Hello @Petlicious!
Currently this is not possible on Square Point of Sale. Right now discounts are applied before taxes, so if you discount a bag 100% the tax won't calculate.
If the bags are priced the same you could create an item called BOGO Sales Tax and add that to the sale. It's a little hacky, but you'll still be able to collect the Sales Tax and it would be categorized so you could reconcile your books.
