Locations sales tax component is used for products sold online in the United States and Canada. Here sales tax is calculated based on the location to which the products are shipped. For instance, products shipped to California attract 7.5% sales tax while products shipped to Florida are charged at 6%. When this tax component is selected, a list of states along with tax percentage for each state must be configured. To configure this, contact support.
Thus, if you are shipping products within the US or Canada, you can pick Location Sales Tax from the component name drop-down menu when creating a tax group.