I don't think there is a blanket writing in any tax code that applies to all states that says secondary market AMD is taxable because it didn't come directly from the Treasury (and some AMD could be OID); it depends on the state tax codes which vary in their language and interpretation (interest vs. "income derived from", and some states explicitly exempt gains on Treasuries). If in doubt it's best to seek out CPA expert in your state.
similar thread...
https://ttlc.intuit.com/community/state-taxes/discussion/re-bond-interest-not-taken-off-illinois-tax...
and more recent thread of threads
https://ttlc.intuit.com/community/state-taxes/discussion/re-accrued-market-discount-on-us-treasuries...
In terms of solutions from all these threads, I've seen 2 practical possibilities:
1. Make a miscellaneous subtraction in your state return if the TT state program provides this ability. Some have reported this precludes e-file, in NY for example. Works fine in VA.
2. Use a 1099-DIV US Gov Obligations (USGO) entry. See last thread for more details and link to an example from the person that thought of this, you can actually plug the AMD into a 1099-DIV as the USGO amount. Not in Box 1 (which would double count AMD in Fed taxes as you can't turn off the Schedule B transfer), just the USGO $ amount which only impacts State - either using an existing 1099-DIV or create one just for this purpose with $0 in Box 1a (which would appear on Schedule B but $0 Fed impact). TT doesn't validate that USGO amount should be less than Box 1a and will pass whatever amount there through to state subtraction. I've not tried this myself so I can't vouch for any issues but it passed review in a quick test and I thought it was an interesting alternative to #1.
Not a CPA/Expert - hope this helps.
