To adjust tax settings during checkout, press F5 on your keyboard or select Tax 
on the left panel.
Tax Manual/Auto 
toggles the option to manually add tax or have it added automatically. You can see which is selected on the bottom of the screen:
Item Tax 
shows details on what taxes were applied.
Tax Exempt Item 
removes tax from the item.
Tax Exempt Sale 
removes tax from the entire sale.
- To set up default tax for items in the back end, see Tax Categories.