The dividends are NOT taxable. The original poster asked if the "proceeds" were taxable. The fund of course does routinely buy and sell bonds. Sometimes the bonds are sold for a loss, sometimes for a profit. If a profit, the proceeds are distributed as capital gains distributions, minus expense, fees etc.
So the general answer is that the Dividends from the fund (and the underlying bonds) are tax free, but there may be capital gain distributions. This is true for all municipal bond funds, or bonds for that matter.
Not federally taxable or subject to the AMT. Not in 2008, anyway--despite what the previous poster stated.
Also, check with the fund sponsor. At tax time each year they publish a schedule of what percentage of the fund's earnings for the year are exempt from each individual state's tax. Depending on where you live, up to about 10% of the income may also be exempt from the city/state taxes you pay.
I think this is one of the best long term, high quality muni ETFs out there.
According to http://www.etfconnect.com "Distributions from this fund may be subject to state and local taxes, as well as to the alternative minimum tax. Capital gains, if any, will be subject to tax." Presumably distributions will not be subject to Federal tax unless you have to pay the AMT.