Councils will have £77m a year protected from their waste budgets, after a judicial review ruled they should remain exempt from paying VAT on commercial waste collections.
Council leaders have welcomed the ruling, saying it could have cost local authorities millions if the decision went the other way.
A private waste company had brought the High Court challenge, looking to end VAT exemptions for councils.
The Local Government Association (LGA) warned the loss of exemptions would have put pressure on councils to absorb VAT into existing charging levels.
Environment spokesman for the LGA, cllr Martin Tett, said: ‘This is fantastic news and a huge victory for councils and it will mean savings of many millions to them at a time when many local authorities have experienced substantial budget reductions. The LGA has been at the forefront of campaigning for this exemption.
‘Councils want to do everything they can to support local businesses and potentially absorbing the extra 20% would have had a major impact on budgets, meaning them spending less on things like caring for old people and fixing potholes.’