By Graeme Johnson, Hugh Paynter and Edward Einfeld


The High Court of Australia has held in Vanderstock v Victoria (18 October 2023) that section 7(1) of Victoria’s Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) (ZLEV Charge Act) is invalid on the basis that it imposes a duty of excise within the meaning of section 90 of the Constitution (Section 90).

The ZLEV Charge Act required registered operators of electric vehicles to pay a per-kilometre charge to the State government. The charge applied wherever the vehicle was driven on public roads in Australia.

By a four to three majority, the High Court has now extended the meaning of duties of excise in Section 90 to include taxes imposed on goods at any stage in their life cycle – including taxes imposed on the consumption or use of goods. The decision marks a significant shift in the law. Previously it was thought that an excise was a tax imposed on steps up to but not including consumption.

Previous Position

  • A Court looks beyond mere legal form of a State law and considers its practical effects.
  • An excise is a tax. The essential elements of a tax is that it is a compulsory exaction of money by a public authority for public purposes, enforceable by law.
  • An excise is a tax on a step in the production, manufacture, sale or distribution of goods up to but not including consumption of them by use or destruction.
  • An excise is a tax on goods – a tax on services (alone) is not an excise.
  • Payments for services rendered or the acquisition or use of property, or a fee for a privilege, are generally not taxes but there needs to be a discernible relationship between the charge and what is being provided.

What has changed?

The Court will continue to look beyond mere legal form.

What is considered to be a tax on goods has been extended.

Taxes imposed by State governments that can be characterised as “taxes on the consumption of goods” are now capable of being challenged.

What was not considered were the elements of a tax and the nature of payments for services.

It is likely that:

  • States can continue to tax services as long the tax is not in reality a tax on goods.
  • States can impose fees (including ‘royalties’) for goods or services where there is a discernible relationship between the fee and what is being provided. The fee must not be a tax.

The decision will have immediate, and possibly long-ranging, implications for State taxes:

  • Other States’ road user charges: The decision will affect planned electric vehicle charges slated in New South Wales and Western Australia, which are due to come into effect in July 2027. The NSW Wales Premier Chris Minns noted on the day of the decision that the judgment “puts pressure on the New South Wales budget, particularly when it comes to revenue and the road user charges that were applied by the previous government that generate not just hundreds of millions of dollars, but billions of dollars to NSW Treasury”.
  • Other State taxes potentially at risk: More far-ranging implications from the decision were noted in the judgment itself. Some of the examples referred to in the dissenting judgments were suggestions about the potential inability of States to charge:
    • duties on the transfer or conveyance of goods as part of dutiable transactions;
    • motor vehicle duties;
    • vehicle registration charges;
    • commercial passenger vehicle levies;
    • gaming machine levies;
    • ‘point of consumption’ betting taxes;
    • waste disposal levies;
    • taxes on a gift of goods or an inheritance of goods;
    • payroll taxes which have an indirect effect on companies producing goods;
    • industrial land taxes imposed on a producer of goods; and
    • taxes for a licence to carry on a business.

Each of these, and others (including ‘User Pays’-type provisions, such as congestion levies and emergency services levies) will require closer consideration. By way of example, it appears unlikely that a payroll tax would ultimately be determined to be a duty of excise, given the treatment of it in the judgments in this case and previous cases. The Court also sought to maintain the distinction between taxes imposed on ‘activities’ as opposed to taxes imposed on the use or consumption of a good, however it is apparent that the determination of whether a tax is one on an activity or on the consumption of a good will be highly fact‑specific and raises considerable legal uncertainty.

  • Royalties will need to be assessed on a case-by-case basis: The decision confirmed the position that an excise is a tax. The outer bounds of what constitutes a tax is not immediately clear. The term royalty covers a variety of fees, charges or rents, though they are not generally regarded as taxes. However, whether a particular royalty could operate as a tax on goods in the manner contemplated by the majority in this case will need to be assessed on a case-by-case analysis of the particular royalty.

