Comment by sam_palus

To add more context: yes, US Treasuries are exempt from state tax, and municipal bonds are tax exempt too. It's pretty rare for startups to hold them directly; they usually hold money market funds. It varies between different MMFs, but they can be partially state tax-exempt depending on what percentage of the underlying assets are federal bonds.[1] For instance, Vanguard shows you how much of each of their funds is tax-exempt here: https://investor.vanguard.com/content/dam/retail/publicsite/...

However, this tax exemption is usually priced in: muni bond funds, and MMFs that hold lots of tax-exempt assets, tend to return less than funds which are not tax exempt. For the majority of startups that operate at a net loss, tax-exempt funds are probably a bad choice, since you're earning less yield and the tax exemption likely doesn't affect you.

[1] The rules around this also varies from state to state; for instance, in CA, CT, and NY, you can only get any tax exemption if a fund is at least 50% tax-exempt in each quarter of a given year.