Good question. It's clear that it is being taxed in NJ because the TurboTax Retirement Exclusion Summary lists the amount being taxed by NJ in a table (96% of the distribution for some reason), and if I delete that 1099-R then my NJ refund increases by the amount of the NJ tax on my inherited Roth distribution. It all seems to key off the Distribution code "T" in box 7, with no way to correct for that (unlike the Federal form).
