After further research, Turbo Tax is probably correct.
NJ does not tax the portion of the IRA distribution that reflects contributions. Since contributions are not deductible when they were made, they were already taxed and thus would not be double-taxed.
The portion of the distribution that reflects Gains, however, should be taxed. In my case, my 1099-R has a blank for the state distribution so TurboTax is using 0 as the gains portion of the distribution.
