Shareen, the code you mention should only display products that are "Available for sale".
Regarding "free" products, that could be a bug with x-cart.
Mick, to change the tax rate, in skin/smart_template/custom/
featured_new_products.tpl
featured_random_products.tpl
featured_carousel.tpl
featured_pager.tpl
Change..
Code:
{$config.General.currency_symbol}{math equation="x * y" x=$r_products[product].price y=1.175 format="%.2f"}
to...
Code:
{$config.General.currency_symbol}{math equation="x * y" x=$r_products[product].price y=1.2 format="%.2f"}