The taxation rules that come with Drupal Commerce out of the box calculate VAT or sales tax for each line item without any conditions, so every item in the order is taxed. This works for many situations but if you have items which need to be tax exempt you're in trouble. But there is a relatively painless way around it using some rules and fields.

To start with create a new field on your product entity called Tax Exempt. Set it to be a Boolean, single on/off checkbox.

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