Yes, the local taxing districts seriously want their money. Each and every one of them (there are around 100 or so in this state). Since this is an Internet transaction, the rate depends on the location of the consumer. If you are buying something at a phyiscal store, they add their local tax into the purchase price right there. Online, it's determined by where *you* live (or rather, where the credit card registered on Google is).
The way Google has set it up, the developer is responsible for sending in the correct tax to the State. Google technically doesn't collect the tax - they just pass it along. The developer has to account for it, and send in the money and itemize where it should apply. That is, I have to record how much I sold to customers in each of those little tax districts, apply their local rate, and add this in with the State's base rate.
It's a real pain for the small developer, but it only applies in some cases. I don't sell apps outside the U.S., because I'd have to calculate and remit VAT in many countries, and that's just too expensive.