In reply to Australia's imposing 559 for nine declared after winning the toss, the Kiwis were dismissed for 624 just before lunch, their highest ever total against their trans-Tasman rivals.
At tea, Australia were 128 for two in their second innings, an overall lead of 63, with captain Steve Smith on 61 and Adam Voges on 43.
Kiwi hopes were raised when Australian openers Joe Burns (0) and David Warner (24) fell early, leaving the home side precariously placed at 46 for two, with the injured Usman Khawaja (hamstring) not taking his place at number three.
Taylor was the last man to fall in the New Zealand innings as he attempted to join captain Brendon McCullum (302 v India) as only the second Kiwi to reach 300 in Test cricket.
However, on 290 the right-hander holed out to substitute fielder Jonathan Wells from the bowling of spinner Nathan Lyon to end a 37-run 10th-wicket stand with Trent Boult (23 not out).
He broke through 5,000 Test runs and posted the highest ever score by a visiting player in a Test in Australia, as well as becoming the first Kiwi to pass 200 against Australia.
His innings, beating the 287 of England's Tip Foster at the Sydney Cricket Ground in 1903, was the third-highest ever for New Zealand at Test level.
Taylor faced 374 balls and hit 43 boundaries.
Number 10 Southee gave the Kiwis the lead when he turned Mitchell Starc off his pads for four as they became the first visiting side to reach 600 in Australia since 2011.
Starc was clearly the best of the Australian bowlers and finished with 4-119.
On the third day, he send down a 160.4 kph thunderbolt which is believed to be the fastest ball ever bowled in Test cricket.
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