Outcome of Case

Section 90 of the Constitution provides that the power of the Commonwealth Parliament “to impose duties of customs and of excise” is “exclusive” of the States and Territories.

Section 7(1) of the ZLEV Charge Act required the registered operator of a zero or low emissions vehicle (ZLEV) to pay a charge for the use of a ZLEV on specified roads (being, in effect, all public roads in Australia) (ZLEV charge). For the 2021-2022 financial year, the ZLEV charge was prescribed as 2.5 cents per kilometre for electric vehicles or hydrogen vehicles, and 2 cents per kilometre for plug-in hybrid electric vehicles.

The plaintiffs were two registered operators of ZLEVs who had paid the ZLEV charge. They commenced proceedings claiming that the ZLEV charge was a “duty of excise” under Section 90, and was therefore invalid.

By a majority of four Justices to three (Kiefel CJ, Gageler and Gleeson JJ (Joint Reasons), and Jagot J; Gordon J, Edelman J and Steward J dissenting), the Court held that the ZLEV charge was invalid.

The Court’s Decision in Detail

The Majority

The majority consisted of the Joint Reasons of Kiefel CJ, Gageler and Gleeson JJ, and the reasons of Jagot J. The majority held that a duty of excise is an “inland tax on goods” imposed “at any stage of the life cycle of those goods”, whether that stage be their “production or manufacture in Australia or at any subsequent stage in their distribution, sale, ownership, control, use, resale, reuse or destruction in Australia”. In establishing that test, the Court reopened and overruled its 1974 decision of Dickenson’s Arcade v Tasmania, finding that the exclusion of taxes on “consumption” in that case was anomalous and should be abandoned.

The reasons of the majority judgments are complex and lengthy, but, in simplified terms, the majority’s reasoning can be distilled as follows:

  • Inland taxes on goods: The majority discerned from its 1990s decisions of Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] and Ha v New South Wales that “duties of customs and of excise” must be construed as exhausting the categories of taxes on goods and, therefore, duties of excise are “inland taxes on goods” (by comparison to duties of customs) which are not limited to taxes on production, manufacture, sale and distribution (which steps had been affirmed in those cases).
  • The purpose of Section 90: The Joint Reasons expressly “restated” the purpose of Section 90 from earlier cases as being “to give the Commonwealth Parliament exclusive control of the taxation of goods so as to ensure that the execution of whatever policy the Commonwealth Parliament might choose to implement through the enactment of uniform laws of trade, commerce or taxation could not be hampered or defeated by State or Territory taxation of goods.” The Joint Reasons concluded that, in line with that restated purpose, limiting “duties of excise” to taxes on goods “in the stream of production and distribution is irreconcilable with the purpose of s 90”.
  • Effect on demand for goods: The majority held that taxes on goods imposed on consumption “can tend to depress demand for those goods” in the same way as taxes upon production, manufacture, sale or distribution of goods can. The Joint Reasons stated that “a tax on goods imposed on the consumption of those goods will increase the cost of those goods to consumers … [b]ecause consumers, acting rationally, will tend to factor the cost of consumption into the price they are prepared to pay for goods to be consumed”. It was held that because of that tendency to depress demand, a State tax on the consumption of goods “can impact the flow of trade in goods into and out of that State or Territory”, thus interfering with Commonwealth policies concerning the taxation of goods and the restated purpose of Section 90.

Accordingly, the majority held that the question of whether a tax is to be characterised as a tax on goods, so in turn as to be a duty of excise, turns on the answers to two questions:

  • First, whether the tax bears “a close relation to the production or manufacture, sale, distribution, or consumption of goods”. The majority distinguished here between a tax on goods, and a fee for a service; and
  • Second, 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”, in particular whether the effect on goods as articles of commerce shows a natural tendency to depress demand for the goods. The scope of this second question is particularly unclear at this stage, and its application to taxes on consumption was opposed in each of the dissenting judgments.

The majority found that the ZLEV charge was invalid as a duty of excise because it bore a close relation to the use of ZLEVs and it had a natural tendency to depress the demand for ZLEVs.

