Taxes not being calculated

I'm using OpenCart Version 1.5.4. After setting taxes to order #2 and enabling free shipping, it seems the taxes are not being calculated. I have taxes only for a particular state. If I enable flat rate shpping, then taxes are calculate only on the flat rate shipping and not the subtotal of all the orders.

Any ideas if I'm doing something wrong?

Thanks for your help!

Is it fresh install?
Did you change core files?

Did you setup taxes class?

Please provide more information.