The council had brought action against Australian Pacific Airports and the Commonwealth over a long-running stoush over underpayment of rates.

The issue stemmed from the privatisation of Australian airports in 1998 after which the federal government entered into long-term leases with airport operators.

Land owned by the Commonwealth is not subject to council rates or state land tax under the Constitution.

However, due to the commercial nature of the airport business, the Commonwealth made it a requirement for airport lessees to pay council a rates equivalent which they would otherwise have to pay if the airport site was not on Commonwealth land.

This is not a legal requirement but part of the lease arrangements.

During the hearing, the Commonwealth and APA argued the council had limited rights to dispute the amount in rates paid as it was not party to the lease.

The amount in dispute from the Northern Midlands Council was $1.79 million.

The case was heard in tandem with the Clarence City Council which had lodged a dispute with the court on similar grounds as the Northern Midlands Council.

Both councils during the hearings argued they had been shortchanged rate payments after the value of the airport sites increased in 2013 following a review by the state's Valuer-General.

Airport owners engaged private valuers who used different methodologies to arrive at different valuations.

Justice David O'Callaghan dismissed both cases.

The dispute between the Northern Midlands Council and Launceston Airport started in 2013.

The council had lobbied senior ministers of the federal government, including the Prime Minister, on the issue over several years.

Prior to the court case, the council claimed the tally of unpaid rates from the airport owners grew by $285,000 a year.

The City of Launceston Council has a 10-per-cent shareholding in Launceston Airport.

Justice O'Callaghan in his judgment said he would make further directions regarding court costs.

The Northern Midlands Council was contacted for comment.