The federal government's mining tax is "a crude form of control of the states", Andrew Forrest's lawyer told the High Court on Wednesday.
David Jackson, QC, appearing for Andrew Forrest's Fortescue Metals Group, told the court the tax's uniform application across the states was unconstitutional because it imposed different tax rates on miners in different states and territories.
This is because the tax is calculated based on how much mining companies pay in mining royalties, which differs across the country.
"One can't avoid the fact that it is state-based," he said.
States were being unfairly targeted by the government's tax, Mr Jackson said, because it eroded their ability to give assistance to, or reduce the royalties paid by, particular mining companies.
"It interferes with their ability to choose what they want to do with their assets," Mr Jackson said.
The attorneys-general and solicitors-general of Queensland and Western Australia have joined the action. They argue that because mining royalty regimes differed among states before the mining tax took effect on July 1, 2012, the effect of the tax was discriminatory.
Under the constitution, Parliament must not impose taxes in a way that discriminates between states and territories.
The minerals resource rent tax applies a 22½ per cent tax on miners after they have reached $75 million in profit (profit meaning revenue minus expenditure). Mining companies are also eligible for partial profit offsets when they raise between $75 million and $125 million.
The government argues that the tax is applied uniformly across Australia, and therefore there is no discrimination between states.
It also argues that the tax is imposed only on mining companies, not on people at the higher level of government, and thus cannot interfere with the ability of the states to make their own choices, including how they encourage economic development.
Commonwealth Solicitor-General Justin Gleeson, SC, is expected on Thursday to outline the federal government's position, including the argument that any inequalities in the amount of tax paid by mining companies in different states are caused by the royalty regimes of the states, rather than by the Commonwealth's mining tax.