If you itemized your deductions in 2020 and you populated line 5a with your "state and local income taxes" with your income taxes withheld or paid by estimated payments during 2020 then the amount received on the 1099-G is taxable in 2021.
State income tax withholding is a periodic "payment" of estimated taxes just like the actual estimated payments. When you deduct these payments via itemized deductions, they are removed from taxable income. If you receive a refund of any part of this deduction, you then owe tax on the amount.
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