How do I use AND condition in Rules to add shipping to sales tax?
NB: As so often happens with Drupal, apparently I was asking the wrong question. IMO this is such a -basic- part of any eCommerce system used in USA/Canada, but the answer is buried in a support request on Drupal.org. This is -terrible- documentation and I hope the Commerce Guys are duly ashamed. Doesn't matter how cool the code is if one can't easily figure it out.

Apparently what one has to do is add the rule into 

Admin -> Store Settings -> Shipping  (Calculation Rules) -> Configure Component

Please see here (#29)
https://www.drupal.org/node/1243218#comment-6732098

...and also (#42).

What one does is add a new Rule to Shipping
Event: Calculate Shipping
Condition: Order Address Component Comparison
Actions: (Your Salestax Component Rule goes here)

For the Action you simply use the same sales tax component rule you used for 

Admin -> Taxes -> Configure Component

...in my case 'Sales Tax WA'

So I suppose if you live in a jurisdiction with many possible taxes, you'd create a separate component rule for each under shipping, using exactly the same Order Address Comparison and Action Rule you used for the Taxes section.

What confused -me- was that I thought one could use use the IF/AND/OR under Taxes to differentiate between Shipping and Product line items. Apparently this does not work. That would be a MUCH better solution (reduce duplication of effort, cut down on errors.) If someone knows how to do this, PLEASE post here!

So, in one sentence, you have to apply all the same sales tax component rules in two places: in Taxes (for product line items) and then in Shipping under Calculate Rules to apply tax to the freight.

And here is the exported rule:

{ "rules_apply_taxes_to_shipping" : {
"LABEL" : "Apply Taxes to Shipping",
"PLUGIN" : "reaction rule",
"OWNER" : "rules",
"REQUIRES" : [ "commerce_order", "rules", "commerce_shipping" ],
"ON" : { "commerce_shipping_calculate_rate" : [] },
"IF" : [
  { "commerce_order_compare_address" : {
      "commerce_order" : [ "commerce-line-item:order" ],
      "address_field" : "commerce_customer_billing|commerce_customer_address",
      "address_component" : "administrative_area",
      "value" : "WA"
     }
   }
 ],
 "DO" : [
   { "component_commerce_tax_rate_state_of_washington" : { "commerce_line_item" :
     [  "commerce-line-item" ] } }
       ]
   }
}