I'm attempting to understand how local sales tax is applied. I understand that with Shopify Plus, I have the option to purchase the Avalara plug-in. However, for Basic, Standard and Advanced this is not an option. In these "non-Plus" versions when I setup a state to calculate sales tax, does Shopify automatically apply the state, county, city and district tax rates? Or do I manually need to set up each tax code to apply all the local sales tax?
As I understand it you can turn on the native automated sales tax option in Shopify and it will supply rates but the rates aren't guaranteed to be correct. Because of the wide range of state, county, city and district tax rates, I believe that it would be impossible to set these up yourself. Be prepared for a great deal of work when pulling reports for filing. I have had to pull sales reports and tax reports and have had to find city/county lists to be able to combine all of these to get correct information when filing in various states. The filing requirements are not the same in every state. Some are very simple and some are very complicated.
Shopify helps to automate charging sales taxes, but Shopify doesn't remit or file your taxes for you. We have a great guide to US taxes for anyone new to Shopify. You need to know what your tax liability is for the state where you are operating your business. Your liability depends on where you have a physical nexus or economic nexus, which you need to find out from a local authority or tax expert.
Once you know this, you will need to set up your taxes accordingly. This is basically a question of setting up your tax location:
This applies generic sales tax rules according to your state ID. However, if you need to customize this (by excluding products that you know are exempt from tax, for example) then you can create tax overrides.