Box 14 on the 1099-R is for state tax withheld. The amount here is either what the pension administrator withheld (and subsequently sent to the state) or zero. "Exempt" in this box doesn't make any sense anyway.
If the distribution is non-taxable at the state level, you will be able to indicate this either in the screens that follow the 1099-R data entry on the federal return or in the state return when you get there.
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