When you use profile based tax eStore simply tells PayPal that apply the profile based tax for this transaction when the customer lands on PayPal checkout page. It doesn’t tell PayPal how to apply profile based tax (paypal has its own rules to determine that). The issue is that PayPal do not have a flag for items to be marked as digital product. So if you have a mixture of physical and digital items in the cart then PayPal gets confused.
Simply ask PayPal the following question:
I don’t want to charge tax for digital products when I checkout physical and digital products together in one checkout. How can I make it so that the tax is only charged on physical products?
If they have a way then I can accommodate it in eStore.