It depends. This is not something that affects your Arizona return, but your Federal return. You would need to report the state tax refund if you claimed the state taxes withheld as itemized deductions on last year's Federal tax return. If you did not use itemized deductions (or did not claim these taxes withheld), you would not need to report the state tax refund.
The question is, therefore: Did you itemize in 2017? This FAQ can help you answer this question: https://ttlc.intuit.com/replies/4767958
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