Simple answer: Yes, select multiple states (or "more than one state" on desktop software).
If your mutual fund did not provide a breakdown*, you check the box “I earned tax exempt dividends in more than one state” ("Multiple States" in the online program) on the first screen after entering the 1099-INT or 1099-DIV. Then select "More than one state" at the bottom of the state scroll down list.
If your mutual fund company provided you a breakdown, you are only interested in your home state**. Multiply the % for your state by your total tax exempt dividends to get a $ amount (you can't enter the % in TurboTax [TT]). When asked which state, check the box "I earned tax exempt dividends in more than one state". In the drop down menu, select your state and enter the $ amount you calculated. In the 2nd box, select "More than one state" (at the bottom of the scroll down list) and enter the remaining dollar amount.
*Most mutual funds will provide a breakdown. But you usually have to ask for it, or find it on their web site.
**Your state will tax all the dividends except the dividends from municipal bonds from your state and US Territories.
*Your state will tax all the dividends except the dividends from municipal bonds from your state.
that is not true in all states. In Illinois, only certain of its municipal are state tax-exempt. to exclude them entry needs to be made on schedule M
you do realize that some states do not exempt all their interest. I live in Illinois and only interest from certain state and local obligations are exempt. and then Illinois has schedule M where you have to list the exempt-interest received for each of those obligations.
How can I determine if my state uses all tax exempt income or only a partial?
The statement "that some states do not exempt all their interest" is misleading. Ignore it. Illinois is the only state that I'm aware of and IL allows so little, that effectively you can say they don't allow any. In particular, they don't allow any mutual fund exempt interest.
You can contact the Department of Revenue to determine how interest and dividends are treated.
Your 1099-B should have pages with details that tell you how much of each exempt fund is from which state. The program can do the calculations once it knows which state. That is why the program asks after the exemption input.