Any idea why I might have two "-Non Taxable-" selections, when looking at the item page for tax items there is only one?

Guessing one is a tax item and one is a tax group. There is an option to show only one or the other on the tax setup page IIRC though that might mess you up in other ways.

You are correct, it is a tax group. Is it normal to have a tax item named "-Not Taxable-" on the Customer record when you can just deselect the "Taxable" field?

For reporting purposes, a lot of states want the total of non taxable sales