All devices have the ability to make items or sales transactions tax exempt - "not taxed"
Tax Exempt:
Tax Exempt applies to an item that is normally taxed but during this sales transaction needs to not be taxed, such as B2B, etc. These are items that are subject to Tax but the customer was exempt from paying taxes so tax was not collected. Typically this is not an item level decision but a customer or transaction level decision. All items with a tax code applied to them will show up in the tax exempt calculation.
If you create items with a sale code and then make them tax exempt at the point of sale, they display on the Sales Tax Settlement Report as Tax Exempt.
Items without a Tax Code:
This is different from tax exempt and are items such as services, repairs or non taxable food items. Non taxable would be an item level decision, the item is not subject to tax so none was collected. These items should not have a tax code placed on them, as they are never taxed.
If you create non-taxable items without a tax code, they display on the Sales Tax Settlement Report as NON TAXABLE.
If you create a tax code for these items (such as "Not Taxed with a tax rate of 0%), the system will classify them as a taxable item albeit 0%. If you are ringing up tax exempt items, it will list those items that were in transactions that were exempt from taxes.