TT handles this correctly, assuming you transferred your 2019 info into the 2020 program. Otherwise, TT asks if you took the Standard deduction for 2019.
Thanks! Yes, I agree that TT takes us to the right result. I just found it confusing when the initial entry seemed to assume a state income tax refund would be taxable. I had a similar concern when TT allowed me to complete my return without asking if I had made estimated tax payments, which I had. Not a biggie to circle back and enter the tax payments, but a moment of concern when realizing something is wrong. Good result in the end, and TT did indeed identify applicable tax benefits of which I was unaware! (Recovery relief tax credit!) So thanks, TT and SweetieJean!