Australia: Should electric vehicle owners be hit with an extra charge? High Court to determine the constitutional validity of a road user charge in blockbuster case

The landmark High Court case of Vanderstock & Anor v. The State of Victoria is yet to be decided.¹ The verdict could transform the future of state and Commonwealth law-making in relation to taxation.

The issue before the High Court is to determine the constitutional validity of the Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) ( 'ZLEV Act'), which was introduced by the Victorian government in levying a road user tax for owners of electric and hybrid electric vehicles. Whilst both state and Commonwealth governments share the power to levy taxes, section 90 of the Commonwealth Constitution explicitly states that the imposition of an excise duty, a tax on certain goods, is an exclusive power of the Commonwealth, and thus states are excluded from legislating on the matter. The plaintiffs submit that the ZLEV Act imposes a charge which is an excise duty, and not a "tax".

The judgment will impact electric and hybrid electric vehicle owners in Australia and will either reinforce or reassess the division of powers between states and the Commonwealth government, potentially shifting the existing legal landscape in respect of Commonwealth and state financial relations.

Background

Before July 2021, electric and hybrid electric vehicle owners were subject to road usage tax exemptions on the basis that electric vehicles are electrically powered, and thus environmentally efficient.² However, the Victorian government introduced the ZLEV Act to ensure "uniformity and fairness" for all road users. Section 7(1) of the ZLEV Act mandates that a charge be paid for the use of electric and hybrid electric vehicles on 'specified roads'.³ The current charge for electric vehicle owners is 2.6 cents per kilometre and 2.1 cents per kilometre for hybrid electric vehicles.

The charge is supplemented with mandatory reporting requirements on electric vehicle owners to declare the kilometres travelled annually.⁴

On 16 September 2021, the plaintiffs initiated a claim arguing that the ZLEV Act is contrary to section 90 of the Commonwealth Constitution and is an invalid exercise of state power.

The case was heard before the High Court between 14 February and 16 February 2023.⁵ A decision is to be handed down by mid-2023.

All Australian states and territories have made submissions in support of the State of Victoria, with the Commonwealth having made submissions in support of the plaintiffs.

The Plaintiffs' Submissions

The plaintiffs submit that the electric vehicle charge is equivalent to a tax on the consumption of goods, which is to be characterised as an excise duty and therefore, falls under the scope of section 90 of the Commonwealth Constitution.⁶

They argue that the State of Victoria has inappropriately and unconstitutionally exercised its power to impose a levy, a power solely in the hands of the Commonwealth government.

The plaintiffs' arguments are based on the following propositions:

• The electric vehicle charge is an inland tax, and is therefore, not a "fee for a privilege" or a "fee for service".⁷
• Section 7(1) of the ZLEV Act applies to the use of electric vehicles on specified roads which is identifiable as a step towards consumption.⁸
• The ZLEV Act is discriminatory towards electric vehicles owners.⁹
• The term 'specified roads' pursuant to section 7(1) of the ZLEV Act is too wide and therefore, places a significant burden on the registered operator to identify whether their vehicle is driven on a specified road when claiming an exemption.¹⁰

The Defendant's Submissions

The defendant's position is that the electric vehicle charge is a tax on the 'activity of driving',¹¹ rather than a tax on the consumption or use of the vehicle, thus exempting it from the scope of section 90 of the Commonwealth Constitution.

The defendant's arguments are based on the following propositions:

• If the charge is a tax on the consumption or use of the vehicle, it is not an excise duty.¹²/li>
• The definition of excise at Federation, 'being a tax on locally produced goods' should be upheld.¹³ Therefore, the electric vehicle charge is not an excise duty because electric vehicles are manufactured overseas.

Potential Implications

Questions of Validity of Existing State-Imposed Tax Laws

If the High Court rules in favour of the plaintiffs, there could be implications on the characterisation of existing tax laws imposed by state governments. For example, in the present case, the plaintiffs argue that the electric vehicle road user charge imposed by the Victorian government, is a tax on the consumption of goods i.e., an excise duty. If the plaintiffs are successful, existing state-imposed tax laws may be scrutinised as falling within the scope of taxes in relation to the use or consumption of goods, which would therefore call into question its validity.

Accordingly, the High Court's decision may unfavourably impact the division of powers between state and Commonwealth governments, undermining Australia's democratic legitimacy.

States and Territories to Pursue Equivalent Charges

If the State of Victoria succeeds in the High Court, other state and territory governments will likely introduce and pursue equivalent charges on electric and hybrid electric vehicles.

In line with Victoria's position, New South Wales has produced equivalent taxes on electric vehicles which are deemed to apply from 1 July 2027 or when electric vehicles surpass the 30 percent threshold of new vehicle sales.¹⁴ This may discourage consumers from purchasing electric and hybrid electric vehicles and undermine Australia's plans for a more sustainable future.

On the other hand, if the plaintiffs succeed, other state and territory governments will be prohibited from imposing a similar tax.

The parties are to make further submissions to the High Court before a determination is made in mid-2023.

Watch this space.

Footnotes

¹ (High Court of Australia, M61/2021, commenced 16 September 2021).

² 'ZLEV Road-User Charge', Vic Roads (Web Page) [6] https://www.vicroads.vic.gov.au/registration/registration-fees/zlev-road-user-charge.

³ Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) s 7(1).

⁴ Ibid s 11(3)(a).

⁵ (High Court of Australia, M61/2021, commenced 16 September 2021).

⁶ Christopher Vanderstock and Kathleen Davies, 'Submissions of the Plaintiffs', Submission in Vanderstock & Anor v. The State of Victoria', M61/2021, 19 September 2022, 3, 17 [46].

⁷ Ibid 18 [47].

⁸ Ibid 18 [49].

⁹ Ibid 19 [52].

¹⁰ Ibid [54]-[60].

¹¹ The State of Victoria, 'Defendant's Submissions', Submission in Vanderstock & Anor v. The State of Victoria', M61/2021, 24 October 2022, 5 [11].

¹² Ibid 6-14.

¹³ Ibid 15 [41], 16, 17.

¹⁴ Electric Vehicles (Revenue Arrangements) Act 2021 (NSW) s 31(2).

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