Major Tax Problem, I have read a dozen post with no luck...

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you have set Ky up as the national zone, and not chosen US then sub zone Ky.

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Alot of people are getting confused by this. They rename the FL default tax zone to the state they want to create, which is fine. B ut on the "Tax Zones" screen, you must also click "Details" and select both the country and the state that zone uses. The section in under "Details" is what links the system to the "Customer Address" in the database for taxation purposes.

Hope this helps.....