Yes, according to the state of Illinois, For beneficiaries that are residents, Section 301(a) of the Illinois Income Tax Act allocates their distributive share of the annuity proceeds to Illinois making them subject to Illinois income tax. So by placing D in Box 7, these distributions are taxable by the Illinois Dept of Revenue.
There is no RMD requirement for inherited non-qualified annuities so you would report that you do not have a RMD requirement.
State of Illinois Treatment of Annuities
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