Introduction
The High Court of Australia has declared that Victoria’s electric vehicles tax is invalid in Vanderstock v Victoria [2023] HCA 30.
Aside from the obvious immediate effect that the tax will no longer apply, this decision will have radical consequences for the way State Governments collect tax revenue. It may also impact any company who has passed on the tax in its pricing models to counterparties.
Background and reasoning
The Victorian Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) (ZLEV Charge Act) required registered operators of zero and low emission vehicles (ZLEVs) to pay a per-kilometre charge for the use of ZLEVs on public roads.
The High Court declared that section 7(1) of the ZLEV Charge Act was invalid because it imposes a “duty of excise” within the meaning of section 90 of the Constitution.
Under section 90, the exclusive power to impose duties of customs and excise is reserved to the Commonwealth Parliament.
To reach this decision, the High Court reopened and overturned Dickenson’s Arcade,[1] which had established that a tax on the consumption of goods does not constitute a duty of excise.
The Court reasoned that a tax on the use or consumption of goods increases the cost of owning and using those goods for consumers. Such a tax can therefore affect the market in those goods by depressing demand for them, in much the same way as a sales tax.
Ultimately, what can be considered a tax on goods has been extended.
The High Court refused to reopen Capital Duplicators [No 2] and Ha, which remain good law and provide a foundation for GST.[2]
Impact
The more immediate impact of the decision is that Victoria’s ZLEV charge is invalid effective immediately. VicRoads has announced that customers are not required to pay any upcoming ZLEV related invoice or provide vehicle odometer readings.[3] Taxpayers may be entitled to a refund.
New South Wales and Western Australia had slated electric vehicle charges to come into effect in July 2027. This decision will effect those plans and, presumably, the State budgets.
In the longer term, taxes imposed by State governments that can be considered taxes on the consumption of goods can now be challenged.
As put by Gordon J, “uncertainty is the default and it is likely to remain the default for many years”.[4] The legal and practical operation of any subsequent State law imposing a tax could be subject to years of litigation as courts seek to determine how the new rule is to operate.
The impact on State governments’ ability to raise capital was touched on by other judges in the minority. The following taxes may be affected:
- As Steward J suggested, duties on the transfer of land which included goods, motor vehicle duties and vehicle registration charges, commercial passenger vehicle levies, gaming machine levies and point of consumption betting taxes, waste disposal levies imposed by the Environment Protection Act 2017 (Vic); and
- As Edelman J suggested, taxes on gifts or inheritances, payroll taxes, land taxes, taxes concerning the carriage, ownership, possession, use, or destruction of goods.
We don’t expect to wait long before the High Court is required to consider section 90 again.
Action
Companies should consider whether they have passed on the tax in their pricing models to counterparties. In these circumstances, they should seek advice regarding the impact of any refund entitlements of the taxpayer on the commercial arrangement with that counterparty.
This article was prepared by Elizabeth Dowrie (Associate).
[1] Dickenson’s Arcade Pty Ltd v Tasmania (1974) 130 CLR 177.
[2] Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561 and Ha v New South Wales (1997) 189 CLR 465.
[3] VicRoads will update the following page with details as to how they will implement the ruling: https://www.vicroads.vic.gov.au/registration/registration-fees/zlev-road-user-charge.
[4] Vanderstock v Victoria [2023] HCA 30, [416] per Gordon J.
