My qualified distributions from my Educational Savings Program (529) are causing my state taxes to increase. From my understanding, qualifed 529 expenses are tax exempt?

If they are qualified expenses and not taxable, they should not be reported. IRS Publication 970, Tax Benefits for Education states:

Page 45: Don't report tax-free distributions (including qualifying rollovers) on your tax return.

Please remove the form and keep it with your tax files.