How can I make a particular government customer tax exempt (even though they are in a state that we charge tax in)?
Response:
Create a customer type for non-taxable gov. customers, and uncheck the "tax" box so that this customer will not be taxed, even if the items are taxable and are being sent to a taxable state.
Then be sure to assign this customer type to the customer record(s) to which it applies.
If you are using customer-based pricing remember to update that as well for the new customer type.