Calculating Sales Tax

Do you ship only to Colorado or to all the US or to everywhere in the world ?

So, you should go to System->zones and unpublish all the zones. And create four country zones. Three of them will have the name of the cities and the last one will be "rest of the Colorado". Then, you can go to System->taxation. Click on the manage tax rates to add your three tax rates. Using the manage tax categories, please create one tax category. Then, go back to System->taxation and add three rules, each rule with a different tax rate and one of the cities selected as zone and the tax category selected. Add this tax category to the products. And finally go to Display->Custom fields and deactivate the address_state custom field and change the address_country name to "location" instead of country.

Also, you could add all the cities in your state as country zones and unpublish the address_city field so that the users only has to enter once his city with the address_country (named location) dropdown.