I would recommend a set of database tables and joins.
Example:
- Jurisdiction: list of states, counties, countries, cities, etc.
- Product: obvious
- Store: list of locations you sell from
- StoreJurisdiction(StoreID, JurisdictionID): the list of Jurisdictions the store is
responsible to collect taxes for
- ProductTaxCode(ProductID int, TaxCodeID int): the type of product for the purposes of taxes: basic, luxury, etc.
- JurisdictionTaxCodeRate(JurisdictionID, TaxCodeID, InterestRate, RateType): for each applicable combination of Jurisdiction and Tax Code, provide the tax rate to be applied, and the type of rate (compound, simple, etc.).
To find the list of taxes to apply, all you need is an INNER JOIN of the store, its jurisdictions, the jurisdictiontaxcoderates for those Jurisdictions, and the product's tax codes.
You could define ProductTaxCode as a View so all products receive a default TaxCode unless a special one is provided. By abstracting TaxCode, you can have the same metadata about a product ("Food" for instance) apply to different regions in different ways. If a particular jurisdiction has its own definition of "food", you just add a jurisdiction-specific code and apply it to products as needed.
This may require some tweaking for Internet purchases, wholesale purchases, and other situations where the sale is somehow exempt from taxes or the customer is responsible for remitting them. It would also need tweaking for situations where the customer's location, rather than the store, decides the tax rate.
Other tweaks: here in Texas, for instance, we have a "tax-free" weekend where state and local taxes are not collected on some classes of products where the individual item's sale price is less than $100. The idea is to provide cheaper school supplies, clothing, etc. for children heading off to school for a new year. This sort of tweak could be implemented by having a date range table for each JurisdictionTaxCodeRate going off in the future as far as they can be planned.