Stearns v. Arizona Department of Revenue
231 Ariz. 172
| Ariz. Ct. App. | 2012Background
- Arizona residents filed 1998 Arizona return claiming $8516 credit for taxes paid to other states.
- Department audited, reduced the credit and assessed additional tax, interest, and penalties.
- Stearns I previously held that numerator/denominator use taxable income; Department had used Arizona adjusted gross income with exemptions.
- Taxpayers filed class-action-like action seeking refunds for 1999–2006; Department adopted revised 309 Credit Form per Stearns I.
- Tax court granted summary judgment for Department and dismissed time-barred years; appeal follows.
- Court considers whether Department's revised interpretation and form are permissible under statutes and whether res judicata and statute-of-limitations issues bar recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What is the numerator under §43-1071(A)(3)? | Stearns; numerator is out-of-state income only (no exemptions/deductions). | Department; numerator equals income subject to tax in both states, i.e., taxable income after exemptions/deductions. | Numerator is taxable income with exemptions/deductions; consistent with Stearns I. |
| May Department apply a revised interpretation/form retroactively? | Holds that §42-2078(B) bars retroactive application. | Revision to taxable income interpretation is permitted; not a new unfavorable rule. | Department may apply revised interpretation; not barred by §42-2078(B). |
| Are tax refund claims for 2000–2003 time-barred? | Refund claims timely per notices. | Formal notice and specific refund amounts not timely; statute of limitations bars. | Claims for 2001–2003 time-barred; 2000 not challenged on appeal. |
Key Cases Cited
- Stearns v. Ariz. Dep’t of Revenue, 212 Ariz. 333 (App. 2006) (interpreting numerator/denominator to reflect taxable income for credit calculation)
- Wilderness World, Inc. v. Dep’t of Revenue, 182 Ariz. 196 (App. 1995) (de novo review of tax court grant; statutory interpretation)
- Walls v. Ariz. Dep’t of Pub. Safety, 170 Ariz. 591 (App. 1991) (de novo review of statutory interpretation)
- Havasupai Tribe v. Arizona Board of Regents, 220 Ariz. 214 (App. 2009) (res judicata collateral estoppel considerations in administrative actions)