yes at this point the 'how' seems solved (leave Fed alone in TT, make a misc adjustment in state), if there is a different thread on 'whether' we can post the same arguments for and against doing it there. There are similar hot threads on reddit, bogleheads etc on this same question.
It seems the answer could be different state by state, but some of the state tax codes are ambiguous and we're left with arguments as to what constitutes "interest" or not, and I understand the argument that AMD is not coming from the government etc. I can also see why TT does not address this automatically in the software as they would have take a legal position on this for all states.
Notably per someone's comment on NC, seems they settled this explicitly in the courts - per NCDOR website "You cannot deduct distributions from United States obligations representing gain from the sale or other disposition of the securities" - https://www.ncdor.gov/interest-income-us-obligations
For VA the tax code explicitly refers to gain on sale that NC disallowed ("Income derived from obligations, or on the sale or exchange of obligations, of the United States"); but OR does not use the same language ("Interest or dividends on obligations of the U.S. government.")
Notes are not necessarily issued at par so there should still be an OID component that should be state exempt it is not all market discount e.g. there is an auction of 4% 10-year notes issuing on Monday priced at 95.6 so if I buy that at say 96 on Tuesday from a broker isn't that all a government obligation...
Personally I am going to be buying higher coupon notes if available going forward to minimize this issue, meanwhile comfortable with the adjustment based on the VA tax code as written. Sorry NC!
