A State Tax Refund is taxable if you itemized deductions on that prior year's federal return and took a deduction for state income taxes instead of the sale tax. You got a deduction benefit for it so now you have to include it as income. If you took the standard deduction it is not taxable and you don't need to report it.
If you filed the Free Edition last year you took the Standard Deduction and the state tax refund is not taxable and you don't have to enter it.
