Common(wealth) Knowledge #74: High Court overturns Victorian tax on electric vehicles

The High Court paves the way for a federal fuel excise for electric vehicles.

Australian zero and low emission vehicles regulation schemes have been called into question after the High Court of Australia struck down Victorian legislation that charged vehicle owners between 2 and 2.5 cents per kilometre driven on public roads.

The Victorian scheme, intended to provide the state government with revenue for the maintenance and construction of roads and transport infrastructure, was found to violate Section 90 of the Australian Constitution, which gives the Commonwealth government exclusive control over a form of taxation known as a “duty of excise.”

The decision comes just months after the Victorian government increased the charge for driving an electric or hydrogen vehicle to 2.8 cents, and 2.3 cents for plug-in hybrid vehicles, although the figures relied on by the High Court were those used when the lawsuit was filed in 2022.

A similar scheme was recently repealed in South Australia, while legislation to create this scheme has passed Parliament in New South Wales, but won’t come into force until 2027.

Currently, the Commonwealth government imposes an excise charge on the drivers of petrol and diesel vehicles, with a federal scheme for zero and low emission vehicles (ZLEV) being discussed, but pre-empted by Victoria.

When the Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) was introduced to Parliament, Treasurer Tim Pallas said that “the reforms included in this Bill ensures all motorists contribute their fair share to the cost of funding Victoria’s roads and road-related infrastructure,” arguing that it was unfair that ZLEV owners were exempt from the current regulations.

However, in a 4:3 judgment, the High Court struck down this legislation. Chief Justice Kiefel, in one of her final judgments, supported invalidating the scheme, and was joined by her replacement, Justice Gageler.

Section 90 gives the Commonwealth government exclusive control over “duties of customs and of excise.” This is meant to compliment Section 92, which ensures free trade and commerce across state borders.

The question of customs is pretty straightforward, as it relates to taxes levied on goods that cross borders. This helps prevent states from taxing goods that cross state borders, and also from imposing taxes on goods exported and imported internationally.

‘Duties of excise’ is much harder to interpret, because historically there has been some debate over its definition. Although a consumption-based tax, the definition accepted in Dickenson’s Arcade Pty Ltd v Tasmania (1974) limits it to taxes imposed on the production, manufacture, sale, or distribution of goods, not the point of consumption or use by the consumer.

This allows state governments to levy charges at the point of consumption, which is what the Victorian scheme did, applying to individual road users.

Duties of excise under the Dickenson’s Arcade definition include federal taxes on alcohol and cigarettes. These are only indirect taxes on the consumption of goods, as the cost of the taxes placed on manufacturers and producers is passed on to consumers, in the form of higher prices, to compensate for the profit lost by taxation.

The joint judgment of Chief Justice Kiefel and Justices Gageler and Gleeson, supported by Justice Jagot in a separate, but concurring, judgment, found that the definition under Dickenson’s Arcade is “descriptive but not exhaustive.”

Vanderstock v Victoria [2023] was brought by two consumers, Chris Vanderstock and Kathleen Davies against Victoria. The Commonwealth government and Australian Trucking Association intervened to support the plaintiffs, while all other state governments, but the Northern Territory and Australian Capital Territory, backed Victoria.

Technological developments make it easier now than ever to impose and recover consumption taxes so the majority agreed that it was best to nip the question of states using this to impose consumption taxes in the bud.

The joint judgment, with Jagot J concurring, said that “a tax on goods does not fall outside the constitutional conception of a duty of excise merely because it is imposed at the stage of consumption of those goods.”

The ZLEV charges are based on a person’s use or ‘consumption’ of their personal property on public roads. Given that this is a form of ‘goods,’ it is a duty of excise, and thus can only be charged by the Commonwealth government.

The majority agreed that it would be inconsistent to state that the fuel excise for conventional vehicles is a ‘duty of excise,’ but that a ZLEV charge isn’t. Simply having a different engine isn’t sufficient grounds for doing this.

By overturning the Victorian legislation, the High Court’s judgment will also compel New South Wales to repeal their legislation before it comes into force. It will also prevent state and territory governments from imposing any charge on the consumption of something that can be characterised as a form of ‘goods.’

This clears the way for the Commonwealth government to introduce its own excise fee on the owners of ZLEVs for the use of their vehicles on public roads, which causes ‘wear and tear’ on road infrastructure.

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