Is California Tax Refund Taxable Income?
The reason why you might have received the 1099-G from the State of California is that you received a California Tax Refund, and this is reported to the IRS. So, California has to send you a copy of this Refund paid to you that was simultaneously reported to the IRS.
Now, if you elected to file a Schedule A, (that is, you actually itemized your deductions last year), then the California tax refund is taxable on your Federal tax return, but not on the California tax return.
However, despite you receiving the 1099-G from California, if you did not elect to file a Schedule A, (that is, you did not itemize your deductions last year) and instead opted to take the standard deduction, you are not required to report this income per the 1099-G on your Federal From 1040 Tax Return.
So, please review the prior year tax return to ascertain whether or not you itemized in 2006, as this will determine whether the California tax refund is taxable or not.