Okay, so the answers above from @nocodeventure & @meyerhd2 are partially correct, you do need to reset the state for it to work, but that is only part of the issue. As you can see here, I have both the button and the toggle flipping the custom state back and forth but as soon as I use the toggle, it no longer works dynamically and only changes upon manual input
The real issue is that when you use the toggle manually it’s PRESET STATUS is overridden. Fortunately, it’s an easy fix 
Right-click on the toggle and click Group elements in a Group
An empty group is fine, no need to set content
In your workflow, simply add a step to reset the group containing the toggle before changing the custom state’s value. This will reset the toggle to it’s preset status and make it dynamic again.
There you go. Working perfectly!