Then I'm guessing that everything is working and it's the shipping method that's causing the sales tax calculation. Was the shipping method a 'pickup' method or a 'delivery' method. Also, how have you designated the customer as 'non-taxable'? Normally, this is done via the tax schedule assigned to the customer. If you are using the shipping method to determine the tax schedule, however, only delivery methods will respect the schedule. Click on the blue expansion arrow next to Item Number and check the shipping method. If it is a delivery shipping method, the 'Ship to Tax Schedule ID should be showing'. If it is a pickup delivery method, the Site tax ID will be showing. This tax schedule is probably providing your sales tax.
Kind regards,
Leslie