Electric vehicle taxes unplugged as High Court forces federal rethink

Tim Gordon, Chris Piggott-McKellar
27 Oct 2023
Time to read: 2 minutes

State and Territory Governments are on notice after a landmark decision from the High Court concerning their revenue-raising capacities found that a Victorian tax on electric vehicle usage was unconstitutional.

For the first time this century, the High Court in Vanderstock v Victoria was asked to consider the scope of section 90 of the Australian Constitution, which gives the Commonwealth the exclusive ability to levy "excise" taxes.

There has been a long-running debate over whether a tax on consumption is an excise tax under the Constitution.

States have long been unable to impose taxes on the manufacture and distribution of goods. However, once those goods passed into the hands of consumers, they were traditionally considered consumption taxes and not excise taxes.

In a 4:3 majority decision, the High Court held that a Victorian tax which required the registered operator of an electric, plug-in hybrid electric or hydrogen vehicle to pay a charge for the use of those vehicles, based on kilometres travelled, was an "excise" tax which only the Commonwealth could levy.

A tax properly characterised as 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 majority reached this view based on a mixture of practical and federal considerations.

As a practical matter, the Victorian tax had the potential to increase the cost of electric vehicles to consumers – which made it an inland tax on goods.

As a federal matter, the plurality of Chief Justice Kiefel and Justices Gageler and Gleeson held that section 90, alongside section 92, of the Constitution, created a "constitutional imperative" that goods must exist in a "free trade zone" across all of Australia, where Australians are guaranteed equality in such taxes as they bear on Australians as consumers on goods.

The following statement appears to widen the scope of an excise tax, practically limiting the revenue raising capacities of the States:

"any tax on … any other goods – whether imposed at the stage of their importation into Australia or production or manufacture in Australia or at any subsequent stage in their distribution, sale, ownership, control, use, resale, reuse or destruction in Australia or export from Australia – can be imposed only by uniform national legislation."

In short, an excise tax is now interpreted as an inland tax on goods at any stage of the life cycle of those goods.

Justice Jagot separately agreed with the plurality that the Victorian tax was an unconstitutional excise tax. However, her Honour also said that an electric vehicle scheme which operated as a "licence or permit fee for an activity properly the subject of a regulatory scheme" may fall into a separate category and be constitutionally permissible for States to levy.

Justices Gordon, Edelman and Steward wrote separate dissents, where Justice Edelman in particular identified several State taxes which might be at risk by the decision, including State payroll taxes in their application to companies producing goods, taxes concerning the carriage of goods generally, and taxes on the ownership, possession, use, or destruction of goods. Justice Gordon cautioned that the result of the decision is that the "legal and practical operation of any subsequent State law imposing a tax… is likely to be the subject of years of litigation as the courts seek to determine how the new rule is to operate… uncertainty is the default and it is likely to remain the default for many years.”

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