Why must I count state refund as income when it is a result of estimated payments?

[Critter]

Because that is how the tax code is written ... you deducted the state payments in the year you paid them and the refunded portion is taxable in the year you received them (even if you applied the refund to the next tax year).  Wash, rinse, repeat every year until you stop itemizing deductions. 

[VolvoGirl]

Even though you have to enter it, it might not be taxable.  Did you Itemize Deductions last year and take a deduction for state taxes paid? If you took the sales tax deduction instead of state tax or took the Standard Deduction then it is not taxable.