Loyalty points are determined from your order subtotal minus discounts and excluding shipping and tax.
So, for example, you have a product that's being sold as follows:
$100 product
20% discount
10% tax - ignored for points
$5 flat shipping - ignored for points
Let's assume you have your loyalty program setup to earn 10 points for every $1 spent:
$80 ($100 product minus 20% discount) x 10 points = 800
Your customer would earn 800 points for this order