Tax is complicated!  osCommerce makes it relatively easy to set up, but there are some nuances that you need to be aware of…

I suspect that most stores will want to show prices with taxes included, in other words, show a £99.99 (incl tax), £85.10 (excl tax) as £99.99.  The example assume a UK pounds product, based on a 17.5% tax rate (which is the UK rate of VAT).

Creating  a Tax Zone - let's look at how to set this up.

Step 1:  Create a UK Tax Zone in Locations/Taxes > Tax Zones

Step 2: Insert the UK and all the other countries that you need to charge tax to inside the Tax Zone.  This is done by selecting the Tax Zone you set up in step 1 and pressing "insert".  Select all the countries you need to.

Step 3:  Create a Tax Class - this is usually already done in most osCommerce stores - it's called "Taxable Goods"

Step 4: Set up a 17.5% tax rate and select the Zone you made in Step 1.

Step 5:  If you wish to charge shipping with Tax, you will need to update each shipping module that you use!

Done!  Now you need to update all your products to use the "Tax Class" you just made.  This is done using the dropdown slection near the price input fields.

In Configuration > My Store > Display Prices with Tax, set this to true.  This will show your product prices INCLUSIVE of tax.  This will be done throughout the store, including in the checkout procedure.  This is where many Store owners don't understand the tax calculations…so let's look at an example;

Sub Total:  £450.00
Postage:  £32.00
Tax:  £71.79
Total: £482.00

As you can see, the look of this is all wrong!  The tax amount is NOT 17.5% of the total!  It is actually about 14.9% - this is because all the prices are inclusive of Tax, thus:

Sub Total:  £450.00 (includes tax of £67.02)
Postage:  £32.00 (includes tax of £4.77)
Tax:  £71.79 (is £67.02 + £4.77)
Total: £482.00 (is £450.00 + £32.00)

Now, if we look at setting Configuration > My Store > Display Prices with Tax, to false, the display will look like this:

Sub Total:  £382.98
Postage:  £27.23
Tax:  £71.79
Total: £482.00

This is much easier to understand for the layman - and most people buying from your store really will have no idea how tax is worked out!  However, it's always best to show prices including Tax (unless of course, you have no tax to charge, or you sell business to business).

Conclusion

If you ever have to explain your tax charges to anyone, and you Display Prices with Tax "true", then you need to try to make your buyers understand that the product prices that they see INCLUDE tax and that they should not base any tax implications on the final total that they are charged.