just to clarify which agency bonds are you referring to as not all are generally state exempt in particular Freddie, Fannie and GNMA are usually not but I'm not familiar with MN taxes. I had FHLBs at Vanguard reported in Box 3, so I'm also curious what brokerage you are using.
One option is to modify or input a separate 1099-INT reflecting this interest in Box 3 instead of Box 1. I'm not a CPA/Expert so I don't know any IRS implications of this but I would imagine 1099 reporting errors between Box 1/3 happen and don't affect Fed taxes.
Another option is usually the state tax program has ability to put in manual/miscellaneous additions and subtractions that folks have been using to subtract Accrued Market Discount on Treasuries reported on 1099-Bs if they believe that to be state exempt, tho some folks have reported that precludes e-filing.
