In version 2.85 the cart didnt have the feature to select the states to tax you will need to upgrade to 3.88 to get that feature. To get the latest tax rates for your locale, in your case New York you will need to download the latest tax rates from your the new york dot gov site and import them to the "Smith_Tax" table. In the version of the cart you have 2.85 you should have a checkbox in the product setup screen called "tax exempt" that will allow you to make select products tax exempt.
-Scott