The relationship between the University and the Patrician, absolute ruler and nearly benevolent dictator of Ankh-Morpork, was a complex and subtle one.
The wizards held that, as servants of a higher truth, they were not subject to the mundane laws of the city.
The Patrician said that, indeed, this was the case, but they would bloody well pay their taxes like everyone else.
The wizards said that, as followers of the light of wisdom, they owed allegiance to no mortal man.
The Patrician said that this may well be true but they also owed a city tax of two hundred dollars per head per annum, payable quarterly.
The wizards said that the University stood on magical ground and was therefore exempt from taxation and anyway you couldn't put a tax on knowledge.
The Patrician said you could. It was two hundred dollars per capita; if per capita was a problem, decapita could be arranged.
The wizards said that the University had never paid taxes to the civil authority.
The Patrician said that he was not proposing to remain civil for long.
The wizards said, what about easy terms?
The Patrician said he was talking about easy terms. They wouldn't want to know about the hard terms.
The wizards said that there was a ruler back in , oh, it would be the Century of the Dragonfly, who had tried to tell the University what to do. The Patrician could come and have a look at him if he liked.
The Patrician said that he would. He truly would
In the end it was agreed that while the wizards of course paid no taxes, they would nevertheless make an entirely voluntary donation of, oh, let's say two hundred dollars per head, without prejudice, mutatis mutandis, no strings attached, to be used strictly for non-militaristic and environmentally-acceptable purposes.

Terry Pratchett, Reaper Man