The founders of Australia's oldest micro-nation, the Hutt River Province in Western Australia, have been ordered to pay more than $3 million in taxes owed.

The former self-proclaimed sovereign Prince Leonard Casley and his son Arthur lost a Supreme Court battle against the Australian Tax Office (ATO) on Friday, which had demanded they pay income tax for the eight financial years between June 2006 and 2013.

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.

He abdicated in February this year, handing the sovereignty to his son Graeme.

In a brief court hearing this morning, Justice Rene Le Miere dismissed an attempt to set aside the tax office's payment demand.

The pair were not present in court, but listened from Hutt River via a telephone link.

The province near Northampton in WA's Mid West, about 500 kilometres north of Perth, is not legally recognised by the Australian Government.

Justice Le Miere also ordered Prince Leonard to pay $2.7 million to the ATO, while his son was ordered to pay $242,000.

Prince Leonard is 91 and handed over the reins due to ill health. ( ABC News: Sarah Taillier )

He said their argument that the Supreme Court did not have jurisdiction over them because they are the "sovereign of, or citizen of, the Hutt River Province" had "no legal merit".

"Anyone can declare themselves a sovereign in their own home but they cannot ignore the laws of Australia or not pay tax," he said.

Justice Le Miere criticised their submissions, describing them as "gobbledegook" and saying they ranged from "the merely irrelevant to the bizarre".

The principality of Hutt River is not legally recognised by the Australian Government. ( ABC News: Eliza Borrello )

"Such as the statement that the ATO has been utilising a form of torture known as 'Old Hags Nagging'," he said.

"It is not sensible or a proper use of judicial resources to recite and analyse all of the defendants' utterances masquerading as legal submissions.

"It is sufficient to say that none of them raises a defence to the (tax office's) claims."

They would also have to pay an undisclosed sum in interest and court costs.

'Royal' family weigh appeal

Prince Graeme took over the throne from his father this year. ( ABC News: Sebastian Neuweiler )

Graeme Casley told the ABC he was both surprised and disappointed by the Supreme Court decision.

"We pay tax where we feel it is due," he said.

"When Dad had commercial ventures in Western Australia, he paid tax on those.

"But tax on goods and services here with the principality, which is an independent country, we are surprised they would pursue that."

He said the family fought the case on legal grounds and principle and would consider lodging an appeal with either the Court of Appeal or the High Court.

He said the decision had raised concern for the future of the principality.

"We're going to be tied down as we were with the Supreme Court ATO action over the last five months," he said.

"Like most commercial ventures a lot of cash isn't just laying idle."

Hutt River Principality vs the ATO

The principality has long been pursued by the Australian Taxation Office.

In 1977, following repeated demands for payments from the ATO, the province declared war on Australia, which it withdrew several days later.

The principality attracts tourists from around the globe, who make the pilgrimage to have their passports stamped and purchase the local currency, the Hutt River dollar.