I am an insurance adjuster. I know each state has their own laws. I can tell you in Virginia, if my insured is at fault for an accident and totaled the other vehicle, when I pay the owner of the vehicle for the cash value, I add 3% (Virginia sale tax) to the settlement. I have never heard of an insurance company only paying the sale tax on just their insured vehicle. I would ask to speak with the adjuster's supervisor.