State Taxation: Unrequited Revenue and the Shadow of Section 90

DOI10.22145/flr.22.3.5
AuthorNeil McLeod
Publication Date01 September 1994
Date01 September 1994
SubjectArticle
STATE TAXATION: UNREQUITED REVENUE
AND
THE
SHADOW
OF SECTION 90
Neil McLeod*
INTRODUCTION
This
paper
asks
whether
much
State taxation is currently avoiding
proper
constitutional scrutiny, including the issue of its compliance
with
s 90 of
the
Commonwealth
Constitution. That provision gives sole
power
to the
Commonwealth
to levy duties of customs
and
excise. The second
part
of the
paper
argues
that
the
current
interpretation of s
90
is in
any
event
not
capable of a sensible application to
State laws.
It
is well
known
that
the States
and
Territories face formidable restrictions
on
their
powers
to raise revenue through taxes. Some of these restrictions are pragmatic
and
political
in
nature: the Commonwealth successfully ejected the States from the field of
income tax
in
1942.1 Other restrictions flow from provisions of the
Commonwealth
Constitution
such
as s
90.
Nevertheless, the States
manage
to raise substantial
sums
of
money, relying
on
the Commonwealth for only about half their revenues.2
Around
a
quarter
of State revenues come from
standard
State taxes
in
the form of
stamp
duty,
pay-roll tax, business franchise licence fees,
land
taxes, financial
institutions duties
and
debits taxes,
~ambling
taxes, vehicle registration fees, driver's
licences
and
other similar imposts. Nearly as
much
again is raised from
other
substantial sources of State revenue. Many millions of dollars are collected annually
in
the form of royalties for mining
and
timber, contributions
by
government
instrumentalities (water, gas, electricity), departmental fees
and
charges, fines
and
penalties,
and
interest payments.4
These latter type of receipts are
not
normally described as taxes. This
means
they
regularly escape legal analysis as taxes. But it does
not
necessarily
mean
that
they are
not
in
fact taxes. This
paper
argues
that
a significant proportion of State revenue,
..
1
2
3
4
Associate Professor, School of Law,
Murdoch
University .
See the
First
and
Second
Uniform
Tax
Cases
(1942)
65
CLR 373
and
(1957)
99
CLR 575.
For example,
in
Western Australia, recurrent revenue for 1992-93
was
$4,982,907,000
of
which
only
$2,220,703,000 came from the Commonwealth: Western Australia, 1993-94
Budget
Paper
No
2,
Consolidated
Fund
Estimates
(1993) at
7.
$1,542,716,000
was
raised in Western Australia from
such
taxes
and
licences
in
1992-93.
Western Australia, above n
2.
$1,219,488,000
was
raised from
such
sources
in
Western Australia
in
1992-93. Western
Australia, above n
2.
1994
State
Taxation:
Unrequited
Revenue
and
the
Shadow
of s
90
477
currently classified as administrative charges
and
fees,
may
in
fact
be
taxation revenue
according to
proper
legal analysis. The failure to recognise this
may
mean
that
much
of
this revenue escapes the scrutiny appropriate to taxation from a constitutional
and
public finance perspective. The legal definition of tax is very broad. As
we
shall see,
it
is
enough
that
the
payment
in question is compulsory, imposed
by
the state,
and
is
neither requited
nor
a penalty for breach of law.
State fees
and
charges which escape recognition as taxes
may
as a consequence fail
to
meet
some of the formal requirements for the exercise of taxation powers
under
State constitutions. For example, laws imposing taxation should
deal
only
with
taxation,s taxes should
be
paid
into consolidated revenue,6 they cannot
be
imposed
without
parliamentary sanction7
and
where they are set
under
delegated authority
they
must
be
appropriate to the legislative
purpose
for which the delegation
has
been
made.s
But more fundamentally, if State fees
and
charges go unrecognised as taxes, there is
a
danger
that
they
may
actually breach s 90 of the Commonwealth Constitution,
with
the consequence that constitutionally the States
may
have
no
power
to impose them.
Section 90 prevents States (and Territories9) from levying duties of customs
and
excise.
This provision
has
grown
in significance over the years as the result of the increasingly
broad
interpretations of the
word
excise
adopted
by
the
High
Court. The meaning of
excise
has
recently received another coat of
paint
from the
High
Court
in
Capital
Duplicators
Pty
Ltd
v ACT
[No
2].10
In
that
case, three of the seven judges
argued
for a return to
an
interpretation of
excise which
would
see it limited to taxes
on
the production of goods. The majority,
in
what
may
prove
to have been a last ditch effort, clung to the current definition of excise
which extends it to include taxes
on
the distribution of goods. But the most worrying
aspect of the majority's decision,
apart
from its practical effect
on
State financial
powers, is the dubious
and
ambiguous link which they
appear
to
draw
between
the
purpose
of taxation legislation, its economic effect,
and
its constitutionality
under
s 90.
The second
part
of this
paper
argues that this approach to the interpretation of excise is
without promise, whereas the approach of the minority judges
might
be
more
appropriate from a legal perspective
and
from the point of view of the States in their
quest for
mor~
adequate revenue raising powers.
UNRECOGNISED
STATE TAXES
No
matter
what
State (or local) governments
may
choose to call them, compulsory
payments which they levy from
us
are taxes, unless they are requited
by
services
or
are
5
6
7
8
9
10
See, for example, s 46(7) of the Constitution Acts
Amendment
Act 1899 (W A). While s 46(9)
protects
the
validity of laws which
do
not
conform
with
that
requirement, it
would
nevertheless be inappropriate for Parliament to flout it.
See, for example, s 63 of the Constitution Act 1889 (WA)
and
compare
that
provision
with
the
High
Court's interpretation of s
81
of the Commonwealth Constitution
in
Australian
Tape
Manufacturers
Association
v
Commonwealth
(1993)
112
ALR 53.
Australian
Tape
Manufacturers
Association
v
Commonwealth
(1993)
112 ALR
53
at
62.
Marsh
v
Shire
of
Serpentine-Jarrahdale
(1966) 120 CLR 572.
Capital
Duplicators
Pty
Ltd
v ACT
[No
1]
(1992) 177 CLR
248.
(1993) 178 CLR 561.

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