I have already logged this but the issue has not yet been answered and is causing confusion for my users.
When you set the option to apply tax to shipping only to items that are not tax exempt it is being ignored on the cart page and is displaying tax on all items even if they are tax exempt. When you come to the Confirm page you can see that the tax is not being applied to the tax exempt items and is not being charged. This problem is only a display issue on the view cart page but I am getting people askign why they are going to be charged tax and I have to explain that they are not. Please can someone look at this. Thanks.
http://www.smith-consulting.com/forums/forumid/1/threadid/3112/scope/posts.aspx