He wants to challenge Mark Schwarzer for the No 1 shirt next term, reports the Daily Mail.
"It was flattering that Liverpool showed a lot of interest and of course I gave it some serious consideration," said Taylor.
"But with an offer on the table from Birmingham it was always going to be the case that I would stay.
"Liverpool offer the Champions League and everything else but it would have been a situation as a No.2 goalkeeper and on a one-year contract."