Colorado has a law called TABOR that, in years when the state government has more revenue than predicted, allows every taxpayer to claim a refund. This is done with a line item on the state income tax return, and paid out together with the taxpayer's income tax refund (or credited to their income tax liability). However, the TABOR refund is actually characterized as a refund of state sales tax. See for instance line 33 of Colorado 2022 Form DR 0104:
Now, for federal income tax, taxpayers who itemize federal deductions are allowed to choose to take a "general state sales tax deduction" on Form 1040 Schedule A line 5, in place of the more common state income tax deduction. Generally, if you deduct a tax on a federal return in one year, and receive a refund of some or all of that tax in a future year, the refund is federally taxable income in the year it is received.
So if a Colorado taxpayer takes the state sales tax deduction on their 2022 federal return, does this mean that their TABOR refund (let's say $208) must be included as federally taxable income for 2023?
Will the state send a 1099-G for this amount?
Conversely, suppose one deducts state income tax for 2022, and receives a regular state income tax refund. They get a check for, let's say, $1000, which includes the $208 TABOR refund. Does that mean that they should include only $792 of that amount as income for 2023? Would the 1099-G take that into account?
This question could be relevant in deciding whether it is more advantageous to take the state income tax or state sales tax deduction on one's 2022 federal return.
(This is similar to Are Colorado Cash Back payments taxable as federal income? but not the same. The IRS document given as the answer there does not address regular TABOR refunds, only the special 2022 Colorado Cash Back payment, which was not explicitly described as a sales tax refund.)