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Now to me, that means any category I make under that parent will obtain those permissions.
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Is that not what I just said Steve?
You missed what I said. That box works on existing child categories. I beleive Michael had stated before that in creating new subcategories that box is not usuable since you in essense creating a child cat. You would need to edit the parent and hit that check box to scan the categories and double check all new child cats created.