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High Court Ruling: Victoria’s Electric Vehicle Charge held to be invalid

Published on January 10, 2024 by Maithri Panagoda AM and Kalpana Wagaarachchi

On 18 October 2023, the High Court delivered a landmark judgment in Vanderstock & Anor v State of Victoria [2023] HCA 30 in respect of the controversial Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) (‘ZLEV Act’) which imposed a road user tax on Victorian owners of electric and hybrid electric vehicles. The High Court held that the tax imposed by the Victorian Government was an excise duty; a tax that falls under the exclusive power of the Commonwealth Government pursuant to section 90 of the Commonwealth Constitution [1] and therefore, it was an invalid exercise of state power.

As a result, Victorian electric and hybrid electric vehicle owners are no longer required to pay a charge for road usage on ‘specified roads’[2]. The charge imposed by the ZLEV Act saw electric vehicle owners paying 2.6 cents per kilometre and hybrid electric vehicle owners paying 2.1 cents per kilometre.

We refer to our March 2023 article, where we outlined the parties’ submissions to the High Court in this case. This article explores the reasons for the recent High Court judgment as well as the potential implications.

Reasons for the Judgment

The ultimate question before the High Court was whether the charge imposed by the ZLEV Act was a duty of excise pursuant to section 90 of the Commonwealth Constitution. This was addressed by reference to two questions:

1. ‘Does the imposition of the ZLEV charge at the stage of consumption take it outside the scope of a duty of excise as a tax on goods?
2. If not, is the ZLEV charge properly characterised as a tax on goods?’[3]

The High Court answered no to the former and yes to the latter.

In a 4-3 majority, the High Court reasoned that a tax is characterised as a tax on goods and therefore an excise duty if:

1. ‘it bears a close relation to the production or manufacture, sale, distribution or consumption of goods; and
2. the tax is of such a nature as to affect the goods as the subjects of manufacture or production or as articles of commerce’ [4].

The High Court was convinced that the ZLEV charge satisfied the above two elements.

In its judgment, the High Court referred to the case of Dickenson’s Arcade Pty Ltd v Tasmania (‘Dickenson’s’) which was submitted as an authority by the State of Victoria to contend that a tax on the consumption of goods can never be an excise [5]. The High Court reopened and overruled this decision. Consequently, the High Court’s decision to overrule Dickenson’s highlights the broad power of section 90 of the Commonwealth Constitution in its application to the use and consumption of goods.

It was therefore held that the ZLEV charge is a tax on the use of ZLEVs rather than a fee for service or on the activity of driving[6]. Accordingly, the charge is an excise which is an inland tax within the meaning of section 90 of the Commonwealth Constitution, regardless of where the vehicles have been manufactured [7].

Implications

1. The validity of existing state-imposed tax laws may be called into question as falling within the scope of taxes in relation to the use and consumption of goods.
2. Other states and territories are also prohibited from imposing equivalent taxes on electric vehicles.

Interestingly, this was the first time this century that the High Court considered section 90, but this may not be the last!