Accrued market discount

[Pf7780]

Is accrued market discount on US Treasury obligations that is reported as interest on my Form 1040 taxable as interest income In Massachusetts?

[SusanY1]

Yes, this is taxable as interest on the Massachusetts return (as well as for other states.)  

In order for the interest income to be tax-free at the state level it must be paid as a direct obligation of the eligible bond or fund.  Accrued market discount is not a direct obligation of the US Treasury.