[Steve Carlton]

You obviously live in a state where you only pay tax on the "boot," the difference between the selling price of the new car and the trade-in value of the old car. I guess the theory is tax was paid on the trade in and you don't have to pay it again on the "upgrade." On leases, taxes are paid up-front, or more commonly on the monthly payment, so the residual value or payoff never has had tax paid on it.

The dealer should know better and probably made an innocent mistake. But that doesn't mean you have to pay for it, as it's not what you agreed to. So their option is to ask you to re-contract and pay the correct amount, cancel the deal, or eat it. They chose to eat it. Otherwise, if they cancelled the deal, they'd have a used car on their hands (the new one you bought) and there's a cost to that as well. If they sold your trade-in already, they may not have been able to cancel the deal too easily, either. You were never obligated to pay the tax.