You pay tax on only the difference between the selling price of the new vehicle minus the trade in value. In your example you would only pay tax on $1K.
In the original deal, the tax was shown as over $3K which is totally wrong unless you were paying tax on over $50K. The dealer is trying to hide the fact he is giving much less than $44K for the trade.
It also appears you are rolling negative equity from the trade into the deal. That negative equity will also get taxed.