Did some more searching and solved the problem:

this post put me on the right track
http://www.zen-cart.com/forum/showthread.php?t=135737

For me, it was the zones not set up properly. Then realised I only had one of my zones configured for tax (I had one zone for GST that I thought was set to all sub-zones but what I was supposed to do was set up the tax rates separately for each sub zone). When I went through these properly, it worked correctly.

When I set this up, I went through the tutorial really carefully but this stuff is really tricky to get right.

cheers
Leah

Sorry to Congerman for hijacking the thread - sure Dr Byte's suggestion will work for you even though it wasnt the best option for me.