High Court’s EV decision threatens state taxes

The decision promoted furious dissent from Justice James Edelman, who said it neglected precedent and could threaten the “proper functioning of a federal system of distribution of powers”.

State taxes on the registration of luxury vehicles and the transfer of livestock are two areas that lawyers said could face immediate challenges, but they also said it could cover any state tax on the sale or use of goods – and even mining royalties.

‘World’s worst EV policy’

There is also doubt over whether EV owners can recover the amounts paid, as taxpayers can bring an action in Victoria to claw back taxes paid as a mistake only within 12 months of the payment.

The two EV car owners who brought the case – nursing manager Chris Vanderstock and engineering consultant Kath Davies – said they were delighted with the verdict on what they called “the world’s worst EV policy”.

“We hope that today’s decision paves the way for the federal government to make coherent national policy which accelerates the transition to electric vehicles,” Mr Vanderstock said.

The Act required the two owners to provide an odometer reading 14 days after it began on July 1, 2021. The charges are now 2.8¢ a kilometre for an electric vehicle (Mr Vanderstock) and 2.3¢ for a plug-in hybrid electric vehicle (Ms Davies). It affects about 15,000 car owners.

Under section 90, the states cannot impose a tax that is a “duty of customs or excise”. Excises are taxes on the domestic production, manufacture, distribution or consumption of goods. This is the reason the states cannot impose their own GST or sales taxes.

The plaintiffs said the charges were a tax on their consumption of goods – being their electric and hybrid vehicles.

Victoria and the other states argued the charge was a tax on an activity – driving on public roads inside and outside Victoria – and could not come within section 90.

The majority comprised Chief Justice Susan Kiefel, Justice Stephen Gageler and Justice Jacqueline Gleeson – who combined in a joint judgment – and Justice Jayne Jagot.

They said the issue was whether the tax had a close relation to the production or manufacture, sale, distribution, or consumption of goods, and also whether it might affect their commercial appeal.

“The [zero and low emission vehicle ZLEV] charge is a tax on goods because there is a close relation between the tax and the use of ZLEVs, and the tax affects ZLEVs as articles of commerce, including because of its tendency to affect demand for ZLEVs.”

They overruled a 1974 case in Dickenson’s Arcade, which they said had led to “an anomalous and unsustainable exception to the understanding of the scope and operation of section 90 of the Constitution”.

“A tax properly characterised as a tax on goods does not fall outside the constitutional conception of a duty of excise merely because it is imposed at the stage of consumption of those goods.”

‘All quite a mess’

The joint judgment noted the difference between duties of customs and excise.

“Duties of customs are ‘border taxes’ on goods. They are imposed at the stage of importation or exportation.

“Duties of excise are inland taxes on goods. Taxes on goods imposed at the stage of sale or distribution accordingly answer the description of duties of excise, irrespective of where those goods have been produced or manufactured, just as taxes on goods imposed at the stage of manufacture or production answer the description of duties of excise.”

K&L’s Mr Cridland said there was a notable double-up when it came to taxing luxury vehicles, with some states imposing premium rates of registration duty.

“The federal government already imposes its own luxury car tax on high-value cars, so these premium registration duty rates are a double-up,” he said.

“Some states have rules that deem assets that are affixed to land, such as wind turbines or solar panels, to be land for duty purposes.

“This means they can be subject to duty when sold, even if sold separately to the land. It would be unsurprising if the imposition of transfer of duty on such assets will be challenged in future.

“Other taxes on the sale or use of goods that could potentially be challenged may include mining and petroleum royalties. Again, that would be taking the decision to an extreme, but will no doubt need to be considered.”

He noted the states gave up their income tax collection powers during World War II, leaving their revenue sources largely confined to property taxes and payroll tax.

“There have been concerns, particularly at a state level, about the way the High Court interprets section 90 and the implications it has on the Federation,” Mr Cridland said.

“It’s all quite a mess, and there are advocates of states rights that would love to see the states take back their income tax powers.”

The ramifications for state and territory governments are “potentially monstrous”, said state tax law solicitor Joanne Seve, including on the tens of billions raised each year via mining royalties.

“Not just EVs, but so many other taxes that states and territories collect that are connected with goods now come into question,” she said.

“When we speak of goods do we or don’t we include minerals? Imagine if all the royalties had to be refunded. This decision has brought about a degree of uncertainty that I, practising in state taxes, haven’t witnessed for quite a lot of years”.