In all the kerfuffle over the internal Israeli artists' boycott of the Ariel concert hall, someone forgot to tell Ariel mayor Ron Nachman that the municipality under his stewardship has already argued, in court, that it isn't in Israel.
In December 2007, the Petach Tikva court of appeals issued a ruling (Hebrew) in the case of the municipality of Ariel vs. the State of Israel. In its appeal, the municipality demanded to be exempted from paying VAT to the state; its argument was that the settlement doesn’t fall under the legal category of an ‘Israeli citizen’ or ‘An Israeli resident’, and therefore cannot be required to pay VAT.
Alternatively, Ariel demanded to be exempted from paying taxes over the work of its Palestinian employees.
The Petach Tikva court ruled in favor of the state, and Ariel was required to pay its taxes.
It lost the case, but it's trying to have it both ways when it comes to its legal status.