Published on 17/05/2007

Tax Customs Excise

Taxation: s 51 (ii) & 55 / Customs & Excise: s90

Section 51 (ii) Taxation Power
51 (ii). Taxation; but not so as to discriminate between the states

1. Restrictions to Form - Section 55
55. Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect.
•   House of Reps initiates tax bill, & Senate can’t amend, only reject. This section stops the House of Reps from abusing the “non-amendment” power.
•   Power would stop Cth from passing omnibus tax acts that taxed income, legal transactions & retail sales for example.

Invalidity of amending acts Air Caledonie (1988)
•   S55 applies to composite legislation, as they stand after enactment
•   Requires that the amending act & the amended principle act deal only with the imposition of taxation
•   Correct to consider the effect of the amending act when combined with the principal act.
•   Amending act will be rendered invalid, & principal act will stand.
•   In this case, principal act dealt only with Migration matters & the amendment introduced a migration tax. HC held amending act invalid.

2. What is a tax?

Classic Definition Matthews v Chicory Marketing Board (1938)
•   “a compulsory exaction of money by a public authority for public purposes, enforceable by law, and not a payment for services rendered.” Latham CJ
•   not an exhaustive statement of what constitutes a tax (see below)

Collection by non-public authority Air Caledonie (1988)
•   Attribute of “fee for service” doesn’t preclude tax, if person is given no choice & amount has no discernible relationship to the value of what’s acquired.
•   At least, the portion above the value of the service will be considered a tax.
•   A levy can be a tax even if imposed for non-public purposes
•   The collection of the tax need not be taken by a public authority
•   Migration Act imposed an “immigration fee” for all airline passengers entering Australia, to be collected by the airlines & paid as debt owing to the Cth.
•   Australian citizens have a right to re-enter, without any fee, so couldn’t be a fee for a service. Held to be a tax

Fee not payable to Cth Australian Tape Manufacturers v Cth (1993)
•   Tax can include a fee that is not collected by the govt and is not remitted to the govt at any stage.
•   Public purpose includes a decision made by the Cth that money should be distributed in a certain way in the public interest.
•   Copright Act amended to impose a royalty on vendors of blank tapes. Fee paid to collecting society, which then distributed it to copyright holders.
•   Wasn’t illegal to copy tapes at home, so consumers were not acquiring any rights
•   Vendor initially paid fee, but didn’t acquire any rights.
•   “Did not fall within any of the well-recognised descriptions of fees or charges which fall outside the concept of a tax.” Held to be a tax.

Fee for service Airservices Australia v Canadian Airlines International (1998)
•   Airline paid compulsory air service charge
•   Complained that they paid for air services across the country, despite using only 6 of the 32 airports.
•   There was a system in place (although admittedly less than ideal) to try & charge appropriate fee for services used.
•   Wasn’t intended to be revenue raising, rather intended only to cover the cost of providing the service.
•   Held to be a fee for service, not a tax.

Not arbitrary MacCormick v Federal Commissioner of Tax (1984)
•   For an impost to be a tax, it must be possible to differentiate it from an arbitrary exaction.
•   This can only be done if there are ascertainable criteria by reference to which the liability to pay the impost is imposed.

3. Characterisation & the Power to make laws w.r.t taxation

Leading case Fairfax v Federal Commissioner of Taxation (1965)
•   In characterising a law, court has regard to its operation, what rights & obligations it creates, & how it operates within the permitted area of power.
•   It matters not that the provisions which so operate may be intended to achieve some other purpose.
•   A tax doesn’t cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed.
•   “the substance of the enactment is the obligation which it imposes, and the only obligation imposed is to pay income tax. In substance as in form, therefore, the section is a law with respect to taxation.” Per Kitto J
•   exempted income of super funds from tax if they invested in govt securities. Obvious legislative policy to encourage investment in public securities.

Characterisation example Northern Suburbs General Cemetery Reserve (1993)
•   Claimed that Cth Act was invalid as it was not a tax, but was sufficiently akin to a fee for service to distinguish it from a tax. Also argued charge not for purpose of raising revenue.
•   Objects of the act were improvement of workforce, achieved by guaranteeing minimum expenditure on quality training. Employer liable to pay charge for shortfall of training expenditure per employee.
•   No particular benefit to be derived for individual employers → no fee for service
•   The fact that the revenue-raising burden is merely secondary to the attainment of other object isn’t reason for treating charge as other than a tax.
•   “If a law on its face, is one w.r.t taxation, the law does not cease to have that character simply because Parliament seeks to achieve, by its enactment, a purpose not within the Cth legislative power.” Mason CJ et al
•   HC held unanimously to be a tax, so valid under s 51(ii)

Section 90 - Excise
90. Exclusive power over customs, excise and bounties
•   Remembering the taxation power is concurrent, but this is exclusive. So a state law that is a tax, & held to be an excise duty will be automatically invalidated.
•   Question whether levy is an excise will probably arise to challenge the validity of state legislation, because s 90 prohibits them from levying such a duty.

