Money Market funds or ETFs, which invest exclusively and directly in assets such as Treasury bonds, notes, and bills, will produce dividend income free of state and local taxes. However, income from assets such as Treasury repurchase agreements ("repos") is taxable at the state and local levels. Look carefully at the fund prospectus to know what you are getting. The fund's name could give a hint - funds with the "Treasury" in the name are most likely producing state tax-exempt income, and "Government" in the name are likely not producing state tax-exempt income. The difference can be worth $100s or $1000s in state and local taxes.