For sites that need to base the tax applied to products on the destination country or state within a country.
For this option of tax calculation we base the tax applied to all products based on the shipping destination country or state. For this reason the customer will not fully be aware of the tax applied to the product until the customer provides a shipping country or state. This can be at the final stages of the checkout procedure. If the tax setting is inclusive then this shouldn't pose an issue for the customer.
It is mandatory for order processing if a country has states then a state must be selected to proceed with order. If a state is contained in a country then only the state tax will be used.
The selection of countries or states that generate the tax rate are directly connected to the approved countries and states you ship to so the customer can only select a destination country or state that you actually ship to. It is at this point we assign a tax rate.