So.. it turns out commerce cannot apply tax to base shipping rates, see Calculating (Product + Shipping) + Tax? previously asked on stack.
I then tried setting the tax to a "Per Item Rate" to 99 and the "Maximum Total Shipping Cost" to 99, which I don't want exceeded no matter what. At first this seemed to work fine with a test product (price 5,-), however that was until I increased the qty to 2. The shipping cost for the cart stays at 99, however the shipping cost of the product doubles, which in this case also doubles the cart tax (20.8 to 41.6). This makes no sense to me.
I have attached a video demonstrating what I mean (I get the same result in the demo templates that come with commerce). See video: watch directly on Google Drive
We are just a week away from launch, and I just discovered this issue. Stressing out right now.
Thank you to anyone who can help enlighten me.