It turns out your 2017 CA refund is taxable?

[chapinreyes]

Why is this the case?

[MichaelMc]

State tax refunds are taxable income on your federal tax return, only if you itemized deductions on your federal return in that year and actually obtained a tax benefit (reduction) because of the deduction.

"State tax refund. If you received a state or local income tax refund (or credit or offset) in 2018, you generally must include it in income if you deducted the tax in an earlier year. The payer should send Form 1099-G, Certain Government Payments, to you by January 31, 2019. The IRS also will receive a copy of the Form 1099-G. If you file Form 1040, use the State and Local Income Tax Refund Worksheet in the 2018 Instructions for Schedule 1 (Form 1040) to
figure the amount (if any) to include in your income. See Pub. 525 for when you must use another worksheet.

If you could choose to deduct for a tax year either:

•State and local income taxes, or

•State and local general sales taxes,

then the maximum refund that you may have to include in income is limited to the excess of the tax you chose to deduct for that year over the tax you didn’t choose to deduct for that year. For examples, see IRS Pub. 525 Taxable and Nontaxable Income."