Enter "XX" or select "More than One State" if you have a drop-down menu (last selection).
The program is asking for this information because you either had tax-exempt interest, or the program thinks you had tax-exempt interest (i.e. a "0" was imported in Box 8 field). "XX" is the default solution for this issue.
If, however, all (or a significant amount of) the tax-exempt interest was paid by your state of residence, you would want to identify that state rather than entering "XX". If you don't, you will pay state tax on that interest even though it was intended to be tax-exempt.
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