Australian High Court finds Victoria's electric vehicle tax invalid, puts Commonwealth in the driver's seat for future electric vehicle taxes

What you need to know

• The High Court of Australia has struck down charges on electric vehicle use under Victoria's Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) (ZLEV charge) as unconstitutional following a test case challenge from two electric and hybrid vehicle owners in Vanderstock & Anor v State of Victoria [2023] HCA 30.
• The High Court, by a 4-3 majority, found that the ZLEV charge imposed a "duty of excise" – a tax on goods – within the meaning of section 90 of the Constitution. As only the Commonwealth can impose duties of excise, this was beyond the power of the Victorian Parliament and the charge was found to be invalid.
• The landmark decision has substantial implications for electric vehicle taxes in Australia, as only the Commonwealth can now impose such taxes.
• Other States and Territories that had planned to impose electric vehicle charges similar to the ZLEV charge must now abandon those plans.
• It is currently unknown whether the Commonwealth will step in and impose a charge equivalent to the ZLEV charge.

What you need to do

• Look out for whether the Commonwealth introduces a national distance-based road user charge for electric vehicles.
• Monitor future developments in the electric vehicle policies and strategies of Commonwealth and State and Territory governments, as they attempt to address the ramifications of the High Court's decision.

Background and arguments

The plaintiffs in the case were Christopher Vanderstock and Kathleen Davies, respective owners of electric and hybrid vehicles.

From 1 July 2021, the plaintiffs and other Victorian electric vehicle drivers were required to maintain a log of the use of their vehicles and pay the annual ZLEV charge to the Victorian Government based on the number of kilometres driven on specified roads in the preceding 12 months. "Specified road" is defined under the Act to include, in effect, all public roads in Australia.

The plaintiffs submitted that the ZLEV charge was invalid and unconstitutional, as it was properly to be characterised as an "excise". The power to impose an excise remains the exclusive power of the Commonwealth under section 90 of the Constitution. The plaintiffs submitted that the State of Victoria therefore did not have the constitutional power to impose the ZLEV charge.

The State of Victoria argued that the tax was a tax on the "activity" of driving an electric vehicle on a specified road rather than a consumption of goods, and therefore does not impose a duty of excise.

Reflecting the importance of the test case, the Commonwealth intervened in support of the individual plaintiffs and each of the other States and Territories intervened in support of the State of Victoria's position. The Australian Trucking Association sought leave to be heard in written submissions only as an amicus curiae.

We outlined the positions of the parties in our February 2023 article Australian High Court test case set to determine the validity of Victoria's electric vehicle tax.

The High Court's reasons

In a split 4-3 decision, Chief Justice Kiefel, Justice Gageler, Justice Gleeson (in a joint judgment) and Justice Jagot comprised the majority. In dissent were Justice Gordon, Justice Edelman and Justice Steward.

Chief Justice Kiefel, Justice Gageler and Justice Gleeson determined the ultimate question whether the ZLEV charge was properly characterised as a duty of excise within the meaning of s 90 can be 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? - No
2. If not, is the ZLEV charge properly characterised as a tax on goods? - Yes

In addressing the first question the High Court reopened and overruled its decision in Dickenson's Arcade Pty Ltd v Tasmania (1974) 130 CLR 177, which held by majority that a tax on the consumption of goods was not an excise.

Chief Justice Kiefel, Justice Gageler and Justice Gleeson stated that the 1974 case was an anomalous and unsustainable exception to the understanding of the scope and operation of s 90 of the Constitution adopted in the more recent decisions in Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561 and Ha v New South Wales (1997) 189 CLR 465.

The High Court by majority held that an excise within the meaning of s 90 is an inland tax on goods.

The Court had regard to previous decisions which considered the intention of s 90 to ensure uniformity across the Commonwealth in the taxes borne by consumers. The purpose of uniformity in excises was to prevent internal barriers to trade. Therefore, excises could only be imposed by the Commonwealth.

The High Court majority held that whether a tax is to be characterised as a tax on goods turns on whether :

1. The tax bears a close relation to the production or manufacture, sale, distribution or consumption of goods; and
2. Whether the tax is of such a nature as to affect the goods as the subjects of manufacture or production or as articles of commerce. That is, whether the tax affects the supply and price of, or demand for, the goods.

The majority held that the ZLEV charge is a tax on goods because there is a close relation between the tax and the use of the ZLEVs, and the tax affects the demand for ZLEVs.

Potential implications of the case

The case comes amid a widespread push from States, Territories and the Commonwealth to increase the number of electric vehicles on Australian roads. This push supports governments' environmental and sustainability goals with widespread take up of electric vehicles.

Distance based charges for use of electric vehicles has been considered a replacement tax for the fuel excise historically used to fund maintenance of Australian roads.

States and Territories considering the potential for road user charges for electric vehicles similar to the ZLEV charge will now abandon those plans.

The Commonwealth's April 2023 National Electric Vehicle Strategy has not commented on what strategy will be used once the fuel excise begins to decline, although it is actively being monitored by the Commonwealth and is factored into budget estimates. Those questions will need to be answered by the Commonwealth eventually, as the High Court's decision in Vanderstock puts the Commonwealth in the driver's seat for any future excises on electric vehicle use.

Authors: Angus Foley, Partner; Costa Koutsis, Partner; Sarah Ross-Smith, Partner; and Julian Lee, Lawyer.