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Navigate to Content Management -> Taxonomy-> Add Vocabulary.
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Name your vocabulary.
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Provide a description and help text.
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Select the content type to which the vocabulary will apply.
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Decide whether Tags will be used. (Free tagging)
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Decide if there can be multiple selects in the vocabulary.
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Decide if the category is required.
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Navigate to Content Management -> Taxonomy-> List
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Select your vocabulary and begin to add terms.

