Ai, who spent 81 days in secret detention last year as police rounded up dissidents amid online calls for Arab Spring-style protests in China, was barred from attending the Beijing Chaoyang court as the ruling was delivered.
Speaking at his studio in Beijing after receiving the news from his lawyer, the outspoken 54-year-old told reporters he was "very disappointed" by Friday's ruling -- which had been widely expected -- and would appeal it.
"China keeps telling other countries they are a rule of law country... But we only hope they implement the laws they themselves drew up," he said.
Ai, an internationally acclaimed artist whose works have been exhibited around the world, has accused China's Communist regime of seeking to "crush" him for his social activism.
On his release from detention last year he was accused of tax evasion linked to Fake Cultural Development, a company that he founded but which is now registered in his wife's name.
Last November the Beijing tax bureau issued a bill for 15 million yuan ($2.4 million) in alleged back taxes and penalties against the company, prompting an outpouring of public support for Ai.
Supporters came from far and wide to help him raise the $1.3 million he needed as a bond to challenge the charge, with some even throwing money over the walls into his courtyard home, including banknotes folded into paper planes.
At a June 20 hearing, lawyers for Fake argued that the Beijing tax bureau had acted illegally in fining the company.
But on Friday Ai said the court had "completely rejected" the challenge, and that he did not expect future legal efforts to succeed.
"This is not an independent legal system, so the result will definitely be that we will lose," said Ai. "Their whole accusation has no basis, there are so many violations of procedure and their calculation is all based on no facts."
The court on Friday morning rejected lawyers' requests to see evidence against the company, produce witnesses and have an independent auditor verify figures, said lawyer Pu Zhiqiang, calling the decisions inappropriate.
The legal team planned to sue the court for acting improperly and would also appeal the decision, he said.
"This is not only for this company. It's also for all the taxpayers and for others who might be punished," he said.
Ai was barred from attending last month's hearing due to a year-long bail period during which his movements were severely limited and police were permanently stationed outside his home.
The bail conditions expired last month, but he has been told he is still not allowed to exit the country -- leaving him unable to see his own exhibitions overseas.
On Friday police were stationed outside his home in Beijing and there was a heavy police presence outside the court, underscoring the sensitivity of the case. An AFP journalist was ordered to leave the area.
Before his detention the burly artist travelled extensively, holding exhibitions of his installations, sculptures and photographs in many countries around the world.
The value of his work has shot up since his detention thrust him into the global spotlight, and in October Britain's influential Art Review magazine named him the most powerful figure in the art world.
His latest high-profile piece of work is a pavilion for this year's London Olympics that he helped build with Swiss firm Herzog & de Meuron, with which he had previously collaborated to create Beijing's Bird's Nest Stadium.
Ai contributed to the design of the pavilion at London's Serpentine Gallery, reportedly using Skype to coordinate with the company as he was unable to leave Beijing.
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