Ever Considered Purchasing an Electric Vehicle?

In July 2021, the Victoria Government introduced the Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) (ZLEV Act) which required electric vehicle owners to maintain a log book of the use of the vehicle and pay an annual charge to the Victorian Government based on the number of kilometres driven in the preceding 12 months.

Unhappy about this law, two electric vehicle owners, Christopher Vanderstock and Kathleen Davies, decided to challenge the constitutional validity of the ZLEV Act.  Chris and Kath argued that the Victorian Government had no authority to impose such an excise (as that is an exclusive power of the Commonwealth) and relied on section 90 of the Constitution.

Section 90 of the Constitution states:

“Exclusive power over customs, excise, and bounties.

                   On the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive.

                   On the imposition of uniform duties of customs all laws of the several States imposing duties of customs or of excise, or offering bounties on the production or export of goods, shall cease to have effect, but any grant of or agreement for any such bounty lawfully made by or under the authority of the Government of any State shall be taken to be good if made before the thirtieth day of June, one thousand eight hundred and ninety-eight, and not otherwise.”

The key question put to the High Court was: is section 7(1) of the ZLEV Act invalid on the basis that it imposes a duty of excise within the meaning of section 90 of the Constitution?

The High Court stated that:

“The ultimate question of whether a tax is to be characterised as a tax on goods, so as in turn to be characterised as a duty of excise, turns on whether the tax meets the sometimes-overlapping elements of the seminal description given by Dixon J in Matthews having regard to the legal form and to the substantive operation of the tax.”[1]

In Matthews, Dixon J said that:

“If the word ‘excise’ received a meaning which confined its application to taxes the relation of which to the commodity concerned was of some narrow and strictly defined nature, as, for instance, by an arithmetical relation to quantity, it would not only miss the principle contained in the use of the word ‘excise,’ but it would expose the constitutional provision made by sec 90 to evasion by easy subterfuges and the adoption of unreal distinctions. To be an excise the tax must be levied ‘upon goods,’ but those apparently simple words permit of much flexibility in application. The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce. But if the substantial effect is to impose a levy in respect of the commodity the fact that the basis of assessment is not strictly that of quantity or value will not prevent the tax falling within the description, duties of excise.”[2]

The Victorian Government argued that the charge is not a tax on a good, but a tax on the activity of driving an electric vehicle on specified roads.  They argued that the charge was distinguishable from a duty of excise because the charge is imposed after production and point of sale, it is assessed periodically and the amount payable is calculated by reference to the distance driven instead of the quantity or value of an electric vehicle.

The High Court held by a 4-3 majority that section 7(1) of the ZLEV Act was unconstitutional as the charge it was imposing on consumers was a duty of excise within the meaning of section 90 of the Constitution.

The majority held that:

“Sections 90 and 92 of the Constitution combine to create the constitutional imperative that such market or markets as might exist now or in the future in Australia for ZLEVs or any other goods must exist within a free trade area comprising the whole of the geographic area of Australia. Throughout that free trade area, the people of Australia are guaranteed equality in such taxes as they are required to bear as consumers of ZLEVs or of any other goods. To that end, any tax on ZLEVs or 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.

The exclusivity of the power of the Commonwealth Parliament to impose duties of excise ensures that such uniform laws of trade or commerce or taxation as the Commonwealth Parliament has chosen to enact (in the form of the exemption from fringe benefits tax and the removal of customs duty) or might afterwards choose to enact for the purpose of stimulating the demand for ZLEVs, so as to reduce greenhouse gas emissions and to fulfil Australia’s international responsibilities under the Paris Agreement, cannot be distorted or impeded by State or Territory taxes on ZLEVs or on other goods. And if the projected diminution in revenue from the existing fuel excise attributable to the increasing take-up of ZLEVs is to be offset through the introduction of some other tax on ZLEVs or on other goods, that new tax on goods can only be imposed by the Commonwealth Parliament.”[3]

The High Court has determined that the charge imposed by the ZLEV Act would inevitably impact the demand for electric vehicles as articles of commerce and so therefore it was a duty of excise. This decision is ground-breaking as it broadens the scope of Section 90 and extends taxes on the use or consumption of goods after they have been acquired by consumers. This interpretation departs from previous judgments and establishes that taxes on the consumption of goods can influence the market for those goods by impacting consumer demand, similar to a sales tax. The implications of this decision are significant, not only for the specific tax on electric and hybrid vehicles but also for how state governments in Australia design and impose taxes and charges in the future.

However, it’s important to note that not all members of the High Court agreed with this decision. Justices Gordon, Edelman, and Steward offered strongly worded dissenting opinions, expressing concerns about the potential ripple effects of this decision on other state levies, such as land transfer duties, motor vehicle duties, vehicle registration charges, and various other taxes and levies.

In conclusion, the Vanderstock case sets a new legal precedent in Australia by broadening the definition of “duty of excise” to encompass taxes on the consumption of goods. This decision may have profound implications for future taxation and levies imposed by state governments across the nation. It underscores the importance of legal clarity in the rapidly evolving landscape of environmental policies and electric vehicle adoption. The High Court’s decision is expected to shape the future of how state governments levy fees, charges, and taxes in the country.

[1] Vanderstock v Victoria [2023] HCA 30 at 146.

[2] Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 263 at 304.

[3] Vanderstock v Victoria [2023] HCA 30 at 197-198.