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Traditional tax free municipal securities are normally tax free at the federal level but subject to state and local taxation.
Some investors can receive interest on Municipal bonds exempt (tax free) from federal, state and local tax. In most states, if you buy a muni bond issued in your home state, that investor can avoid paying the 3 levels of taxation.
This is why most investors buy muni investments issues in their home state. Familiarity and the tax free benefits make that a wise tax based choice.
Another situation that allows for triple tax free status is when a bond is bought that is issued by a U.S. Territory. Examples include Puerto Rico, US Virgin Islands and Guam.
Creating a portfolio of municipal bonds makes sense, because of the exempt status at the federal level, the tax free yield, the credit quality and the possible opportunity to buy muni bonds that can take advantage of the triple taxation exemption.
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