Yes, if the property is located in another state, then royalties from that property are considered as "making money from another state".
This is fairly common with oil and gas royalties. The reason the program asks this is to prompt you to prepare a return for that state. That doesn't necessarily mean you should file a return, but the program wants to alert you to the possibility.
(Oklahoma comes up often in this situation, since they have a very low filing threshold).
