shopping cart of each customer and calculates the appropriate tax according to the class of the customer, the class of the products in the shopping cart, and the region (as defined by the customer’s shipping address, billing address or shipping origin).
Every product and customer is assigned a tax class. Tax classes, in turn, are used to define tax rules. Tax rules are a combination of a customer tax class, product tax class, and tax rates. The basic types of tax classes are: