That is correct, Colorado exempts the active-duty military pay of its residents from CO state taxes. You must qualify as a resident by meeting one of the residency requirements list in the following paragraph
Effective January 1, 2016, an individual in active duty military service can establish Colorado as his or her state of legal residence by registering to vote in the state; purchasing residential property or an unimproved residential lot in the state; titling and registering a motor vehicle in the state; notifying the state of the individual’s previous legal residence of the intent to make Colorado the individual’s state of legal residence; or preparing a new last will and testament that indicates Colorado as the individual’s state of legal residence.
Also, an amount equal to any compensation received for active duty service can be subtracted from federal taxable income when computing Colorado personal income tax.
Further, if an individual’s only source of income is active duty pay, he or she will not need to file an income tax return. Lastly, state income taxes do not need to be withheld from an employee’s wages if his or her compensation is from active duty military pay.
