So the original transom in my 16' Lowe jon is out. It was rotten from sitting outside and came out in a million pieces the size of toothpicks. The question I have is: what kind of wood should I use to replace it? This boat will be garage kept and I dont fish in the rain too often (2 or 3 times a year). I've cut a treated 2x10 to fit but I'm scared of the treated wood & aluminum problems I may run into. Any suggestions?

Marine grade plywood is most likely the original transom.

That would make sense. Unfortunately I dont have a local supplier for marine plywood, are there any other options?

I don't know about a transom but for our decking we're using birch plywood coated in fiberglass resin/hardener to seal out the water. Haven't got it out on the water yet so I can't vouch but I've heard of people doing it before.  8-)