Make sure that all taxable and non-taxable inventory items in the system are flagged properly.
The Inventory Master record for each inventory item in your system contains a "Taxable" flag or field which indicates whether the item is taxable or not. This field must be set up properly for each item in your inventory in order for the system to properly calculate sales taxes. The item taxable flag can be overridden as explained in the next section, but it is the default flag used to determine if tax should be collected when the inventory item is sold.
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Set up Item Tax Categories if required.