They are exempt from fedearl tax. Most exempt dividends (box 10 of the 1099-div) are taxable on the state return.
They may show on your "income summary" worksheet, but they go only to line 8b on your form 1040.
Tax exempt interest and dividends are included in some MAGI (Modified Adjusted Gross Income) calculations to determine your eligibility for some tax benefits (e.g. health care premium tax credits).
