If you're currently using a product rule to add city tax to incoming reservations, you must update the product rule before you can turn on automatic city tax.
Update the product rule
Go to Main menu > Settings > Services.
Click on your bookable service.
Click Product rules.
Click on the product rule used to add city tax to incoming reservations.
Under Action, select Cancel.
After you update your product rule to cancel the city tax on reservations, you can turn on automatic city tax.