1099-G, Alabama

I received a 1099-G form in the mail this year from the state of Alabama where my wife and I both reside and work.  I itemized on both my federal and state tax returns for the year 2010.  Do I have to report the amount of the state tax refund from alabama as income on my 2011 return??  The wording on the form is this (direct quote):

"Federal law requires that the Alabama Department of Revenue notify you in January of the amount(s) of refunds, credits, or offsets of Alabama income taxes you received during 2011.  This information is also being furnished to the U.S. Internal Revenue Service.

The amount(s) shown in box 2 of this form may be reportable on your 2011 US income tax return and taxable to you if you deducted this tax as an itemized deduction on your US return for a previous year.  

The amount(s) shown in box 2 are not REPORTABLE on your 2011 Alabama income tax return."

Ok, so here's the query.  The wording makes me think I should definitely report this as income on my 2011 return.  The thing is, to my knowledge, I did not itemize the amount i was refunded by the state of Alabama in 2009 on my 2010 return.  If i did so, where would it be on the forms I have from my 2010 return in turbo tax.  It says in big plain bold letters:  The amount(s) shown in box 2 are not REPORTABLE on my 2011 return.  Anyone have tips or suggestions?  It means several hundred dollars difference on my federal and state returns if I remove this as "taxable income".  But I always err on the side of caution, especially when it comes the IRS and if reporting it is the safe thing to do, then a couple hundred extra bucks now is not worth penalties or legal ramifications with the government somewhere down the road.  Please help!

    On your 2010 Schedule A
    Line 5   Sales tax or Statre/local income tax deduction should be there

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