From the Store Settings dropdown, click "Tax Settings".

Generally in the United States you only charge tax on an order if your warehouse is in the same state as the customer's ShipTo address. The default setting assumes you wish to collect tax for California residents only, at 8.35%. You may modify/add states as you wish.

You may also edit any individual customer's record to allow certain customers to be tax exempt by editing the "PaysStateTax" field in the "Customers" table. For example, if you have a customer that is buying for a non-profit/educational/government group/reseller.

You may also specify some products as tax exempt by setting the "Taxable Product" field of the product to "N". For example, if you sell a standard American flag, you cannot charge tax on it.