You MAY have to declare a state income tax refund as income, because you MAY have taken the state income tax paid last year as a deduction on Schedule A on your federal return.
If you didn't take the state tax paid as a deduction (for example, if you took the Standard Deduction instead of Itemizing), then you won't have to declare the refund as income and it won't be taxed.
Just answer the questions related to the refund, and TurboTax will help you figure it out.