Updated July 29, 2026. Quick answer: Yes, and by statute rather than by anyone’s policy. 31 U.S.C. §3124(a) provides that “Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State” — and then goes further than the one-line version anyone quotes: the exemption reaches each form of taxation that would require the obligation, the interest on it, or both, to be considered in computing a tax. That is broader than “the interest is not taxed.”
The breadth clause, which is the part that gets dropped
31 U.S.C. §3124(a): “Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except— (1) a nondiscriminatory franchise tax or another nonproperty tax instead of a franchise tax …”
Read that middle clause twice. It is not merely a rule that the interest escapes tax. It reaches any state tax whose computation would require the obligation or its interest to be taken into account — which is a wider net than a line item on a return, and it is why the protection is a federal supremacy rule rather than a state-level courtesy. The carve-out is narrow and specific: a nondiscriminatory franchise tax, or a nonproperty tax standing in for one.
And note what §3124 is not. Subsection (b) hands federal tax treatment straight back to the Internal Revenue Code — including “the tax treatment of gain and loss from the disposition” of the obligations. Section 3124 is a state-tax statute only. It says nothing about what you owe federally, and Treasury interest is federally taxable.
The conflation that costs people money: munis are the mirror image
Treasury interest and municipal interest are exempt in opposite directions, and they are constantly discussed as if they were the same benefit.
| Federal tax | State tax | Authority | |
|---|---|---|---|
| US Treasury obligations | Taxable | Exempt, by federal statute | 31 U.S.C. §3124(a) |
| State and local bonds | Excluded from gross income | Decided by each state, not by this provision | IRC §103(a) |
IRC §103(a) is a federal exclusion and only that. Its words are “Except as provided in subsection (b), gross income does not include interest on any State or local bond” — gross income, which is a federal concept. It is silent on whether any state taxes that interest. So “municipal bonds are tax-free” and “Treasuries are state-tax-free” are claims of different kinds: one is a federal exclusion with state treatment left open, the other is a federal command binding the states.
Two further limits on the muni side that the shorthand loses. The §103(a) exclusion does not apply to private activity bonds that are not qualified bonds, to arbitrage bonds, or to bonds failing the registration requirements — and each of those exceptions is defined by cross-reference to another Code section, so §103 cannot be read on its own to decide whether a particular bond qualifies. And §103(c)(2) defines “State” to include the District of Columbia and any possession of the United States, which is the actual basis of the claims made for territorial bonds.
Why a T-bill is not a CD with a different label
A Treasury bill is issued at a discount and pays no coupon, and IRC §454(b) governs how that discount is taken into income for short-term obligations of the United States payable without interest at a fixed maturity not exceeding one year. That is a timing rule, and it is the reason a bill and a certificate of deposit quoting the same yield are not economically identical — quite apart from the state-tax difference above, which usually dominates.
What this page deliberately does not tell you: what your state does. The mechanism is federal and uniform; the application runs through each state’s own computation of income, and at least one state revenue department publishes a dedicated answer of its own. Nor does it quote a yield or a rate — the comparison above holds at any yield, and the size of the advantage is whatever your state’s rate happens to be.
Where this matters most is a large balance sitting still after a liquidity event — the weeks after a business sale, when the reserve has to be parked somewhere, or after an inheritance arrives in cash. In a high-rate state the state-tax treatment of the parking vehicle can matter more than the difference in quoted yields between them.
Sources
31 U.S.C. §3124(a) and §3124(b); IRC §103(a), §103(b) and §103(c); IRC §454(a) and §454(b). Read July 2026. No state’s treatment is stated here: the mechanism is federal, the application is not, and this page does not enumerate jurisdictions.
This states what the cited authority says. It is not tax or investment advice, it quotes no yield and no current rate, and it does not tell you what your state does — only which federal rule decides whether your state may reach the income at all.