The founders of Australia's oldest micro-nation, the Hutt River Province in Western Australia, have lost an appeal against an order to pay more than $3 million in taxes.

Leonard Casley, who is also known as Prince Leonard, and his son Arthur lost a Supreme Court battle against the Australian Tax Office earlier this year, which had demanded they pay income tax for the eight financial years between June 2006 and 2013.

They appealed against the decision, but the matter was dismissed by the Court of Appeal.

The pair represented themselves in court.

Prince Leonard, 91, set up the independent state of Hutt River 47 years ago, after a stoush with the State Government over wheat production quotas, and anointed himself sovereign.

Prince Graeme has taken over sovereignty of Hutt River from his father. ( ABC News: Ricky Harvey )

The state is not legally recognised by the Australian Government.

Prince Leonard abdicated in February, handing over sovereignty to his son Graeme.

Outside the court, Graeme Casley said he was disappointed with the decision.

"None of our arguments were looked at or discussed and we put a lot of hard work into those discussions and submissions," he said.

He said the family would continue to fight.

"We will consider taking it to the High Court, we'll regroup and look at our options," he said.

"The High Court is one of them but also you've got the same law precedent and how they're just going to ignore our arguments.

"So we'll see what happens."