I received dividends from the Vanguard short term U.S treasury TIPs ETF. I believe 99 percent of the ETF is invested in US. TIPs and I believe this is exempt from California Income. Tax. Do I report this under California Dividend Adjustment as a subtrac

[MarilynG1]

• Enter your Form 1099-DIV exactly as the boxes appear in the 1099-DIV section of the Federal return in TurboTax including exempt-interest dividends.
• Click Continue
• At the screen "Tell us if any of these uncommon situations apply to you", check the box next to "A portion of these dividends is U.S. Government interest". Click Continue.
• The next screen states "Enter U.S. Government Interest". Enter the amount in the box provided. Click Continue.
• The next screen asks which state(s) your exempt-interest dividends are from. You can enter the amount for each state here. Click Done.

You're correct that the dividends from US Treasury Bonds are tax-exempt in California.

However, there is no exemption for gains from sales of US Treasury bonds (either individual bonds sold on the secondary market or the sale of shares in a mutual fund or EFT that holds these bonds). Those gains are capital gains, based on the change in value of the bond or the shares in the fund you sold from when you originally purchased the bond/shares. You pay capital gains tax on that, as you would on the sale of any asset (of course it's also possible to have a capital loss, which would reduce your taxes). Capital gains and losses are reported on a 1099-B. 

Here's more info from CA FTB Pub. 1001.

@1953Buick