Yes, because the two taxes are treated separately, not netted against each other.
Your NJ refund will be taxable if you claimed your NJ withholding on your 2016 return, and received a tax benefit from that deduction.
On the other hand, the tax you paid MD in 2017 (for 2016) is a tax deduction for you in 2017. Make sure that you see this in your Schedule A. Your 2017 State Income Tax deduction should include all of your 2017 W-2 withholding, plus the amount you paid with your 2016 state tax return.
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