How are you entering the interest on the federal side? To not be taxed in state you need to enter it in box 3 not box 1. You have to check the little box under box 1 that says my form has more boxes for it to open up. Then Turbo Tax automatically subtracts it from the AGI on the state tax return. If you are entering it from box 3 then also select some interest is not taxable in the state you will be doubling it.