Statement of broad view Parton v Milk Board (1949)
•   Broad view is that s90 was intended to give Cth broad financial control over the pricing of commodities. Any taxes affecting local & international production, when imposed by States, interfere with the Cth power.
•   Extends to a tax upon a commodity at any point in the course of its distribution before it reaches the consumer.
•   Vic Act required dairy operators to pay contributions into a fund at a set rate per gallon, to meet expenses of Vic Milk Noard. Board regulated milk supply & trade.
•   Charge held to be an excise duty
•   The board performed no particular service for the tax payers.

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Continued

Current Position Ha v NSW (1997)
•   Endorses broad definition of excise: A tax on the production, manufacture, sale or distribution of goods prior to consumption, whether of foreign or domestic origin.
•   Any tax on a step in production of goods up to the point of sale is an excise, & in order to determine whether a tax meets this description, one has to consider the practical effects of the tax.
•   Didn’t overrule, but did confine Franchise fee cases exclusively to their facts.
•   A flat fee is more likely to be seen as a licensing fee in the appropriate industry. When a fee becomes a % of sales, it begins to appear more like a tax.
•   NSW required a tobacco license fee composed of a fixed portion & a backdated levy calculated as % of tobacco sold. P argued invalid as it was an excise.
•   The HC held it to be an excise. The the fee was too high, the period of backdating (2 mths) was too short & period of license (monthly) was too short. Those factors pointed to a tax on tobacco.

Consumption Taxes Ha v NSW
•   Although not explicit, obiter shed doubt on the use of consumption taxes
•   Given practical effects doctrine, it’s almost certain that any consumption tax would be a tax on the sale of goods given there’s no sensible way to tax consumption, without passing on the tax to the point of sale.

Franchise cases
•   After Ha effect has been to practically invalidate ‘Criterion of liability’ reasoning.
•   Ha didn’t overrule them completely, but basically said they disagreed with the reasoning by limiting them to their factual situations.
•   Effect: only backdated license fees imposing exactly the same rates, license periods & calculation methods will survive the test.

Dennis Hotels v Victoria (1960)
•   Backdated license fee was not an excise, because the criterion of liability was not the quantity of the goods currently for sale, but rather the charge was characterised as a license fee to conduct a business.
•   Court considered the ‘form’ and not the ‘substance’ of the State laws imposing the charge.
•   HC upheld validity of Vic legislation which imposed a license fee to conduct a liquor retail business calculated as 6% of the value of all liquor sold in a previous 12 mth period.
•   Concluded that it wasn’t a tax on alcohol being sold, it was a fee for engaging in the practice of selling alcohol.

Dickenson’s Arcade v Tasmania (1974)
•   Tobacco retailers license fee
•   Fee set at 2.5% of retail value handled by retailer on a 6mth backdated basis
•   Majority upheld the reasoning in Dennis Hotels above.
•   Note that even then this lay on very weak doctrinal foundations. 2 justices said they would have held the fees invalid as excise, in absence of authority.

Phillip Morris (1989)
•   Majority applied Dennis Hotels on a special basis
•   Expressed the view that alcohol & tobacco invited special regulatory control
•   Not an excise if it can be “properly characterised as a fee for carrying on business & if it is calculated by reference to sales made a during a period other than the period of the license.”

Modern thinking
Capital Duplicators v ACT (1993)
•   Endorsed the broad view in Parton
•   Found to be an excise because it was directed towards raising revenue, not merely an element in a regulatory scheme
•   The fact that it involved an advance fee, the backdating period was very proximate, and the large size of the fee, were all relevant.
•   Distinction between duties of custom & duties of excise dependent on step that attracts the tax. Inland taxes Ie. Production, manufacture, sale or distribution in the case of excise. Importation or exportation for customs duties.
•   License to sell X-rated videos ($50/mth + 40% of wholesale value) by wholesale or retail was in substance a tax on the production of such videos.

Hematite Petroleum v Vic (1983)
•   Endorsed broad view as enunciated in Parton
•   4 factors pointed to it being tax (per Mason)
1.   levied only on (3) trunk pipelines
2.   already had permission to operate the pipes
3.   fee is extraordinarily large, & bears no relationship to fees for operation of other pipelines ($40/km for others)
4.   fee is payable before an essential step in production can occur.
•   “it is an exaction of such magnitude imposed in respect of a step in production in such circumstances that it is explicable only on the footing that it is imposed in virtue of the quantity & value…produced.”
•   “a tax on goods sold, like a tax on goods produces, is a burden on production becase it enters into the price of the goods. As the tax increases the price of the goods to the ultimate consumer…it is a burden on production” per Mason J
•   Argued that a section inserted into a Vic Act, imposed a tax which is a duty of excise & therefore invalid by virtue of s90.
•   Tax was called a “pipeline operation fee” of $10mill annually.