You may have to do some research to determine what is being reported on your 1099 form. US government securities do not pay dividends, they only pay interest. So, normally income from investments in mutual funds that hold US government securities would be interest income and exempt from taxation in North Carolina.
However, your mutual fund may report gains and losses on the sale of US government securities, and those gains or losses would be taxable or deductible as capital gains.
I assume the "dividends" you are referring to is actually interest income, but you would have to verify that with your broker.
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