The High Court has invalidated Victoria's tax on electric vehicles, ruling that only the Commonwealth could enact such legislation. 

The decision, reached by a 4-3 majority, declared the Zero and Low Emission Vehicle (ZLEV) Distance-based Charge Act 2021 as an “inland tax on goods” falling within the definition of an excise under section 90 of the Constitution.

The legal challenge was initiated by two electric vehicle owners, Chris Vanderstock, a nursing manager, and Kath Davies, an engineering consultant. 

They criticised the state Act, referring to it as “the world's worst EV policy” and a hindrance to emissions reduction and improved air quality. 

Under the Act, owners were required to submit odometer readings within 14 days of the legislation's commencement on July 1, 2021. 

The charge imposed was 2.5 cents per kilometre for electric vehicles, like Mr Vanderstock's, and 2 cents for plug-in hybrid electric vehicles, such as Ms. Davies'. 

The charges increased by 0.1 cents per kilometre for the 2023 fiscal year.

Approximately 15,000 car owners were affected by this tax, making it a subject of significant interest regarding how electric vehicles are taxed and which level of government can collect revenue from their use.

Victoria and other states argued that it was a tax on an activity, thus not falling under section 90. 

If they had succeeded, it could have paved the way for other states to enact similar legislation to ensure that all vehicle owners contribute to road construction and maintenance.

The High Court said that the determination of whether it was a tax on goods hinged on its close relationship to the use of Zero and Low Emission Vehicles (ZLEVs) and its impact on ZLEVs as articles of commerce, including its potential to affect demand for these vehicles.

In dissenting judgments, the majority was accused of an “abandonment of past authority”, citing cases “which held that particular taxes on goods were not a duty of excise” that “must now be wrong”.

Victoria had argued other charges that could be challenged on the same basis, such as “duties on the transfer or conveyance of goods … motor vehicle duties and vehicle registration charges, commercial passenger vehicle levies, gaming machine levies and ‘point of consumption’ betting taxes and waste disposal levies”.

“Without any empirical or economic evidence” the judges said the majority had concluded that a tax of around $300 was “reasonably anticipated to have a real and substantial economic effect in the market for the sale of goods worth up to $300,000 each”.

They accused the commonwealth of a “remarkable and entirely unprecedented” power grab by arguing that it “had exclusive power to impose consumption taxes”.