Baxter v Commissioners of Taxation (NSW),[1] and Flint v Webb,[2] were the last of a series of cases concerning whether the States could tax the income of a Commonwealth officer which had resulted in conflict between the High Court and the Privy Council.

[13] The High Court held in D'Emden v Pedder that the salary receipts of federal government employees were not subject to state stamp duty.

[16] Wollaston's case was cited in argument,[17] as that the applicability of the principle in McCulloch v Maryland,[14] to the Constitution was negatived by the decision of the Privy Council in The Bank of Toronto v Lambe.

[21] The Court held that, consistent with McCulloch v Maryland the Australian Constitution contained an implied immunity of instrumentalities, where neither the Commonwealth nor State governments could be affected by the laws of the other.

[22] In Deakin v Webb the High Court adhered to what it had said D'Emden v Pedder, that the principles to be applied in interpreting the Australian Constitution, as to the respective powers of the Commonwealth and the States, were substantially the same as those laid down in McCulloch v Maryland.

Each of the Judges rejected an application for a certificate to appeal to the Privy Council, finding that the determination of Constitutional questions was the responsibility of the High Court.

[23] The Victorian Commissioner of Taxes did not accept the decision of the High Court and assessed the taxable income of Mr Outram as including the salary he received from the Commonwealth as the Deputy Postmaster-General.

Similarly the Court of Petty Sessions of Victoria had followed the Privy Council and had found that Flint was liable to pay Victorian income tax in respect of his salary in the Postmaster-General's Department.

[29] The High Court held that it was, in the absence of a certificate under s 74 of the Constitution,[10] the ultimate arbiter on all questions concerning the respective powers of the Commonwealth and the States such that it was not bound to follow the decision of the Privy Council in Webb v Outtrim.

And no disrespect is implied in saying that the eminent lawyers who constituted the Judicial Committee were not regarded either as being familiar with the history or conditions of the remoter portions of the Empire, or as having any sympathetic understanding of the aspirations of the younger communities which had long enjoyed the privilege of self-government.

[32] The majority held that the Privy Council did not appear to have considered the first line of reasoning from Deakin v Webb that an attribute of sovereignty was that the only interference with the Commonwealth's powers was that prescribed in the Constitution.

[33] Part of the criticism of Webb v Outtrim by the majority was by reference to the statement that "The American Union, on the other hand, has erected a tribunal which possesses jurisdiction to annul a Statute upon the ground that it is unconstitutional"[26] The majority pointed out that the United States Constitution contains no express provision to endow the Supreme Court with special powers,[34] and the relevant provisions were identical with those creating the High Court in Australia.

[35] The success of the argument put by Higgins KC on behalf of his clients in Deakin v Webb did not sit well with him, writing in 1905 that "The man in the street is startled and puzzled.

"[36] Having been appointed to the High Court along with Isaacs J in 1906, Higgins J set out his dissenting views in Baxter v Commissioners of Taxation (NSW) that: It is true that I have held, and still hold, a strong opinion with regard to the judgment of Marshall CJ in McCulloch v Maryland – the judgment on which Deakin v Webb was based – although I utter the opinion with a feeling that it will be regarded by some as almost blasphemy.

[41][42] Despite the failure to obtain certificates under s 74 of the Constitution,[10] the NSW and Victorian commissioners of taxation sought leave to appeal to the Privy Council.