[Blue17CamaroZL1]

ec1990 has hit it square on the head here in NJ. Even if you aren't fully paid off, you only pay sales tax on the difference between car price and trade price:

I had a 2008 Colorado that I traded in for the 2010 Camaro. I owed $18K+ on the Colorado, and the Camaro was selling for $31,900. The dealer gave me $20K for the trade in of the truck, so even though the dealer was paying off the remaining $18K+ that doesn't factor into the sales tax (at least here in NJ).

So my sales tax was the difference between $32K+ (for tags and docs) - $20K @ 7%.