shouldn't this set Tax schedule to Not Taxable on the item record by default?

Nope. I believe that's related to transactions.

Hmm then where do you setup default tax schedule for item record, I tried workflow as well on Entry and before record load, but that didn't work either

See SA 24045. It's through WF but not exactly what you did (probably that's why it didn't work)

have you tried it? i want to do it for all item types, this says only for inventory, it shouldn't matter right

Yup. Just multi-select the item types in the Subtypes and that should work

yup worked like charm, i didn't set those conditions in workflow, i did everything correct though, the first few steps did the trick