Are Federal Refunds Taxable on California Returns?
I think what you omitted from your question was "Did you pay any amounts on Form 540-Es, i.e. California estimated tax payments?". Clearly, you paid Federal estimated taxes which was overpaid by $30,000. This resulted in you getting a Federal Tax Refund.
Now, you must have had some income that was earned or passive income in 2007 that resulted in some potential liability that forced you to pay Federal Estimated tax payments. What you seem to have forgot is California also taxes your passive and earned income taxes. If you have not paid any California taxes to compensate for the tax on the passive income, then you would have incurred California Tax Liability at the end of 2007.
The Federal tax refund is NOT taxed on California, and Turbo Tax is correctly computing the tax liability for California. The California tax liability would be reasonable if you;
1) Had under-withheld your CA tax withholding.
2) Had earned passive income and not made a provision for these tax liabilities by making an an estimated 540-Es tax payment.
3) Were in a higher tax bracket for California and incurred a higher tax rate, than what you had previously estimated.
4) Had an extra-ordinary event such as a sale of an investment property and had substantial gains and no provision was made for the California Tax Liability.