I need help with this question?

The income from all of the following securities is taxable for each of Federal, State, and local income tax purposes except:
a. GNMA certificates ("Ginnie Macs")
b. corporate BBB bonds
c. reinvested mutual fund dividends
d. Treasury Bonds

Revisiting your question, Federal taxes all four securites; State does not tax Treasury Bonds; Local varies with the locality. Municipal Bonds issued by the state you live in are referred to as triple-tax-free, and thus would not be taxed by any taxing authority. (P.S. I think you may mean Ginnie Mae's)

Treasury bonds are not Federally taxable

You can go both ways with answer c - it really depends upon what type of account the money is kept - if it were housed in a no tax retirement account such as a roth ira or a roth 401k, the income would not be taxed. Also if the mutual fund were in a college 529 plan and spent on educational purposes that money would not be taxed either.
Held outside of a tax sheltered account, mutual fund dividends are taxed whether or not you have them reinvested. Mutual fund companies are required at the end of the year to pass through their capital gains and dividends to their shareholders. That's why you often see end of year taxable distributions from mutual funds.
Some funds, usually indexes, are specifically designed to minimize taxable distributions.

assuming its not a tax-free account, I think the answer is d.

Treasury bonds are not taxable by the State or local government. They ARE taxable on Federal. Municipal bonds are not taxable on Federal, but they are to local and state, (unless you live in the state they're written on). Its called reciprocity. However, that doesnt change the answer to your question. It is d. All the others are taxable to federal, state and local taxing authorities.