Tasmanian councils could lose hundreds of thousands of dollars after the High Court declined to hear an appeal against a ruling that exempted some charitable organisations from paying rates, Hobart's Lord Mayor says.

Key points: Hobart's Lord Mayor wants the State Government to come up with a fair definition of "charity"

Hobart's Lord Mayor wants the State Government to come up with a fair definition of "charity" Kingborough Mayor says rates could rise after the failure of the High Court appeal

Kingborough Mayor says rates could rise after the failure of the High Court appeal There are concerns other groups like UTAS could apply for exemptions on rates on all properties

The High Court declined on Wednesday to hear the appeal by Tasmanian councils against a 2018 Supreme Court ruling that found not-for-profit organisations like retirement villages should be exempt from paying council rates.

Retirement village operator Southern Cross was facing a $564,000 rates bill hike and successfully took its case against the local government charges to the Supreme Court last year.

Pensioners Suzanne and Martin Watkins questioned why some low-income earners pay rates, while others will be exempt.

"Last year we paid over $1,200 for our rates, and being pensioners, it's a big amount to pay," Ms Watkins said.

"They tend to go up every year anyway which you have to take into your budget, which on a pension doesn't go up every year, so that's difficult."

People in a retirement village "don't have to pay anything" but could still access "the roads and everything we use", she said.

"It's all the rest of the infrastructure that council supply like the shopping centres, the roads, the footpaths; they don't contribute towards that and we reckon that's not quite right.

"If everyone paid their fair share of rates, our rates would be half what we pay now."

Pensioners Suzanne and Martin Watkins believe if everyone "paid their fair share, our rates would be half what we pay now". ( ABC News: Jessica Hayes )

Hobart Lord Mayor Anna Reynolds said the decision would force a council rethink.

She said Hobart City Council would need to review its $130 million budget in May, and that the Clarence, Kingborough and Meander Valley councils would likely need to do the same.

"We'll have to work out how we make up the funds," she said.

"About $80 million comes from rates, so when we have more and more organisations claiming the charitable rates exemption, it does make it challenging."

The Fairway Rise Lifestyle Village on Hobart's eastern shore is one of the homes caught up in the rates battle. ( Supplied: Southern Cross Care )

She said the decision posed a question of fairness.

"If you're a pensioner living in an independent unit you don't have to pay rates, but if you're a pensioner living at your own house in [the Hobart suburb of] Lenah Valley, you do have to pay general rates," she said.

"Even if you're not paying rates you still want great footpaths, good facilities and we can't provide that unless we continue to ensure a strong rates base.

"We need the State Government to better define what is a charity and who can apply for a charitable rates exemption.

"We have to ensure local government can provide modern infrastructure and a high standard of parks, festivals and facilities."

On top of this hit to the budget, Mayor Reynolds said Tasmanian local governments also received "record low" grants from the State Government compared to other states and territories.

She said she expected the University of Tasmania would apply for charitable rates exemption, which would mean a loss of more than $1 million a year.

Retirement home owners speaks at a meeting protesting against council rates in Hobart in 2016. ( ABC News: Pablo Vinales )

'Grossly unfair' rates exemption: Kingborough mayor

Kingborough Mayor Dean Winter said the failure of the High Court appeal presented a huge financial challenge for all councils, and rates could rise.

"I can say that the decision by the High Court yesterday probably leaves the council around $500,000 worse off next financial year, and that will continue to get worse over subsequent years," he said.

Kingborough Mayor Dean Winter is warning of increased council rates. ( ABC News: Peter Curtis )

He agreed with the Hobart Lord Mayor that the issue was about equity for all ratepayers.

"What it means is some people will not have to pay rates at all, and that means that the remaining ratepayers are going to need to pick up the cost, and that is grossly unfair in my view," he said.

Alderman Winter said councils would face a clear choice between adjusting revenue through increased rates, or reducing expenditure on projects and services.

"Our council will consider whether it needs to increase rates for all other residents or whether it needs to look at staying in deficit for longer, or at least look at its capital infrastructure program," he said.

"There's a lot of things that our council is going to need to consider."

Southern Cross Care Tasmania's Richard Tyberek said residents at the aged care facility were relieved by the outcome.

"It means that our residents can certainly breathe a sigh of relief," he said.

"We provide a particular service that is far in excess of simply providing accommodation."