Valencia Energy Co. v. Arizona Dep't of Revenue
In Valencia Energy Co. v. Arizona Dep't of Revenue, 191 Ariz. 565, 576, 578-79, PP 34, 41, 959 P.2d 1256, 1267, 1269-70 (1998) the Arizona Supreme Court held that in rare situations, the Arizona Department of Revenue ("ADOR") can be equitably estopped from assessing a tax that is legally owed by a taxpayer.
In Valencia, the Arizona Supreme Court held that equitable estoppel may lie against a taxing authority under the following four circumstances:
(1) the taxing authority engaged in affirmative conduct inconsistent with a position it later adopted that is adverse to the taxpayer;
(2) the taxpayer actually and reasonably relied on the taxing authority's prior conduct;
(3) the taxing authority's repudiation of its prior conduct caused the taxpayer to suffer a substantial detriment because the taxpayer changed its position in a way not compelled by law;
(4) applying estoppel against the taxing authority would neither unduly damage the public interest nor substantially and adversely affect the exercise of governmental powers. 191 Ariz. at 576-78, PP 35-40, 959 P.2d at 1267-69.
In Valencia, the supreme court stated that inconsistent conduct sufficient to invoke equitable estoppel must be absolute, unequivocal, "bear some considerable degree of formalism under the circumstances," and be taken by or have the approval of a person authorized to act in the area. Id. at 577, P 36, 959 P.2d at 1268. The court cautioned that the state may not generally be estopped due to the casual acts, advice, or instructions issued by non-supervisory personnel. Id.