The Minority

The minority consisted of three separate judgments of Gordon J, Edelman J and Steward J. In lengthy reasons totalling 268 pages, their Honours each delivered pointed and forthright dissents. And each took largely differing approaches. Notwithstanding that Gordon J, Edelman J and Steward J were in the minority, their judgments may provide guidance in assessing the likely impact of the majority’s decision on other State taxes, levies, fees and charges. We summarise the key points from those judgments below.

Justice Gordon
  • Justice Gordon did not agree with the majority’s statement that a duty of excise has been held to be an “inland tax on goods” simpliciter, without the limitation of the steps of production, manufacture, sale or distribution. Relying on authority that a duty of excise must be a tax that affects goods as the subjects of “articles of commerce”, her Honour emphasised that a duty of excise, is, in essence, a “trading tax” – a tax in respect of “commercial dealings in commodities”, being goods in the stream of being brought to market. Such taxes, her Honour held, have a natural tendency to enter into the purchase price of goods; whereas taxes on consumption do not have that effect.
  • Her Honour criticised the majority view that the assessment requires determining whether a tax has a tendency to depress the demand for goods, on the basis that the approach would take “an observed economic consequence of a tax on the production, manufacture, sale or distribution of goods as articles of commerce – a natural tendency to enter the purchase price of goods – and reformulate and expand that economic consequence as a tendency to dampen, depress or affect demand”. Her Honour’s view was that the effect a tax will have on demand or the market for goods will depend on a number of complex factors, including “the size of the tax”, “consumer preferences”, “the regulatory environment”, “the relationship with any complementary goods” and “the purchase price of … substitutable goods”.
Justice Edelman
  • Justice Edelman discerned from the authorities three “constraints contained in the essential meaning or application of an excise”:
    1. that the tax must be anticipated “to have a real and substantial economic effect in a market for the sale of goods (as articles or subjects of commerce)”;
    2. that economic effect must “be an effect on the supply-side of that market”; and
    3. that economic effect on the supply-side of a market must be a “direct effect in that market” rather than an indirect effect due to “an economic effect in a different market”.
  • Edelman J saw the majority’s decision to amount to a removal of the second and third constraints. As with Gordon J, his Honour criticised the majority’s approach to the concept of demand, which, in his Honour’s view, rested on false economic assumptions.
Justice Steward
  • Justice Steward, unlike Justices Gordon and Edelman, first held that the ZLEV charge was not a tax “on” goods at all. In accepting Victoria’s argument, his Honour held that the ZLEV charge was a tax on the use of ZLEVs in defined circumstances, rather than a tax on the vehicle itself. It was therefore not even a tax upon consumption. This analytical reasoning identifies a potential basis to justify a number of other State charges.
  • In the alternative, if the tax was a tax on consumption, his Honour considered Dickenson’s Arcade and its subsequent consideration at length, holding that that decision should not be reopened. It retained its precedential value in having established that taxes on goods, once out of the stream of production and distribution, are not duties of excise. In particular, and similarly to Justice Gordon, his Honour emphasised the nature of duties of excise as “trading taxes”, concerned with commercial dealing in commodities “as distinct from just taxes on ‘goods’”.

Final Comment

The composition of the High Court is about to change with the retirement of Chief Justice Kiefel replaced by Justice Gageler and the appointment of Justice Beech-Jones. Vanderstock reflects a long-term trend of the High Court to support the breadth of centralised powers over revenue and other heads of legislative authority. It is consistent with the inclination of the incoming Chief Justice to support of the ability of the Commonwealth to exercise legislative responsibility for nationally uniform economic measures.

Hugh Paynter
Hugh Paynter
+61 2 9225 5121
Jinny Chaimungkalanont
Jinny Chaimungkalanont
+61 418 479 417
Graeme Johnson
Graeme Johnson
+61 2 9225 5405
Edward Einfeld
Edward Einfeld
Senior Associate
+61 2 9225 5541