Late last year, by narrow majority, the High Court of Australia ruled in Vanderstock v State of Victoria [2023] HCA 30 (Vanderstock) that the Victorian Zero and Low Emission Vehicle Distance-Based Charge Act 2021 (Vic) (ZLEV Act) was unconstitutional and invalid, given the annual charge imposed by the Victorian Government was a ‘duty of excise’ within the meaning of section 90 of the Australian Constitution – a privilege exclusively reserved for the Commonwealth.

While the decision is focused on the legality of the Government’s ability to impose an annual charge on zero and low emission vehicles, the impact of the Vanderstock decision is potentially more far-reaching – including the constitutional validity of any state tax which is properly characterised as a ‘charge on goods’ (under the new test laid down by the High Court).

The question (particularly in light of Queensland’s recent significant increase to royalty rates) is whether State mineral royalties might also be impacted by the Vanderstock decision, allowing them to be challenged.

The Vanderstock decision

Pre-Vanderstock

Prior to Vanderstock, the test as to what amounted to a duty of excise was determined by the High Court in Dickenson’s Arcade v Tasmania (1974) 130 CLR 177. In that decision, the Court was of the view that a tax on the consumption of goods could not amount to a duty of excise – in particular, that a duty of excise was a tax imposed on a step in the production, manufacture, or distribution of goods. Under that framework, it followed that any state tax imposed on the consumption or use of a goods could not amount to an excise duty and, as a result, were a valid exercise of power granted to the States to impose taxes under the Constitution.

Section 90 of the Australian Constitution grants the exclusive right to the Commonwealth for the imposition of customs, duties of excise and granting bounties on the production and export of goods.

The ZLEV Act

The ZLEV Act required the registered operators of zero and low emission vehicles (ZLEV) to pay an annual charge to the State of Victoria based on the number of kilometres driven on all public roads in Australia during the preceding 12 months (ZLEV Charge). The premise of the charge was to ensure that users of such vehicles (who were not required to pay fuel taxes) contributed to the upkeep of public roads.

Vanderstock

In Vanderstock, the taxpayer asserted that the ZLEV Charge was invalid on the basis that it imposed a tax on goods which concerns a step in the life cycle of the production of the good, and imposing the ZLEV Charge was therefore the imposition of a duty of excise and was an invalid exercise of power by the Victorian Government. The State of Victoria contended that the ZLEV Act was valid and the ZLEV Charge was on the ‘activity’ of driving the electric vehicle and that it aligns with the long-standing position with respect to characterising a ‘duty of excise’.

The majority decision in Vanderstock has expanded the concept of what amounts to a duty of excise – with such duties no longer limited to taxes imposed before goods reach a consumer, but also encompassing taxes on the importation, production, manufacture, consumption, ownership, use, resale, reuse or destruction of goods in Australia.

The decision in Vanderstock extends a tax on goods to include taxes on consumption of goods. This brings into question duties, levies, and taxes at the point of consumption and other state-based fees imposed on goods.

The dissenting judgment of Edelman J suggested that this decision may challenge the ability for the States and self-governing Territories to charge duty on the transfer as part of a dutiable transaction, charge gaming machine levies, waste disposal levies, taxes on gifts or inheritance of goods, licences or vehicle registration charges or motor vehicle duties (amongst other things). However, the majority of the High Court sought to maintain a distinction between taxes imposed on ‘activities’ as opposed to taxes imposed on the ‘use’ of the good with the latter more likely than not to be held to be invalid.

Could mineral royalties be classified as a duty of excise?

Royalties have been imposed by the States and Territories on minerals such as iron ore, coal, onshore oil and gas, bauxite, copper, gold and lithium. These payments are made to the owner of the resources for the right to extract the resources and generally are paid to the relevant State or Territory Government. The revenue made is significant, with the States and Territories raising $25.8 billion in mining revenue in the 2021-2022 year.

If royalties were held to be constitutionally invalid, the ability for the States and Territories to effectively raise revenue will be significantly threatened, especially, resource-rich states such as Western Australia, Queensland and New South Wales (where the majority of mining royalty revenue is derived (at 47%, 35% and 14% of total mining revenue respectively).

Moving forward

At this stage, the consequences of the Vanderstock decision are uncertain and its limits in challenging State or Territory-based royalties is unclear. What is evident is that the implications of Vanderstock goes beyond the ZLEV Charge as it challenges the validity of State charges on the production, manufacture, sale, distribution, and consumption of goods. Whether Vanderstock impacts the minerals royalty regime will depend on the operation and legislative framework in each jurisdiction which would have to be considered in the context of the particular royalty and on the individual circumstances of the client.

One point worth noting is that this was a decision of the High Court by narrow majority and that since the decision, there has been a significant change in the makeup of the High Court with the retirement of Chief Justice Susan Keifel. Going forward, it is uncertain whether any future challenges to state or territory charges, duties or levies will be entertained.

This is an article from our 2024 Edition of Emerging Issues for the Australian Energy and Resources Industry. To read more from this publication, click here.