Victorian State Taxes: High Court rules Victoria’s Zero and Low Emission Road User Charge invalid

In Vanderstock v Victoria [2023] HCA 30, the Australian High Court handed down its decision and declared the Victorian Zero & Low Electric Vehicle road user charge to be constitutionally invalid.

Background on the Zero and Low Emission Road User Charge

Since 1 July 2021, the Zero and Low Emission Vehicle Distance-based Charge Act 2021 (ZLEV Act) imposed a user charge on all registered operators of electric, hydrogen and plug-in hybrid electric vehicles (ZLEV’s) in Victoria. The charge imposed was based upon kilometres driven, and intended to be a charge in lieu of the fuel excise imposed on all other emission emitting vehicles.

The road user charge was challenged by two Victorian registered ZLEV operators, on the grounds of being constitutionally invalid whereby only the Commonwealth has exclusive power to impose duties of customs and excise.

The challenge was supported by the Commonwealth Attorney-General and Australian Trucking Association, while being opposed by all State and Territorial Attorney-General’s.

After just over two years in operation, the High Court determined the specific road user charge in Victoria given effect by the ZLEV Act to be in contravention with section 90 of the Australian Constitution, which grants only the Federal Parliament exclusive power to impose duties of customs and excise.

The court’s 4:3 split majority decision has raised a lot of questions within the state taxes space, and while immediately impacting the Victorian Government’s ability to raise revenue on the use of Victorian electric vehicles, the decision may have broader ramifications on state taxes laws and the ability for states to raise taxation revenue.

High Court’s majority decision

There was no dispute before the High Court as to the characterisation of this charge, and both parties agreed this road user charge constituted a tax, opposed to a fee. The issue before the High Court was whether the road user charge amounted to a tax on the consumption of goods and subsequently a duty imposition of customs or excise.

In coming to its decision, the majority of Kiefel CJ, Gageler, Gleeson JJ and Jagot J overturned a previous decision held by the High Court in Dickenson’s Arcade Pty ltd v Tasmania (1974) 130 CLR 177, which until now has deemed a tax on the consumption of goods not to constitute a duty of excise.

The majority decision hinged on its interpretation of section 90 of the Constitution and more specifically what a duty of custom and excise includes. The majority reversed its decision in the Dickenson’s case, and held the view that a duty of excise included a tax on the consumption of goods and gave weight to how close the imposition of the tax was to the production, manufacture, sale and distribution of the good.

The court, in applying this to the ZLEV road user charge, adopted the view that the tax closely related to the use of the ZLEV’s and thus amounted to a tax on consumption of a good. Where the tax further was deemed to increase the cost of use of ZLEV’s and reduce the demand for ZLEV’s in Victoria, the court could not support any argument that declared the tax as anything other than a tax on the consumption of a good, and thus amounting to a duty of custom and excise.

Where to from here?

The implications of this High Court decision will indeed be multi-faceted and have obvious impacts on ZLEV registered owners, while also having a possible impact on the standing of individual state and territory based taxes. Other Australian jurisdictions following Victoria in imposing similar electric vehicle charges (such as New South Wales and Western Australia) are likely now to abandon those plans.

The Victorian Government, in conjunction with VicRoads, has removed any obligation going forward on ZLEV owners to provide odometer readings and settle outstanding debts relating to the road user charge. They are currently reviewing the implications of this decision, however based on the High Court’s finding where the road user charge is considered constitutionally invalid, an opportunity for refunds may arise for all individual ZLEV owners who were liable for the charge since its inception in July 2021.

In relation to the implications of the decision on other state taxes, the dissenting judgements highlight a number of state taxes that could be deemed to be unconstitutionally invalid based on the reasoning of the High Court majority. This includes duties paid on the transfer of goods transferred with land or businesses, motor vehicle duties and vehicle registration charges.

It remains to be seen whether these taxes will be challenged in the future on the basis of the reasoning set out in the Vanderstock decision.