You can subtract part of your military retired pay from your Colorado taxable income, as long as it was included in your federal taxable income. How much depends on your age at the end of the tax year: up to $15,000 if you are under 55, up to $20,000 if you are 55 but under 65, and up to $24,000 if you are at least 65. You claim one subtraction, not both.
There is nothing to apply for. Claim the subtraction on Schedule DR 0104AD when you file your Colorado return.
Your Form 1099-R showing the retired pay, kept with your tax records.
