I want to use the correct box... if that is box 3 then yes, it would be exempt from state and local taxation.
I have found this as it relates to the savings bonds:
31 U.S. Code § 3124 - Exemption from taxation
(a)Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except—
This seems to me (not a tax lawyer and this is not legal advice) that this is the statute necessitating Box 3 on the 1099-INT. What are the arguments for and against IRS interest qualifying for the treatment above?
