You enter the 1099-R exactly as it is reported to you.  For many states, when you continue on after the form entry, you come to a screen asking you to check mark the source of the retirement income.  What you choose there usually affects whether or not the income is taxable in your sate.  In many other cases, you'll be asked about your retirement income during the state program and whether it qualifies to be excluded for any state-specific reasons.