This is a long standing and well known shortcoming of Keyboard Maestro.
It cannot do text-expansions in its own dialogs.
Text-expansions work fine in the Keyboard Maestro Editor however.
The recommended remedy at this time is to use a 3rd party text-expansion tool as Roger is doing.
Several of my macros require the entry of the state name.
I was trying to use a Keyboard Maestro, triggered by the 2 state abbreviation, macro to do that but found out that this is not possible or at least I have not found a way to get it to work. It will work if I put in a status menu and use that to trigger it.
I have TypeIt4Me so I have the states both in Keyboard Maestro and TypeIt4Me which works. It also works if I set up a Mac keyboard shortcut.
Is there any workaround to getting it to work in Keyboard Maestro using a typed trigger?
Ah okay. You're right, text doesn't expand in those fields (I think because the User Prompt needs an "OK" before it does anything).
Anyway, there is always a solution in Keyboard Maestro. There might be a better way to prompt your list of States, such as a Dropdown List of State names (I think that's the way I would go).
But if you really want to type two letters to make the choice it can be done like this (you have to click "OK" after typing the two letters). And you would have to set up each of the possible States as an option (but you'd have to do this anyway with text expansion).
The best solution is always the one that just works! I hope you don't mind, but I edited the title of your question to better reflect what you were asking in case others have a similar question in future.