I resided in Michigan in 2020 and received unemployment from Colorado. When I filled taxes it is stating I owe Michigan state tax, Why?

[TomD8]

It is taxable by both states.

If the unemployment compensation is "attributable to employment in Colorado" it is taxable by Colorado, even if you are a non-resident of Colorado when you receive it.

Page 28, https://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=10063&fileName=1%20CCR%20201-2%20%2...

If you received the unemployment compensation as a Michigan resident, it is also taxable by Michigan.  Michigan residents are taxed on all their income regardless of its source, unless specifically exempted by Michigan law.  But you'll be able to claim a credit on your MI tax return for the tax paid to CO on that income, so you won't be double-taxed.

[NCperson]

@sherpido look at line 18 of Michigan Form MI-1040.  THAT is the credit for taxes paid to CO. 

[Hal_Al]

It appears that @TomD8  is correct*, CO taxes that.

For others reading this, the general rule among states (but not all states) is the opposite: You only pay state tax  to the state you live in, not to the state paying  the unemployment.  

* Quote from the reference provided:

"Severance, Paid-out Sick and Vacation Leave, Disability Pay and Unemployment
Insurance. Severance pay, paid-out sick and vacation leave pay, disability pay
and unemployment insurance is Colorado-source income to the extent that the
income is attributable to employment in Colorado regardless of whether the
person is a resident when the benefit is paid".

[TomD8]

Actually, a number of states other than Colorado consider unemployment compensation to be "sourced" in their state if the unemployment was derived from a job located there, and therefore to be taxable to non-residents.  Some examples are Illinois, Massachusetts, Iowa, South Carolina, Connecticut, and New York.

In those situations, the taxpayer would normally have to report the income to both states but would be able to claim a credit on their home state return for the tax paid to the non-resident state.

And unemployment compensation is always taxable by the recipient's home state at the time it is received, unless specifically excluded by state law.  States that currently (2022) exclude unemployment from state income tax include Alabama, California, the District of Columbia, Montana, New Jersey, Pennsylvania, and Virginia.