The store calculates sales taxes based on the rules you setup in the store's administrative system. However, the store applies those rules differently depending on whether or not Google Checkout is active.

Normal Sales Tax Calculations (when Google Checkout is NOT ACTIVE)
The store always calculate sales taxes based on the Ship To Address for the Customer's order. The normal calculation steps are as follows:

1) The store attempts to calculate and apply sales taxes by the Customer's zip code. If the store finds a sales tax rule that applies, it calculates the sales tax for that zip

code. If the ship to address is not located in the USA, the store skips this calculation.

2) Next, the store attempts to calculate and apply sales taxes by the Customer's ship to State code. If the store finds a sales tax rule that applies, it calculates the sales tax for that State code. The sales tax calculated here is then ADDED to the sales tax calculated, if any, in Step 1 above.

If the ship to address is not in the USA, the store skips this calculation.

3) Finally, the store attempts to calculate and apply sales taxes by the Customer's ship to Country code. If the store finds a sales tax rule that applies, it calculates the sales tax for that country code. The sales tax calculated here is then ADDED to the sales tax calculated, if any, in Steps 1 and 2 above.

Note that the above "normal" sales tax calculations are CUMULATIVE.

Special Sales Tax Calculations When Google Checkout IS ACTIVE
When Google Checkout is active for the store, the sales tax calculations are handled a little differently than normal.

Sales taxes are still based on the Ship To Address for the Customer's order. However, in order to be compatible with Google Checkout, the store's sales tax calculations will be non-cumulative.

The store performs the following steps when Google Checkout is active:

A) The store attempts to calculate and apply sales taxes by the Customer's zip code. If the store finds a sales tax rule that applies, it calculates the sales tax for that zip code and then SKIPS Steps B and C below.

If the ship to address is not located in the USA, the store skips this calculation and continues with Step B.

B) If no sales tax rule applied in Step A, the store then attempts to calculate and apply sales taxes by the Customer's ship to State code. If the store finds a sales tax rule that applies, it calculates the sales tax for that State code and then SKIPS Step C below.

If the ship to address is not in the USA, the store skips this calculation and continues with Step C.

C) If no sales tax rule applied in Step A or B, the store then attempts to calculate and apply sales taxes by the Customer's ship to Country code. If the store finds a sales tax rule that applies, it calculates the sales tax for that Country code.

Note that when Google Checkout is Active, the above sales tax calculations are NOT CUMULATIVE.