Tax % on a state is the default sales-tax percentage for orders delivered to, or picked up in, that state.

• For delivery orders the cart first looks at the matching zip-code entry: if its Tax Percentage is -1 (the default) the state's Tax % is used; any other value on the zip code overrides the state rate.
• For pickup orders the tax rate of the state the pickup location belongs to is used.
• Whether the delivery fee itself is taxed is controlled separately by Client Config > Business: Payment > Charge taxes on delivery?.

If you have enabled a custom tax system (TTR) for the state, an address-resolved rate can replace this default (see the Tax Calculation System questions).