Confused on how to Setup Tax rates

Do I setup one Geo Zone (for example, all of the USA), and then create a separate Tax Class for each State?

Will Opencart use the shipping address to lookup the Tax Class?

How does Opencart use this information?

You only need to create a tax class for the state(s) you're liable to pay tax for.

Opencart will use the customer's shipping address to determine whether or not they are located in the state(s) you setup a tax class for.