Generally, when you take a lump-sum NQDC payout, the state where the income was earned will tax that income, so CO in your case. It's true that you shouldn't be taxed twice on this income. Therefore, you will prepare a non-resident CO return and compute your CO tax. Then, you can claim a credit for taxes paid to CO on your resident CA return so that the income is not taxed by both states.
You can read more about NQDC plans here: Strategies for Managing Your Tax Bill on Deferred Compensation
