bou10404,
A bit of a clarification to the answers above. There are two adjustments to Colorado income related to 1099-DIV forms.
The first is US government interest. While the IRS does tax such interest, Colorado does not. (See https://tax.colorado.gov/sites/tax/files/Income20.pdf for exact list of such sources.) In your case, you are allowed to reduce your CO income by 0.16% of your VTSAX dividend. You enter this on the screen following the input of the 1099-DIV entries where it ask "Tell us if any of these uncommon situations apply to you"
The second is federally exempt interest which shows up in Box 12 of the 1099-DIV. This occurs for mutual funds that invest in municipal bonds. If those underlying bonds were 100% from Colorado, they would also be exempt from Colorado income tax. In that case, no adjustment would be entered for that TurboTax question. However, if, say, only 90% of the income were from Colorado bonds and the remaining 10% from other sources, then you would enter 10% of the dividend as taxable by CO even though it was not taxable by the IRS. https://www.vanguard.com/pdf/INBST_2023.pdf is the table Vanguard provides for their municipal bond funds. So had you owned their Municipal Money Market Fund, only 3.75% of the dividend would be excluded from CO tax and you would have to enter 96.25% of the dividend as the answer to the prompt.
Finally, Box 3, non-dividend distributions, is not involved directly with CO vs federal taxation. Rather, it is the fund (or stock) not having enough profit to pay you their normal dividend but still wanting to give you that same amount to keep you from fleeing that investment. They do this by in essence giving you part of your investment back and calling it a non-dividend distribution. This is not taxed because it is not earnings. Your original investment cost basis is lowered, making the tax on any eventual sale profit more costly. Unless the mutual fund or brokerage firm is taking care of all the accounting machinery for these, it is a major pain for most investors to handle their impact on the cost basis for their investment. (I have spreadsheets with many dozens of extra columns adjusting for such distributions.)
