After setting up the tax types and rates in the account owner's settings, we now have to add the tax types to our inventory and custom items. Note that you do not have to add different regions to every inventory item, just the tax type. We'll then auto-calculate based on the regions you set up within that tax type. You can read more about setting taxes up properly here.
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To add a Tax Type to an inventory item, you want to edit the item, then scroll to the bottom and add a tax type that you or the account admin has already defined in your account settings. Select the tax type from the drop-down menu, click add, then save and you are good to go!
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Once you have added a tax to the inventory item, every time you add that item to a contract, the tax will automatically be calculated for the location of the exchange of goods on that project.

(NOTE: The tax location depends on logistics. If there is delivery on the project, the goods are exchanged at the venue. If there is an in-store pickup, the Tax rates will be your headquarters location).

For instance, if the venue and logistics for my event are set at the USC Capital Campus in Washington D.C. then when I add the leather sofa to the event, the Sales tax will automatically be set for Washington D.C.

If I change the drop-off and pickup location in logistics, the sales tax will automatically change as well. If I pick a location with no specific city sales tax set, but a state tax is set, then the software will default to the state tax for that Tax Type. For instance, I do not have a specific Sales Tax rate for Roanoke, VA so the software will default to VA Sales Tax. 

You can add multiple Tax Types to a single item in inventory, but the software will default to the last added tax type when making calculations. The tax type can be switched for a contract by editing the line item inside the project and selecting the desired tax type. 

Lastly, there is no default tax type for custom items or packages so if you create a custom item and wish to put a tax on it, you must select or remove a tax type.

For a quick review of different tax types, check out the video below.