We need tags for all 50 states, and probably the territories. For example there is no Washington or Washington DC tag, but there is California.
If I agreed, I'd suggest that we add tags as needed.
I glanced at the California tagged questions, and it would seem that it happens the member lives there, but the question applies to all state with a state tax. Do those questions really need the tag?
To the comment regarding Washington question - For the fact that WA has no income tax, does a Washington tag add value? Any state combo including a no-tax state would have the same result. I have no issue with state tags, I wouldn't delete any, I just don't see the widespread need.
Since adding a tag to a question would flood the screen and push new questions down, I'd strongly suggest adding to new questions as they are asked, and only editing old questions a few at a time.
The recent Washington question has 5 tags. Which one do we drop from the question in favor of Washington?
A couple of thoughts:
We can't create a tag without there being a question about it. So until there is a question specific to Montana, we can't create a montana tag.
In my opinion, we should only use a state tag in questions that truly involve something unique to that state. I think we need to be more picky about when to include the state tag then we are with including the united-states tag. The obvious use of the state tag is questions about the state income tax of a particular state, but there may be other types of questions that involve the uniqueness of a particular state. A mere mention of the state by itself does not warrant the use of the state tag, in my opinion.
Taking an example from my home state of Wisconsin: I created the wisconsin tag when this question was asked. The subject of the question is about a quirk of TurboTax's Wisconsin state income tax software and is totally unique to Wisconsin; the question should have the state tag. Later, when this question (How do I decide where to register a car when I plan to move soon?) was asked, I added the wisconsin tag and also created the minnesota tag. In hindsight, I don't think this second question warrants any state tags: the question and answers could be about any state.
To be clear, the "register a car" question should indeed mention the states' names in the question text itself, because it could be important information. But judging by the answers so far, it seems that it is not important information, and doesn't need the state tags. If an answer appears in the future that reveals something unique about Wisconsin or Minnesota that makes a difference, perhaps the tags would be more important then and could be added at that time.
Adding state tags to old questions is okay, as long as the question (and answers) are really unique to the state. Also, I agree with @JoeTaxpayer's answer that old questions should only be edited a few at a time, so as not to flood the front page with old questions and push the current questions out.