Rate factors may or may not be eligible for tax exemptions; it's up to the respective taxing authority. Taxpayers who are eligible for tax exemptions will have their tax obligation reduced (or nullified) at billing time.
Whether or not a taxpayer is tax exempt for a given rate factor (and the percent exempt) is defined on the obligation's tax exemption page. The exemption is effective-dated (i.e., it may change over time). If a taxpayer's eligibility for the exemption changes during a period, the system may or may not prorate the charges. You control exactly how the system handles this situation using the rate factor's proration parameters.
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