This box is found in Shared Information>Tax Maintenance. From the help:
Extract Tax Amt from Item Amt
Controls whether or not the software includes the tax’s tax amount in the extended amount of each sales or purchasing transaction detail line or document. Selecting this option causes the software to assume that the extended amount contains both the taxable and tax amounts. In such a case, the tax rate or formula is applied to the extended amount to extract the appropriate tax amount. Deselecting this option causes the software to assume that the extended amount contains the starting taxable amount only. In such a case, the tax rate or formula is applied to the extended amount to determine the tax amount to add to the associated item or document.