1) Click on "Manage Inventory" under the 'Inventory' heading of the Control Panel.
2) Search for your item by it's Item ID (or Author / Title)
3) Scroll down to the 'Search Results' and click the 'Edit' link under your item.
4) Click on the 'Pricing' tab.
5) In the drop down menu next to 'Tax Exempt' select 'Yes'.
6) When you are finished editing your item, scroll down and click the 'Save Changes' button to finalize.