do you have more info what type of 1099 (and curious which brokerage), and what box the FLHB's interest was reported in? Sounds like it wasn't 1099-INT Box 3 which would have flowed to VA as a subtraction ok.
If these were discounted bonds and the income you're referring to is on 1099-B as an "Accrued Market Discount" in Box 1f that will flow to Schedule B but does not flow thru to state tax automatically as US Gov Interest which is a much-discussed topic, but before we go there if you have more info how this was reported that would help.
Re the premium these act as a reduction to the interest because you bought a bond at a premium e.g. if you buy a 5% muni at a price of 105 for a yield to call of 4% in 5 years from now... you will receive $500/yr but the premium will amortize $100/yr (not sure if calc is that simplistic but say it is) and your net income is $400. If this was an out of state muni bond it's reducing your state tax by the $100. Brokerages like Schwab, Fidelity will figure out how much premium to apply on each bond which should add up to the reported amount in Box 13. Your cost basis in the bond is also reduced by the amount of the premium applied, so by the time the call date happens there is no gain/loss.
