We currently MFS and itemize deductions. For 2018, we will MFJ and take the standard deduction. Are 2017 state refunds applied to 2018 taxes federally taxable?

You WILL get a 1099-G for the refunds. They don't "just pass through." Applying the 2017 refunds to your 2018 tax is the same as if you received the refunds and then wrote a check to the state for your 2018 tax.

Thanks for clarifying!  Appreciate the prompt response:)

If you itemized in the prior year and took a deduction for state taxes paid, then the state refunds you received do get included as income the current year.