paying tax exempt interest in a state where you do not live

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I'm not certain of your question, but I will share what I know about tax-exempt bond interest. Generally, states will exempt only their states municipal bond income. So if you live in a state that has an income tax, and you own municipal bonds issued by another state, the interest will be taxable to you in your state.

If the tax is significant, start investing in your own state's municipal bonds. Also, states exempt bond interest issued by U.S. territories such as Puerto Rico, Guam, and the U.S. Virgin Islands. If you live in a state that has a high-income tax rate or you are in a high tax bracket, it is advantageous to invest in your state's bonds and bonds issued by U.S. territories.